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CHAPTER

7
The Marketing Plan
After studying this chapter, If a representative of a business called
you should be able to . . . In the SPOTLIGHT
Checkerboard contacted you, what do
Checkerboard Ltd.: Building
you think that person might be selling? a Bigger Share of a Shrinking
7-1.  Describe small business
marketing. Arthur Chase launched Checkerboard in Market
7-2.  Identify the components of a 1989, after serving as president of Chase www.checkernet.com
formal marketing plan. Paper Company. When he started his
7-3.  Discuss the nature of the new business, which prints invita- or invitation to your ­wedding or another
marketing research process. tions to special events, Arthur important occasion.
7-4.  Define market wanted a name that did not tie him Micah Chase joined his father’s
segmentation and discuss its exclusively to paper products. He ­company in 1992. He had studied artificial
related strategies. and his wife were brainstorming intelligence in college and was enjoy-
7-5.  Explain the different names for the company with an ing his work in Silicon Valley when his
methods of forecasting sales. artist friend who suddenly noticed father called. His immediate reaction to
a coat with a checkerboard pattern hang- Arthur’s offer was negative, and it stayed
ing in the room and declared, “That’s it!” that way for quite a while. Finally, Micah
Checkerboard Ltd. was born. So, if you do agreed to work with his dad, not expect-
get a call, it may be about preparing that ing to stay at Checkerboard forever. But
announcement about your graduation he found himself caught up in his father’s

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 vision and in his own ability to introduce new ideas to the firm. a­ lternative distribution channels, and new promotional
Micah became CEO in 1994, eventually buying out his father, tactics. All this would not happen overnight. Although he
who went on to a political career, serving as a state senator in was late to the table, Micah did move the company into
Massachusetts. electronic invitations, starting eInvite.com as a separate
Micah found ways to grow Checkerboard, landing it on unit. In 2012, Checkerboard introduced a new product line
Inc. magazine’s list of fastest-growing companies in the United at the International Gift Fair in New York City that included
States more than once. Given his technology background, Micah personalized pillows, plates, and wall décor for homes
recognized early on that paper invitations were being replaced and events.
by electronic ones. He looked into electronic alternatives as Checkerboard’s culture has been described as uncon-
the Internet was becoming widely accessed. As a small, inde- ventional. Micah coined the word “unintuitive” to explain the
pendent firm, he could not justify the resource investment that ­strategies he has introduced. The focus is on craftsmanship com-
would have been required at that time. In the following years, bined with cutting-edge technology. But it may be his grasp of
Micah observed many competitors redefining their purpose the market and of his customers’ changing needs that is most
or exiting the industry. As a result, Checkerboard increased its likely to ensure Checkerboard’s survival. According to Micah,
market share, but with the realization that the entire market for “We are in the business of communication between people dur-
the paper products that the company offered was in decline. ing life’s critical moments.”
Checkerboard would have to change or die.
Sources: Based on http://www.checkernet.com, accessed January 13, 2015; personal
Micah knew that he needed new products. And he knew communication with Arthur Chase, October 31, 2014; and personal communication
those products would demand a different pricing strategy, with Micah Chase, December 8, 2014.

I s Arthur Chase, founder of Checkerboard Ltd., a born salesman? After all, he not
only built a company from scratch, selling to customers who could have bought
from many other suppliers, but he was also able to sell himself and his political views
to voters in order to become a Massachusetts state senator. It’s clear that some people
are born to be entrepreneurs, but you’ve discovered in this book that entrepreneurship
and small business management are skills that can also be learned. The same thing can
be said for selling. However, a critical lesson that business owners must learn is that
marketing a product or service involves more than simply selling it. If you want to be a
successful business owner, you need to put yourself in the shoes of your customers and
figure out why customers buy what they do. In other words, you need a marketing plan. small business
The features that we discuss in this chapter are important components of any well- marketing
Business activities that
written plan. First, it is appropriate to answer a few basic questions about marketing: direct the creation,
•• How can marketing be defined for a small business? ­development, and delivery
•• What are the components of an effective marketing philosophy? of a bundle of satisfaction
from the creator to the
•• What does having a consumer orientation imply about a business? ­targeted user.

7-1 What Is Small Business Marketing?

The practice of marketing has a much broader scope than simply selling a product
or service. And it is not just advertising. It consists of many activities, some of which 7-1
occur even before a product is produced and made ready for distribution and sale. Describe small business
Entrepreneurs need to be sure that a market exists for what they plan to sell before marketing.
they ever launch their companies.
Small business marketing consists of those business activities that direct the
creation, development, and delivery of a bundle of satisfaction from the creator to the
targeted user. This definition emphasizes the benefits customers will gain from a

Chapter 7 The Marketing Plan 175

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 product or service. It may be helpful to view a bundle of satisfaction as having three
levels: core product/service, actual product/service, and augmented product/service.
The core product/service is the fundamental benefit or solution sought by customers.
p The actual product/service is the basic physical product and/or service that delivers
Un those benefits. The augmented product/service is the basic product and/or service plus
t
r io
a ct any extra or unsolicited benefits to the consumer that may prompt a purchase. In the
t
S A case of shoes, for example, the core product is basic protection for the feet; the actual
Marketing Advice product is the shoe itself. The augmented product might be increased running speed,
When your company is in greater comfort, or less wear and tear on feet and legs. Augmentation could also be
the startup stage, planning reflected in how the customer feels. Do the shoes offer style, prestige, social identity?
for marketing is different Because smaller firms generally cannot afford the talented marketing experts that
from when your business large corporations employ, they conduct many trials and endure numerous problems.
has been operational for a
few years. Check out Startup
A marketing plan will not enable you to avoid all missteps, but it can drastically reduce
­Professionals (www.startup the number of errors by forcing you to think through available options, given the
professionals.com), which resources you have.
advises ventures that are just To be successful today, a business must solve someone’s “pain,” or problem. In
getting underway. It was once other words, a business provides a bundle of satisfaction to its customers, not merely
a startup itself and presents
the tangible product or intangible service that is the focus of the exchange. By offer-
its own plan on its website.
ing a bundle of satisfaction, you don’t just make a sale, you retain your customers,
resulting in multiple purchases over time. And the solution that you provide may not
even be the product or service that you are offering. The homepage of the website for
Hendrick Boards announces, “One shirt saves one animal.” After adopting a puppy
and spending $20,000 on veterinary bills, David Hendrickson felt he had a mission to
help rescue animals. As much as 40 percent of the company’s revenues go to animal
shelters, rescues, and sanctuaries.1

7-1a Marketing Philosophies Make a Difference

A firm’s marketing philosophy determines how its marketing activities are developed
in the marketing plan and used to achieve business goals. Three different marketing
perspectives guide most small businesses: the production-oriented, sales-oriented, and
consumer-oriented philosophies. The first two philosophies are used most often, as
they are associated with the experience and aptitudes of entrepreneurs who may have a
manufacturing or technology-based background, or who may have had a career in sales.
A production-oriented philosophy emphasizes the product as the single most impor-
tant part of the business. The firm concentrates resources on developing the product in
the most efficient manner, while promotion, distribution, and other marketing activi-
ties are given less attention. This is the classic “build a better mousetrap” approach. But
core product/service
The fundamental ­benefit do customers understand what makes your mousetrap special, or do they even know
or solution sought by about your product? On the other hand, a sales-oriented philosophy deemphasizes pro-
customers. duction efficiencies and customer preferences in favor of a focus on “pushing product.”
Achieving sales goals becomes the firm’s highest priority. In contrast, a firm adopt-
actual product/service
The basic physical product ing a consumer-oriented philosophy believes that everything, including production and
and/or service that delivers sales, centers on the consumer and his or her needs. The result: All marketing efforts
those benefits. begin and end with the consumer. Needless to say, we believe that a consumer-oriented
philosophy leads to success in many areas, not just marketing.
augmented product/
service
The basic product and/or 7-1b A Consumer Orientation—The Right Choice
service plus any extra or
unsolicited benefits to the Consumer orientation is put into practice by applying a two-stage process that under-
consumer that may prompt lies all marketing efforts: identifying customer needs and satisfying those needs. This
a purchase. simple formula is easy to understand but difficult to implement, given the competitive

176 Part 3 Developing the New Venture Business Plan

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 nature of most markets. But this is what it takes for a company to be successful in the
long term. We strongly recommend that all new businesses begin with a consumer
orientation. Customer satisfaction is not a means to achieving a goal—it is the goal!
Why don’t all firms adopt a consumer orientation when the benefits seem so
­obvious? The answer lies in three key factors. First, if there is little or no competition
and if demand exceeds supply, a firm is tempted to emphasize production. This is usu-
ally a short-term situation, however, and concentrating on production to the exclusion
of marketing can lead to disaster in due time.
Second, an entrepreneur may have a strong background in production or in selling
but be weak other areas. It is natural for an owner to play to his or her strength. Third,
some small business owners are simply too focused on the present. What is “hot” today
may not be hot five years from now. The better course of action is to identify ways to
please consumers in the long term.
We can find many examples of both production- and sales-oriented philosophies
that generate short-term success. However, a consumer orientation not only recognizes
production efficiency goals and professional selling but also adds concern for customer
satisfaction. In effect, a firm that adopts a consumer orientation incorporates the best
of each marketing philosophy.
Once a small firm makes a commitment to a customer orientation, it is ready to
develop a marketing strategy to support this goal. Marketing activities include taking
the steps necessary to locate and describe potential customers—a process called
market analysis. Marketing activities also encompass product and/or service, pricing,
promotion, and distribution, which combine to form the marketing mix.

7-2 The Formal Marketing Plan

After an entrepreneur completes a feasibility study (described in Chapter 3) and deter-
mines that the venture idea is a viable opportunity, he or she is ready to prepare the 7-2
formal marketing plan. Each business venture is different, so each marketing plan Identify the components of a
must be unique. A cloned version of a plan created by someone else should be avoided. formal marketing plan.
But certain subjects—market analysis, the competition, and marketing strategy—must
be covered. Exhibit 7.1 depicts the major components of the marketing plan (market
analysis, the competition, and marketing strategy) and the marketing activities required
to generate the information needed for the plan (marketing research, market segmenta-
tion, and sales forecasting).
In the remainder of the chapter, we will take a more in-depth look at these plan
components and marketing activities. Note that detailed treatment of marketing activi-
ties and strategies for both new and established small businesses is provided in Part 4,
in Chapters 14 through 18. The material in those chapters can also help you in writing market analysis
your marketing plan. The process of locating
and describing potential
customers.

7-2a Market Analysis marketing mix

The combination of
A critical section of the marketing plan describes the market the entrepreneur is target- ­product/service, pricing,
ing. A customer profile identifies the key demographic and psychological c­ haracteristics promotion, and distribution
of the customers you consider most likely to be qualified purchasers of your products activities.
and services. Marketing research information, compiled from both secondary and
customer profile
primary data, can be used to construct this profile. A description of ­potential
If a business owner envisions several target markets, each segment must have customers in a target
a corresponding customer profile. Likewise, different target markets may call for market.

Chapter 7 The Marketing Plan 177

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 E X H I B I T
7.1  The Marketing Plan and Supporting Marketing Activities

Marketing Research

The Marketing Plan

• Market Analysis
• The Competition
• Marketing Strategy
• Product/Service
• Distribution
• Promotion
• Pricing

Market Segmentation Sales Forecasting

a corresponding number of related marketing strategies. Typically, however, a new

­venture will initially concentrate on a select few target markets—or even just one.
Attempting to reach all potential customers would be way too costly for a small
business.
A detailed discussion of the major benefits to customers provided by the new
product or service should also be included in this section of the plan. Obviously, these
benefits must be reasonable and consistent with statements in the product/service sec-
tion of the plan.
Spira Footwear produces running and walking shoes that contain a patented
WaveSpring technology. Spira’s management team can talk at length about
the product’s lateral stability, height and size, weight and appearance.2
But they also understand that customers buy their shoes more for
the benefits they receive than for the features that the designers
love. Excerpts from the company’s marketing plan concentrate
on those benefits:

The WaveSpring® not only cushions with every step, but returns
almost the same amount of energy. Up to 96% of the energy
is returned to the wearer. This “recycled” energy allows you to
­participate in your activities with far less stress on the joints,
­ligaments and the entire body than traditional footwear.

The WaveSpring® reduces peak impact forces throughout the gait

cycle by 20%. It is during these peaks that injuries usually occur.
© Spira Footwear

With the reduction in peak force, injuries can be reduced. Many

elite athletes, marathoners, fitness enthusiasts report that they can
race, train and work out at a more intense level. Recovery time
between activities is often reduced.

178 Part 3 Developing the New Venture Business Plan

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 The WaveSpring® is mechanical and works through deflection [as] opposed to
compression. This helps to [. . .] keep the “new shoe” cushioned feel throughout the
normal life of the shoe.3

Another major component of market analysis is the actual sales forecast. It is usu-
ally desirable to include three sales forecasts covering the “most likely,” “best-case,”
and “worst-case” scenarios. These alternatives provide investors and the entrepreneur
with different numbers on which to base their decisions.
It is always difficult to forecast. Anyone who has followed global business cycles
knows that it is not possible to predict all the variables that will affect how a company sells
its product or service. Forecasting sales for a new venture is even more difficult. While
it is necessary to make assumptions during forecasting, these should be minimized. The
forecasting method should be fully described and backed up by data whenever feasible.

7-2b The Competition

Existing competitors should be studied carefully. The more you know about their key
management personnel, the better you can anticipate the actions they will take. A
brief discussion of competitors’ overall strengths and weaknesses should be a part of
the competition section of the plan. Also, related products currently being marketed
or tested by competitors should be noted. The entrepreneur should also assess the
likelihood that any of these firms will enter the targeted market. Performing a SWOT
analysis at this point is always a good idea (see Chapter 3). It is important that your
company have a clear understanding of its strengths, its weaknesses, available market
opportunities, and threats from competitors as well as from changes in the company’s
operating environment (social, technological, economic, political, and other environ-
mental variables).
Every company must address its distinct set of competitors. Spira’s founders knew
they were up against major competitors who would not politely give up market share
in the shoe markets. But they could easily track Nike, Reebok, Asics, New Balance,
and others. They could learn how these companies react when existing competitors
introduce new products or attempt to enter new markets. On the other hand, Checker-
board, the company featured in this chapter’s Spotlight, had to analyze the practices
of relatively small, highly segmented firms.

7-2c Marketing Strategy

The information on marketing strategy forms the most detailed section of the market-
ing plan and, in many respects, is subject to the closest scrutiny from potential inves-
tors. Marketing strategy plots the course of the marketing actions that will make or
break the owner’s vision. It’s one thing to know that a large target market exists for
a product or service. It’s another to be able to explain why customers will buy that
product or service from you.
The marketing mix of the “4 Ps” highlights the areas that a company’s marketing
strategy should address: (1) product decisions that will transform the basic product
or service idea into a bundle of satisfaction, (2) place (distribution) activities that will
determine the delivery of the product to customers, (3) pricing decisions that will set an
acceptable exchange value on the total product or service, and (4) promotional activities
that will communicate the necessary information to target markets.
The limited resources of small businesses have a direct bearing on the emphasis
given to each of these areas. Additionally, a service business will not have the same

Chapter 7 The Marketing Plan 179

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 distribution problems as a product business, and the promotional challenges facing a
retail store will be quite different from those faced by a manufacturer. Despite these
differences, we can offer a generalized format for presenting strategies in a marketing
plan for those who will carry out those strategies.

The Product/Service Section

The product/service section of the marketing plan includes the name of the product
and/or service and the name of the business and why they were selected. Any legal pro-
tection that has been obtained for the names should be described. It is also important
to explain the logic behind the name selection. An entrepreneur’s family name, if used
for certain products or services, can sometimes make a positive contribution to sales.
Tim Hussey is the sixth-generation CEO of Hussey Seating Company. Founded in 1835
to produce plows and other agricultural implements, today Hussey is the world leader
in the production of bleachers and other products for spectator seating. Tim Hussey
shares stories he heard from his grandfather about the struggles the company faced
during the Great Depression and says he learned from his father that integrity is key.4
A good name is simple, memorable, and descriptive of the benefit provided by the
product or service. (We will look at this in more depth in Chapters 14 and 15.) Whatever
the logic behind the choice of names, the selection should be defended and the names
registered with the appropriate agencies so that they are protected.
Sometimes, names selected for a business or a product or service may be chal-
lenged, even many years later, particularly if they haven’t been registered. In fact, this
happened to Apple Computer, a company that can afford all the legal advice that any-
one could ever need. The iPad trademark in Europe is owned by STMicroelectronics,
a Swiss semiconductor corporation that uses it as an acronym for “integrated passive
and active devices.”5 A small business that changes its name or the name of a key
product or service may find that advertising, packaging, and other materials become
prohibitively expensive.
In the marketing plan, other components of the total product, such as the packag-
ing, should be presented via drawings. It may be desirable to use professional pack-
aging consultants to develop these drawings in some cases. Customer service plans
such as warranties and repair policies also need to be discussed in this section. All of
these elements of the marketing strategy should be tied directly to customer satisfac-
tion. (Chapter 14 further examines the importance of creating and maintaining good
customer relationships.)
Another legal issue that many small business owners face relates to unique features
of their products or services. These features affect the reasons customers buy your
product and why someone might invest in your company. To protect these special
features, companies obtain patents, trademarks, and copyrights, which are used to
differentiate products and images from those of competitors and to prevent rivals from
stealing a competitive advantage.
Rather than patenting their products or technologies, some enterprises prefer to
maintain trade secrets. We all have heard the stories of the secret Coca-Cola formula
and of KFC’s mysterious 11 herbs and spices. These trade secrets fall under the term
intellectual property. Many companies build their marketing strategies around their
intellectual property, promoting the idea that only they can offer a particular benefit
to customers.

Place—The Distribution Section

Quite often, new ventures use established intermediaries to handle the distribution of
their product. This strategy reduces the investment necessary for launch and helps the

180 Part 3 Developing the New Venture Business Plan

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 new company get its products to customers faster. How those intermediaries will be
persuaded to carry the new product should be explained in the distribution section of
the marketing plan. Any intention the new business may have of licensing its product
or service should also be covered in this section.
Some retail ventures require fixed locations; others need mobile stores. For many,
the Internet is their location, but they may rely on others in a distribution chain to
transport and/or warehouse merchandise. Layouts and configurations of retail outlets
should be described in this section of the marketing plan. Questions such as the fol-
lowing should be addressed: Will the customer get the product by regular mail or by
express delivery? Will the service be provided from the entrepreneur’s home or office
or from the location of a licensed representative? How long will it take between order
placement and actual delivery?
When a new firm’s method of product delivery is exporting, the distribution section
must discuss the relevant laws and regulations governing that activity. Knowledge of
exchange rates between currencies and distribution options must be reflected in the
material discussed in this section. (Distribution concepts are explained in greater detail
in Chapter 15, and exporting is discussed in Chapter 18.)

The Pricing Section

At a minimum, the price of a product or service must cover the cost of bringing it to
customers. Therefore, the pricing section must calculate both production and market-
ing costs. Naturally, forecasting methods used for analysis in this section should be
consistent with those used in preparing the market analysis section.
Break-even computations, which indicate the points at which revenues and costs
are equal, should be included for alternative pricing. However, setting a price based
exclusively on break-even analysis is not advisable, as it ignores other important
aspects. If the entrepreneur has found a truly unique niche, he or she may be able to
charge a premium price—at least in the short run. There’s no perfect way of doing it,
but your objective is to determine what purchasers are willing to pay for your product
or service, then work backward to make sure you can produce and distribute it in a
way that allows you to make a profit.
Competitors should be studied to learn what they are charging. To break into a
market, an entrepreneur will usually have to price a new product or service within a
reasonable range of that of the competition. Many new business owners think their best
strategy is to underprice the competition in order to gain market acceptance and boost
sales. It is important to keep in mind, however, that existing competitors probably have
more resources than you do. If they consider your business to be a threat and engage
you in a price war, they can probably outlast you. In addition, do you really want your
customers to come to you only because you sell a cheaper product or service? That’s
no way to build loyalty; you will lose those customers to the next company that prices
lower than you do. (Chapter 16 examines break-even analysis and pricing strategy in
more depth.)

The Promotion Section

The promotion section of the marketing plan should describe the entrepreneur’s
approach to creating customer awareness of the product or service and explain why
customers will be motivated to buy. Among the many promotional options available to
the entrepreneur are personal selling (that is, person-to-person selling) and advertising.
You will read more about personal selling and advertising in Chapter 17.
If personal selling is appropriate, the section should outline how many salespeople
will be employed and how they will be compensated. The proposed system for training

Chapter 7 The Marketing Plan 181

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 Living the Dream
E n t re p reneurial Experien ces

Direct Sales?
“My first thought was, ‘That makes no sense. Direct sales? Neither Davis nor Rathod had experience in the apparel
That’s a dirty word.’” But Hil Davis was reading how direct industry, so they made nearly every mistake that novices could
sales were a strategy for some of Warren Buffet’s most suc- make. Their initial suppliers did not obtain the quality of fabric
cessful enterprises. Davis decided to learn more, so he read that is demanded in custom clothing. More traditional sup-
The Pampered Chef: The Story behind the Creation of One of pliers did not take them seriously and ignored their attempts
Today’s Most Beloved Companies by Doris Christopher, who to order products. Shirts failed to fit properly and had to be
told the story of creating and growing a direct sales com- returned. Deliveries were delayed. For awhile, Davis thought
pany, then selling it to Buffet. Davis got excited. seriously about giving up and going back to Wall Street.
The standard approach in starting a business, including But the entrepreneurs persevered, recovering from their
much of what we tell you in this book, is to have a product mistakes. The direct-sales business model proved itself, and
or service idea and then build the company. Davis and his J. Hilburn expanded its product line, offering suits, belts, ties,
partner, Veeral Rathod, did just the opposite. Both were in and a line of ready-to-wear items. And customers can now
the investment banking business. They decided that direct shop online. Davis and Rathod still believe in direct sales,
sales looked like a winning marketing strategy, so the next though. On the firm’s website, they tell prospective personal
question was what would they sell? stylists that J. Hilburn is ready to help them start their own
The answer came from Davis’s wife, Holly. One day, business, to “Create the Life You’ve Always Wanted.”
she asked him why he didn’t buy more custom-made Sources: Based on Tom Foster, “Made to Measure: How Hil Davis Took a Busi-
shirts, given that the ones he had were the only shirts he ness Model People Loved to Hate, Filed Off the Rough Edges, Took It Upscale,
and Produced a Why-Didn’t-I-Think-of-That Innovation,” Inc., February 2013,
wore. Davis’s immediate reaction was that custom-made pp. 65–70; https://jhilburn.com, accessed January 17, 2015; Ian Mount, “Men’s
shirts were too expensive. Then it dawned on him that sell- Clothing Firm Wants to Expand into Online Sales, November 2, 2011, http://
www.nytimes.com/2011/11/03/business/smallbusiness/j-hilburn-wants-
ing direct to customers could bring the price down. After to-sell-online-case-study.html?_r51, accessed January 17, 2015; and Doris
recruiting some personal stylists, their company, J. Hilburn, Christopher, The Pampered Chef: The Story Behind the Creation of One of Today’s
Most Beloved Companies (New York: Doubleday, 2005).
was born.
© Who is Danny/Shutterstock.com

182 Part 3 Developing the New Venture Business Plan

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 the sales force should also be mentioned. If advertising is to be used, a list of the
specific media to be employed should be included and advertising themes should be
described. If you will be using the services of an advertising agency, the name and
credentials of the agency should be provided, as well as a brief mention of successful
campaigns supervised by the agency.

7-3 Marketing Research

for the Small Business
7-3
Many small business owners base their marketing plans on intuition or on their
Discuss the nature of the
­personal, limited experiences and observations. If you are serious about meeting the marketing research process.
needs of your customers, collect and evaluate marketing research data before writing
the marketing plan. A plan based on research will be stronger than a plan with intuition
and personal observations as its foundation.

7-3a The Nature of Marketing Research

Marketing research may be defined as the gathering, processing, interpreting, and
reporting of market information. It is all about finding out what you want to know. A
small business typically conducts less marketing research than a big business does,
partly because of the expense involved but also because the entrepreneur often does
not understand the basic research process. Therefore, our discussion of marketing
research focuses on the more widely used and practical techniques that entrepreneurs
can employ as they analyze potential target markets and make preparations to develop
their marketing plans. A word of caution: Don’t use research techniques that you’ve
heard about but haven’t really studied.
You can mislead yourself and make bad
decisions.
Although a small business can con-
duct marketing research without the
assistance of an expert, the cost of hiring
such help is often money well spent, as
© Picture alliance/Karsten Lemm/Newscom

the expert’s advice may help increase rev-

enues or cut costs. Marketing researchers
are trained, experienced professionals,
and prices for their research services
typically reflect this. On the other hand,
companies such as SurveyMonkey
(www.surveymonkey.com) are now
reducing overall research costs by taking
advantage of the Internet to offer Web-
based surveys and online focus groups.
Before committing to research, an
entrepreneur should always estimate the projected costs of marketing research and
marketing research
compare them with the benefits expected. Such analysis is never exact, but it will The gathering, processing,
help the entrepreneur to decide how much and what kind of research should be interpreting, and reporting
conducted. of market information.

Chapter 7 The Marketing Plan 183

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 7-3b Steps in the Marketing Research Process
The typical steps in the marketing research process are (1) identifying the informational
need, (2) searching for secondary data, (3) collecting primary data, and (4) interpreting
the data gathered.

Step One: Identifying the Informational Need

The first step in marketing research is to identify and define what you need to know. The
fact is that small business owners sometimes conduct or commission surveys without
pinpointing the specific information they need. Broad statements such as “Our need is
to know if the venture will be successful” or “We want to know why our customers make
their buying decisions” will do little to guide the research process, but even a more specific
goal can easily miss the mark. For example, an entrepreneur thinking about a location for
a restaurant may decide to conduct a survey to ascertain customers’ menu preferences and
reasons for eating out when, in fact, what he or she needs to know most is how often resi-
dents of the target area eat out and how far they are willing to drive to eat in a restaurant.
Keep in mind that your marketing plan has to fit with your entire business strategy.
What resources do you have to draw from? How efficient are your operations? What
is your current competitive advantage, and how long will it last? You must understand
how your business operates in order to determine who your customer segments are and
should be, and what relationships you want to build with those customers.

Step Two: Searching for Secondary Data

secondary data Information that has already been compiled is known as secondary data. Generally,
Market information that has collecting secondary data is much less expensive than gathering new, or primary, data.
been previously compiled.
Therefore, after defining their informational needs, entrepreneurs should exhaust
available sources of secondary data before going further into the research process. It
may be possible to base much of the marketing plan for the new venture solely on sec-
ondary data. A massive amount of information is available in libraries throughout the
United States and on the Internet. The libraries of higher education institutions can
be especially valuable. Not only do they have access to numerous databases containing
business-related information, but they also have librarians with the skills necessary to
p guide you through those databases.
U es Software programs and hundreds of websites (many offering free information)
r rt c
as o u can help an entrepreneur research customers for her or his product or service. Like
St
R
e all repositories of information, the Internet is most helpful when used in tandem with
Secondary Data other sources. Be very careful to verify the accuracy of all secondary data gathered
Your school library can help from the Internet and other sources. Blogs have become a very popular means of con-
you find answers to your veying information, but not all of that information is factually correct.
small business research A particularly helpful source of secondary data for the small firm is the Small
­questions. And there are
Business Administration, which publishes information on many topics that could
many other sources, like the
Small ­Business Administration prove valuable to you, including marketing research. For example, search for ­“market
and state agencies, that you research” on the SBA website, and you will be directed to options that include a
can access. Also take a look at detailed explanation of how to conduct marketing research.
www.411sbfacts.com, from Unfortunately, the use of secondary data has several drawbacks. One is that the
the National Federation of information may be outdated. Another is that the units of measure in the secondary
Independent Business. This
page will take you to survey
data may not fit the current problem. For example, a firm’s market might consist of
responses from thousands of individuals with incomes between $50,000 and $75,000, while secondary data may
business owners on numerous report only the number of individuals with incomes between $50,000 and $100,000,
issues that they have faced. skewing the information toward people who may be looking for products and services
at a different quality level or in different locations than what you propose to offer.

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 Finally, the question of credibility is always present. Some sources of secondary
data are less trustworthy than others. Mere publication of data does not in itself make
the information valid and reliable. It is advisable to compare several different sources
to see whether they are reporting similar data. Professional research specialists can
also help assess the credibility of secondary sources.

Step Three: Collecting Primary Data

If the secondary data are insufficient, a search for new information, or primary data,
is the next step. Observational methods and questioning methods are two techniques
used in accumulating primary data. Observational methods avoid interpersonal con-
tact between respondents and the researcher, while questioning methods involve some
type of interaction with respondents. We encourage drawing on the expertise of
research specialists when gathering primary data.

Observational Methods Observation is probably the oldest form of research in

e­ xistence. A simple but effective form of observational research is mystery shopping.
Mystery shoppers gather observational data by going into a store (yours or a com-
petitor’s) and looking at how items are displayed, checking out in-store advertising,
and assessing other features of the store. Mystery shopping can also be used to test
employee product knowledge, sales techniques, and more. The results of such activities
are used to make important changes in store design and merchandising, as well as to
reward good employees.6
Jaynie L. Smith is CEO of Smart Advantage, a marketing consulting firm, and
author of the book Relevant Selling. Smith says that when she asks company executives
what they think their customers want and compares their answers to what the custom-
ers say, the executives are wrong 90 percent of the time. While business owners often
love the features of their products and services, customers want to know how to use the
product or service and what benefits they might gain from it.7 Be careful about seeing
only what you want to see and drawing incorrect conclusions about why customers are
buying your products.

Questioning Methods Surveys and exper-

imentation are questioning methods that
involve contact with respondents. Surveys
can be conducted by mail, telephone, the
Web, or personal interview. Mail surveys
are often used when target respondents are
widely dispersed. However, they usually
yield low response rates—only a small per-
centage of the surveys sent out are typically
© iStockphoto.com/ s-cphoto

returned. Telephone surveys and personal

interview surveys achieve higher response
rates. But personal interviews are very
expensive, and individuals are often reluc-
tant to grant such interviews if they think
a sales pitch is coming. Some marketing
researchers, such as iThink, are now special-
ists in online surveys. For many target-market segments, Internet surveys will be the
primary data
preferred approach. New market information
A questionnaire is the basic instrument guiding the researcher who is administer- that is gathered by the firm
ing the survey and the respondent who is taking it. It should be developed carefully and conducting the research.

Chapter 7 The Marketing Plan 185

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 pretested before it is used in the market. Poorly designed questionnaires may lead to
results that cause you to make bad decisions. Here are several considerations to keep
in mind when designing and testing a questionnaire:
•• Ask questions that relate directly to the issue under consideration. A good test
of relevance is to assume an answer to each question and then ask yourself
how you would use that information.
•• Select the form of question, such as open-ended or multiple-choice, that is
most appropriate for the subject and the conditions of the survey.
•• Carefully consider the order of the questions. Asking questions in the wrong
sequence can produce biased answers to later questions.
•• Ask the more sensitive questions near the end of the questionnaire. Age and
income, for example, are usually sensitive topics.
•• Carefully select the words in each question. They should be as simple, clear,
and objective as possible.
•• Pretest the questionnaire by administering it to a small sample of respondents
who are representative of the group to be surveyed.
It is important to remember that formal marketing research is not always necessary.
The business owner’s first decision should be whether to conduct primary research at
all. It may be best not to conduct formal research in the following situations:8
•• Your company doesn’t have the resources to conduct the research properly or
to implement any findings generated from the proposed research.
•• The opportunity for a new business or product introduction has passed. If
you’ve been beaten to the punch, it may be wise to wait and see how the early
entrant to the market fares.
•• A decision to move forward has already been made. There’s no need to spend
good money on a decision that has already been made.
•• You can’t decide what information is needed. If you don’t know where you are
going, any road will take you there.
•• The needed information already exists (that is, secondary information is
available).
•• The cost of conducting the research outweighs the potential benefits.
Bloomberg Businessweek journalist John Tozzi suggests several ways entrepreneurs
can do their own research with very little money.
1. Conduct your research in the same way that you sell your product or service.
Salespeople who make personal calls can gather information while they are
out. If sales are over the phone, survey over the phone. If you market primarily
online, conduct Web surveys.
2. Mine public sources. Use government sites, such as that of the U.S. Census
Bureau. After all, you’ve paid for this information through your taxes.
3. Enlist students from local colleges to help stretch your limited research budget.
In addition, their professors may prove to be good sources of research interpre-
tation expertise.9

Step Four: Interpreting the Data Gathered

After the necessary data have been gathered, they must be transformed into usable
information. Without interpretation, large quantities of data are only isolated facts.

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 Methods of summarizing and simplifying information for users include tables, charts,
and other graphics. Descriptive statistics (for example, the average response) are most
helpful during this step in the research procedure. Inexpensive personal computer
software, such as Excel, is now available to perform statistical calculations and gener-
ate report-quality graphics.
As important as marketing research is, it should be viewed as a supplement to,
not a replacement for, good judgment and cautious experimentation in launching new
products and services. Ultimately, the marketing plan should reflect the entrepreneur’s
educated belief about the best marketing strategy for her or his firm.

7-4 Understanding Potential

Target Markets
7-4
To prepare the market analysis section of the marketing plan, an entrepreneur needs
Define market ­segmentation
a proper understanding of the term market, which means different things to different and discuss its related
people. It may refer to a physical location where buying and selling take place (“They strategies.
went to the market”), or it may be used to describe selling efforts (“We must market this
product aggressively”). Still another meaning is the one we emphasize in this chapter: A
market is a group of customers or potential customers who have purchasing power and
unsatisfied needs. Note carefully the three ingredients in this definition of a market:
1. A market must have buying units, or customers. These units may be individuals
or business entities.
2. Customers in a market must have purchasing power. Those who lack money and/
or credit do not constitute a viable market because no transactions can occur.
3. A market must contain buying units with unsatisfied needs. Customers, for
instance, will not buy unless they are motivated to do so—and motivation can
occur only when a customer recognizes his or her unsatisfied needs.
In light of our definition of a market, determining market potential is the process
of locating and investigating buying units that have both purchasing power and needs
that can be satisfied with the product or service that is being offered.

7-4a Market Segmentation and Its Variables

In Chapter 3, cost- and differentiation-based strategies were described as they apply
to marketplaces that are relatively homogeneous, or uniform, in nature. As discussed,
these strategies can also be used to focus on a market niche within an industry. In
his book Competitive Advantage, Michael Porter refers to this type of competitive
­strategy—in which cost- and differentiation-based advantages are achieved within
narrow market segments—as a focus strategy.10
A focus strategy depends on market segmentation and becomes a consideration
in competitive markets. Formally defined, market segmentation is the process of market
A group of customers or
dividing the total market for a product or service into smaller groups with similar potential customers who
needs, such that each group is likely to respond favorably to a specific marketing have purchasing power and
strategy. A generation ago, telephones were purely a landline technology. Today, there unsatisfied needs.
are cell phone and smartphone configurations targeted at young versus older ­segments,
market segmentation
tech-oriented versus non-tech-oriented customers, business versus home features. And The division of a market
voice communication can be achieved through technologies that bear no resemblance into several smaller groups,
to phones. each with similar needs.

Chapter 7 The Marketing Plan 187

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 In order to divide the total market into appropriate segments, an entrepreneur
must consider segmentation variables, which are parameters that distinguish one form
of market behavior from another. Two broad sets of segmentation variables that rep-
resent the major dimensions of a market are benefit variables and demographic
variables.

Benefit Variables
The definition of a market highlights the unsatisfied needs of customers. Benefit
­variables are related to customer needs since they are used to identify segments of a
market based on the benefits sought by customers. For example, a single health club
may offer services that are used for different reasons and in different ways by different
market segments. Older adults might want cardiovascular exercise, young men might
be interested in bodybuilding, and young girls may attend gymnastics classes there.

Demographic Variables
It is impossible to implement forecasting and marketing strategy with benefit variables
alone. Therefore, small businesses commonly use demographic variables as part of
market segmentation. These variables refer to certain characteristics that describe
customers, their purchasing power, their consumption patterns, and other factors.
They include age, marital status, gender, occupation, and income.

7-4b Marketing Strategies Based on Segmentation

Considerations
There are several types of strategies based on market segmentation efforts. The three
types discussed here are the unsegmented approach, the multisegment approach, and
segmentation variables
The parameters used to dis- the single-segment approach. Few companies engage in all three approaches simultane-
tinguish one form of market ously. Small businesses often lack the resources that these strategies tend to require.
behavior from another. But for some, a marketing strategy based on segmentation considerations is the best
route to take.
benefit variables
Specific characteristics
that distinguish market The Unsegmented Strategy
segments according to When a business defines the total market as its target, it is following an unsegmented
the benefits sought by strategy (also known as mass marketing). This strategy can sometimes be successful,
customers.
but it assumes that all customers desire the same basic benefit from the product or
demographic variables service. This may hold true for water but certainly does not hold true for shoes, which
Specific characteristics that satisfy numerous needs through a wide range of styles, prices, colors, and sizes. With
describe customers, their an unsegmented strategy, a firm develops a single marketing mix—one combination
purchasing power, their of product, price, promotion, and distribution. Its competitive advantage must be
consumption patterns, and
other factors.
derived from either a cost- or a differentiation-based advantage. For example, the mov-
ing company Two Men and a Truck (Video Case 4) “offers you any home moving
unsegmented strategy services you need” and does local and long-distance moves. This company targets both
(mass marketing) commercial and residential customers, offering similar services to each.11 Exhibit 7.2
A strategy that defines the
represents its strategy.
total market as the target
market.
The Multisegment Strategy
multisegment strategy With a view of the market that recognizes individual segments with different prefer-
A strategy that recognizes
ences, a firm is in a better position to tailor marketing mixes to various segments. If a
different preferences of
individual market segments firm determines that two or more market segments have the potential to be profitable
and develops a unique and then develops a unique marketing mix for each segment, it is following a
­marketing mix for each. ­ ultisegment strategy.
m

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 E X H I B I T
7.2  An Unsegmented Market Strategy

Two Men and a Truck

Product and Marketing Strategy

Product: Local and Long-Distance Moving
Promotion: Online and through Social Media,
Public Relations, and Direct Mail
Media: Mass Media by Event Organizer

Market
Businesses and Homes

In Video Case 16, you will be introduced to Dyn, a global Internet infrastructure
service provider. Its clients include both businesses and home users, and it identifies
four primary customer segments, as shown in Exhibit 7.3.

The Single-Segment Strategy

When a firm recognizes that several distinct market segments exist but chooses to
concentrate on reaching only the most potentially profitable segment, it is following a
single-segment strategy. Once again, a competitive advantage is achieved through a
cost- or differentiation-based strategy. Startup Professionals, a team of experts who single-segment
help entrepreneurs start and grow their ventures, provides products and services that strategy
have value for students, retirees, hobbyists, and more, but the founders chose to focus A strategy that recognizes
their energies on high-growth-potential ventures. Its market strategy is illustrated in the existence of several dis-
tinct market segments but
Exhibit 7.4.12
focuses on only the most
The single-segment approach is probably the wisest strategy for small businesses profitable segment.
to use during initial marketing efforts. It allows a small firm to specialize and make
better use of its limited resources. Then, once its reputation has been established, the
firm will find it easier to enter new markets.

7-5 Estimating Market Potential

7-5
A small business can be successful only if sufficient market demand exists for its Explain the different
product or service. A sales forecast is the typical indicator of market adequacy, so it ­methods of forecasting sales.
is particularly important to complete this assessment prior to writing the marketing

Chapter 7 The Marketing Plan 189

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 E X H I B I T

7.3  A Multisegment Market Strategy

Dyn

Product Strategy 3 Product Strategy 1 Product Strategy 2 Product Strategy 4

Quick Load Times and Online Ordering
24/7 Software Availability Infrastructure as a Service
Dependability and Checkout Processes

Market Market
Segment 1 Segment 2
Advertising & E-Commerce
Media

Market Market
Segment 3 Segment 4
Software-as-a- Web 2.0 |
Service (SaaS) Fast Growth
Providers Companies

plan. Many types of information are required to gauge market potential. This section
discusses these information needs as it examines the forecasting process.

7-5a The Sales Forecast

A sales forecast is an estimate of how much of a product or service can be sold within
a given market in a defined time period. The forecast can be stated in terms of dollars
and/or units.
Because a sales forecast revolves around a specific target market, that market
should be defined as precisely as possible. Don’t make the mistake of forecasting sales
that exceed the size of the market you are serving. If the market for desks is described as
“all offices,” the sales forecast will be extremely large. But you are probably only selling
to a smaller segment, such as “government agencies seeking solid wood desks priced
between $800 and $1200.” That will result in a much smaller but more useful forecast.
One sales forecast may cover a period of time that is a year or less, while another
sales forecast may extend over several years. Both short-term and long-term forecasts are needed for
A prediction of how much
a well-constructed marketing plan.
of a product or service can
be sold within a given mar- A sales forecast is an essential component of the marketing plan because it is
ket during a specified time critical to assessing the feasibility of a new venture. If the market is insufficient, the
period. business is destined for failure. A sales forecast is also useful in other areas of business

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 E X H I B I T
7.4  A Single-Segment Market Strategy

Startup Professionals

Marketing Strategy
Market: High-Growth Entrepreneurs
Promotion: Internet and Social Network
Promotion
Media: Online Versions of National
Magazines and Newspapers

Product D
Executive
Mentoring Product A
Early Stage
Startup Starter Kit

Product C Product B
Develop a Incorporate
Business Plan a Business

planning. Production schedules, inventory policies, and personnel decisions all start
with a sales forecast. Obviously, a forecast can never be perfect, and entrepreneurs
should remember that a forecast can be wrong in either direction, by either underesti-
mating or overestimating potential sales.

7-5b Limitations of Forecasting

For a number of practical reasons, forecasting is used less frequently by small firms
than by large firms. First, for any new business, forecasting circumstances are unique.
Entrepreneurial inexperience, coupled with a new idea, represents the most difficult
forecasting situation. An ongoing business that requires only an updated forecast for
its existing product is in the most favorable forecasting position.
Second, a small business manager may be unfamiliar with methods of ­quantitative
analysis (analysis of measurable data). Not all forecasting must be quantitatively
­oriented—qualitative forecasting is often helpful and may be sufficient—but
­quantitative methods have repeatedly proven their value in forecasting.
Third, the typical small business entrepreneur and his or her team know little
about the forecasting process. To overcome this deficiency, the owners of some small
firms attempt to keep in touch with industry trends through contacts with appropri-
ate trade associations. The professional members of a trade association are frequently

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 better qualified to engage in sales forecasting. Most libraries have a copy of National
Trade and Professional Associations of the United States, which lists these groups. Entre-
preneurs can also obtain current information about business trends by regularly read-
ing trade publications and magazines focused on small business ownership, such as
Entrepreneur and Inc. Government publications, such as the Federal Reserve Bulletin,
Survey of Current Business, and Monthly Labor Review, may also be of general interest.
Subscribing to professional forecasting services is another way to obtain forecasts of
general business conditions or specific forecasts for given industries.
Despite the difficulties, a small business entrepreneur should not neglect the
­forecasting task. Instead, she or he should remember how important the sales outlook
in the business plan is to obtaining financing. The statement “We can sell as many as
we can produce” does not satisfy the information requirements of potential investors.

7-5c The Forecasting Process

Estimating market demand with a sales forecast is a multistep process. Typically, the
sales forecast is a composite of several individual forecasts—for example, forecasts
for products or product lines, market terri-
tories, or customer segments. The process
involves merging these individual fore-
casts properly.
The forecasting process can be char-
acterized by two important dimensions:
the point at which the process is started
and the nature of the predicting variable.
­Depending on the starting point, the pro-
© iStockphoto.com/ Rawpixel Ltd

cess may be designated as a breakdown

­process or a buildup process. The nature
of the predicting variable determines
whether the forecasting is direct or indirect.

The Starting Point

The breakdown process, sometimes called
the chain-ratio method, begins with a vari-
able that has a very large scope and systematically works down to the sales forecast.
This method is frequently used for consumer products forecasting. The initial variable
might be a population figure for the target market. Through the use of percentages, an
appropriate link is built to generate the sales forecast.
breakdown process David Goldsmith cautions his New York University students against making a
(chain-ratio method) general forecast of the future, recommending activity-based forecasting instead.13 This
A forecasting method that approach breaks the whole into its parts or activities, forecasts each of those, and then
begins with a variable that brings them together to get a better picture of what’s to come.
has a very large scope and One source of data available to every small business owner is the U.S. Census
systematically works down
Bureau, which compiles statistics on various population segments by, for example,
to the sales forecast.
gender, age, geographic location, and household income. Additional data on customer
buildup process segments may be obtained through state and local government agencies, chambers of
A forecasting method commerce, trade associations, and private enterprise sources.
in which all potential
In contrast to the breakdown process, the buildup process calls for identifying all
­buyers in a target market’s
­submarkets are identified potential buyers in a target market’s submarkets and then adding up the estimated
and the estimated demand demand. For example, a local dry-cleaning firm that is forecasting demand for clean-
is added up. ing high school letter jackets might estimate its market share within each area school

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 as 20 percent. Then, by determining the number of high school students obtaining a
letter jacket at each school—perhaps from school yearbooks—an analyst could esti-
mate the total demand.
The buildup process is especially helpful for industrial goods forecasting. To esti-
mate potential, forecasters often use data from the Annual Survey of Manufactures by
the U.S. Department of Commerce. The information can be broken down according
to the North American Industry Classification System (NAICS), which classifies busi-
nesses by type of industry. Once the code for a group of potential industrial customers
has been identified, the forecaster can obtain information on the number of establish-
ments and their geographic location, number of employees, and annual sales. A sales
forecast can be constructed by summing this information for several relevant codes.

The Predicting Variable

In direct forecasting, which is the simplest form of forecasting, sales is the forecasted
variable. Many times, however, sales cannot be predicted directly and other variables
must be used. Indirect forecasting takes place when surrogate variables are used to
project sales. For example, if a firm lacks information about industry sales of baby
cribs but has data on births, the strong correlation between the two variables allows
planners to use the figures for births to help forecast industry sales for cribs.

For a new business, there are few things as important as identifying your market—
nothing happens until someone buys something from your company. And if you plan to direct forecasting
grow your business, understanding your market is essential. In this chapter, we intro- A forecasting method in
duced you to the steps necessary for putting together a marketing plan. The plan will which sales is the estimated
be a living document for you as you manage your business. Every day, you will learn variable.
more about your market and how you can meet customer needs. And the marketing
indirect forecasting
plan has an impact on many other areas of your business. In later chapters, you will A forecasting method in
see that your marketing strategy affects how many people you employ and what skills which variables related to
they need, the volume and selection of your inventory, the production processes you sales are used to project
use, and many other business functions. future sales.

•• Three distinct marketing philosophies are the

­production-, sales-, and consumer-oriented philosophies.
•• A small business should adopt a consumer orientation
to marketing, as that philosophy is most consistent with
long-term success.
•• Small business marketing activities include analyzing the
market and determining the marketing mix.

7-2. Identify the components of a formal marketing plan.

•• The formal marketing plan should include sections on
market analysis, the competition, and marketing strategy.
•• The market analysis should include a customer profile.
7-1. Describe small business marketing.
•• A SWOT analysis is helpful in assessing the competition.
•• Small business marketing consists of business activities •• The “4 Ps” of marketing strategy that should be discussed
that direct the creation, development, and delivery of a in the marketing plan are (1) product decisions affect-
bundle of satisfaction from the creator to the targeted user. ing the total product and/or service, (2) place (distribu-
•• The product or service as a bundle of satisfaction has tion) activities, (3) pricing decisions, and (4) promotional
three levels: (1) core product/service, (2) actual product/ activities.
service, and (3) augmented product/service.

Chapter 7 The Marketing Plan 193

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 7-3. Discuss the nature of the marketing research process. •• A firm that determines that two or more market segments
have the potential to be profitable and then develops a
•• Marketing research involves the gathering, processing,
unique marketing mix for each segment is following a
interpreting, and reporting of marketing information.
multisegment strategy.
•• The cost of marketing research should be evaluated
•• A firm that follows a single-segment strategy recognizes
against its benefits.
that several distinct market segments exist but chooses to
•• The steps in the marketing research process are concentrate on reaching only the segment that promises
­identifying the informational need, searching for the greatest profitability.
­secondary data, collecting primary data, and interpreting
the data gathered. 7-5. Explain the different methods of forecasting sales.
7-4. Define market segmentation, and discuss its related •• A sales forecast is an estimate of how much of a product
strategies. or service can be sold within a given market during a
defined time period.
•• A focus strategy relies on market segmentation, which
is the process of dividing the total market for a product •• The forecasting process may be either a breakdown or
or service into smaller groups with similar needs, such a buildup process and may be either direct or indirect,
that each group is likely to respond favorably to a specific depending on the predicting variable.
­marketing strategy. •• The breakdown process, or chain-ratio method,
•• Broad segmentation variables that represent major begins with a variable that has a very large scope and
dimensions of a market are benefit variables and demo- s­ystematically works down to the sales forecast.
graphic variables. •• The buildup process calls for identifying all potential
•• Three types of market segmentation strategies are (1) the ­buyers in a target market’s submarkets and then adding
unsegmented approach, (2) the multisegment approach, up the estimated demand.
and (3) the single-segment approach. •• In direct forecasting, sales is the forecasted variable.
•• The unsegmented strategy—when a business defines the In indirect forecasting, surrogate variables are used to
total market as its target—is also known as mass marketing. ­project sales.

Key Terms

actual product/service p. 176 direct forecasting p. 193 primary data p. 185

augmented product/service p. 176 indirect forecasting p. 193 sales forecast p. 190
benefit variables p. 188 market p. 187 secondary data p. 184
breakdown process (chain-ratio method) p. 192 market analysis p. 177 segmentation variables p. 188
buildup process p. 192 marketing mix p. 177 single-segment strategy p. 189
core product/service p. 176 marketing research p. 183 small business marketing p. 175
customer profile p. 177 market segmentation p. 187 unsegmented strategy (mass marketing) p. 188
demographic variables p. 188 multisegment strategy p. 188

You Make the Call

Situation 1 available options, they chose Shopify, which helps companies set
up online stores. It sells or configures domain names, sets up and
What is your strategy for e-commerce? That’s a question Michael
hosts websites, provides shopping cart ­features enabling custom-
Maher, Barrett Purdum, and Mike Armenta asked each other when
ers to browse and buy, and offers other e-commerce products and
they launched Taylor Stitch, a custom shirt manufacturer and
consulting services. The owners of Taylor Stitch credit the Shopify
retailer in San Francisco. They decided that their strengths were
platform with spurring sales through a well-integrated system.
in designing, manufacturing, and marketing their ­products, not
Sources: Based on http://www.taylorstitch.com, accessed December 13, 2012; and http://
in designing a Web platform for their business. After researching www.shopify.com, accessed December 13, 2012.

194 Part 3 Developing the New Venture Business Plan

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
 Question 1 What factors should business owners consider Question 2 Do you report your experiences with businesses on
when deciding to manage their own website and online sales any social networks? Why or why not?
instead of contracting for the service?
Question 2 Taylor Stitch has both a bricks-and-mortar store and Situation 3
an online store. What are the advantages and disadvantages of
Ricardo De La Blanca Brigati is CEO of the DLB Group, a
this strategy?
full-­service marketing company operating throughout the
Americas and in Spain with about $10 million in revenues. He
Situation 2 encourages his clients to focus on African American, Hispanic,
Every company wants to use “word of mouth” to promote their Asian ­American, and Native American consumers. He sees the
business. The Internet has taken that to a whole new level. People buying power of these segments, but few small businesses
read endorsements from others through networks they have are making adjustments to serve them. DLB’s website offers
found reliable. Gregory E. Alden manages the chain of Woodside examples of how the company helps clients, both in the
Hotels in Northern California. Positioned in the luxury hotel cat- United States and abroad, develop comprehensive marketing
egory, Woodside properties rely on being ranked high by their cus- strategies that set them apart by adapting to (and respecting)
tomers on such websites as Yelp, TripAdvisor, Expedia, and others. other cultures.
But monitoring all those services can be seriously time consuming. Sources: Based on http://www.dlbgroup.com, accessed March 13, 2015; and Karen E.
Klein, “What Companies Get Wrong When Marketing to Minorities,” http://www.busi-
Alden found a better way to monitor how satisfied customers were nessweek.com/smallbiz/content/dec2010/sb20101213_643259.htm, accessed March
and what they were communicating about the hotels by contract- 13, 2015.
ing with Revinate. Revinate provides a software platform for hotels
and other companies in the hospitality industry. The platform Question 1 Identify a minority group to which you do not
allows Alden to track online reviews and to use social media to belong. What steps could you take to learn about that market
learn what travelers want. He can spot trends and act on criticisms segment in order to sell those consumers a product or service?
immediately, bringing customers back and attracting new ones. Question 2 Suppose that your small business was contacted
Sources: Based on Gwen Moran, “Chatter Master,” Entrepreneur, December 2012, p. 62; by a company in another country that wanted to sell your
http://www.woodsidehotels.com, accessed March 13, 2015; and http://www.revinate.com,
accessed March 13, 2015.
products in its market. What would you want to know about
that market before going into it? Choose any country (other
Question 1 How do you think Alden found out about Revinate? than the United States) and determine what changes you
Given all the online companies that might help your business would have to make to your marketing plan to adjust to the
connect you with customers, how would you choose one? different culture.

Business Plan
Laying the Foundation 6. What are the distinguishing characteristics of your product
and/or service?
As part of laying the foundation for your own business plan, 7. What steps have already been taken to develop your product
respond to the following questions regarding the marketing plan, and/or service?
marketing research, market segmentation, and sales forecasting.
8. What do you plan to name your product and/or service?

Marketing Plan Questions 9. Will there be a warranty?

10. How will you set the price for your product and/or service?
1. How will you identify prospective customers?
2. What is the customer profile for your product and/or service? 11. What type of distribution plan will you use?

3. Who is your competition? 12. Will you export to other countries?

4. Have you conducted a SWOT analysis? 13. What type of selling effort will you use?
5. What geographic area will you serve? 14. What special selling skills will be required?

Chapter 7 The Marketing Plan 195

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
 15. What types of advertising and sales promotion will you use? Market Segmentation Questions
16. Can you use the Internet to promote your company and
1. Will you focus on a limited market within the industry?
product/service?
2. What segmentation variables will you use to define your
Marketing Research Questions ­target market?
3. If you determine that several distinct market segments exist,
1. What research questions do you need answers to?
will you concentrate on just one segment?
2. What types of research should be conducted to collect the
information you need?
Sales Forecasting Questions
3. How much will this research cost?
4. What sources of secondary data will address your 1. How do you plan to forecast sales for your product and/or
­informational needs? service?

5. What sources of relevant data are available in your local library? 2. What sources of forecasting assistance have you
consulted?
6. What sources of outside professional assistance would you
consider using to help with marketing research? 3. What sales forecasting techniques are most appropriate to
your needs?
7. Is there information available on the Internet that might be
helpful? 4. What is the sales forecast for your product and/or service?
8. What research questions do you need answers to? 5. How reliable is your sales forecast?

Video Case 7
Readymade Magazine (P. 657) Alternative Cases for Chapter 7
ReadyMade markets itself as a magazine catering to GenNest, the Case 1, Dashlocker, p. 646
group of consumers ages 25 to 35 who are just settling down Video Case 14, Numi Tea, p. 675
after college. But ReadyMade appeals to a wide variety of readers,
with subscribers in all age groups. This diversity offers a unique
challenge to ReadyMade as it tries to promote itself to advertisers
who need to know what sort of people will be reached through
advertisements in the publication.

Endnotes
1. Jennifer Wang, “Emotional Rescue,” Entrepreneur, April 2013, p. 69; and 8. Carl McDaniel, Jr. and Roger Gates, Marketing Research (New York: Wiley,
http://hendrickboards.com, accessed January 16, 2015. 2014).
2. Based on “Spira: Wavespring Technology,” http://spira.com/wavespring- 9. John Tozzi, “Market Research on the Cheap,” Bloomberg ­Businessweek,
technology, accessed January 16, 2015. http://www.businessweek.com/smallbiz/content/jan2008 /
3. Ibid. sb2008019_352779.htm, accessed January 17, 2015.

4. Adam Bluestein, “The Success Gene: Why Some Family Businesses Thrive 10. Michael Porter, Competitive Advantage (New York: Free Press, 1985), p. 5.
Year after Year after Year,” http://www.inc.com/magazine/20080401/ 11. http://www.twomenandatruck.com, accessed January 17, 2015.
the-success-gene.html, accessed January 17, 2015; and http:// 12. http://www.startupprofessionals.com/index.html, accessed January 17,
www.husseyseating.com, accessed January 17, 2015. 2015.
5. Brad Stone, “What’s in a Name? For Apple, iPad Said More Than Intended,” 13. David Goldsmith, “For a Finer Forecast, Pull Apart the Future,” Fast
The New York Times, January 29, 2010, pp. A1, A3. ­Company, http://www.fastcompany.com/3001941/finer-forecast-pull-
6. “Mystery Shopping,” http://www.inc.com/encyclopedia/mystery-­ apart-future, accessed January 17, 2015; and David Goldsmith, Paid to
shopping.html, accessed January 17, 2015. Think: A Leader’s Toolkit for Redefining Your Future (Dallas, TX: BenBella
7. Jason Fried, “A Chat with the Master,” Inc., October 2012, p.35. Books, 2012).

196 Part 3
# Developing
Part title the New Venture Business Plan

Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.