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A primer in Entrepreneurship Prof. Dr. Ulrich Kaiser Institute for Strategy and Business Economics Institute for Business Economics University of Zurich Fall Semester 2009 Chapter 11: Unique Marketing Issues Confronting New Ventures Table of Contents I. Selecting a Market and Establishing a Position II. Key Marketing Issues for New Ventures III. The Four Ps for New Ventures University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 2 I. Selecting a Market and Establishing a Position 1. In order to succeed, a new firm must address this important question: Wh Who are the customers, and how will we appeal to them? th t dh ill l t th ? 2. A well‐managed start‐up approaches this query by following a three‐ step process: segmenting the market selecting or developing a niche step process: segmenting the market, selecting or developing a niche within a target market, and establishing a unique position in the target market. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 3 I. Selecting a Market and Establishing a Position University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 4 I. Selecting a Market and Establishing a Position A. Segmenting the Market 1. The first step in selecting a target market is to study the industry in which the firm intends to compete, and determine the different potential target markets in that industry potential target markets in that industry. 2. This process is called market segmentation, and is important because a new firm typically only has enough resources to target one market segment, at least initially. 3. Markets can be segmented in a number of different ways: product type price point customers served University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 5 I. Selecting a Market and Establishing a Position A. Segmenting the Market 4. There are several important objectives a new firm should try to accomplish as part of its market segmentation process: a. The process should identify one or more relatively homogeneous groups of prospective buyers within the industry the firm plans to enter in regard to their wants and needs. b. Differences within the segment the firm chooses should be small compared to differences across segments. c. The segment should be distinct enough so that its members can be easily identified. d. It should be possible to determine the size of the segment so that a firm knows how large its potential market is before it aggressively moves forward. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 6 I. Selecting a Market and Establishing a Position B. Selecting a Target Market 1. Once a firm has segmented the market, the next step is to select a target market. 2. Typically, a firm (especially a start‐up venture) doesn’t target an entire segment of a market because many market segments are too large to target successfully. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 7 I. Selecting a Market and Establishing a Position B. Selecting a Target Market 3. Instead, most firms target a niche within the segment. a. A niche market is a place within a market segment that represents a narrower group of customers with similar interests. b. In most cases, the secret to appealing to a niche market is to understand the market and meet its customers’ needs. By focusing understand the market and meet its customers needs By focusing on a clearly defined target market, a firm can become an expert in that market and then provide its customers with high levels of value and service. d i University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 8 I. Selecting a Market and Establishing a Position C. Establishing a Unique Position 1. After selecting a target market, the firm’s next step is to establish a “position” within that differentiates it from its competitors. 2. As we discussed in Chapter 5, position is concerned with how the firm is situated relative to its competitors. In a sense, a position is the part of a market or of a segment of the market the firm is claiming as its own. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 9 I. Selecting a Market and Establishing a Position C. Establishing a Unique Position 3. A firm establishes a unique position in its customers’ minds by consistently drawing attention to two or three of its product’s attributes that define the essence of what the product is and what attributes that define the essence of what the product is and what separates it from its competitors. Firms often develop a tagline to reinforce the position they have staked out in their market, or a phrase that is used consistently in a company’s literature, advertisements, promotions, stationery, and even invoices, a d us beco es assoc a ed and thus becomes associated with the company. An example is Nike’s e co pa y e a pe s es familiar tagline, “Just do it”. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 10 I. Selecting a Market and Establishing a Position C. Establishing a Unique Position Match the Company to Its Tagline University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 11 Yet another tagline: http://www.youtube.com/watch?v=S6R3MiAv9ac University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 12 University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 13 II. Key Marketing Issues for New Ventures A. Selling Benefits Rather Than Features 1. Many entrepreneurs make the mistake of positioning their company’s products or services based on features rather than benefits. 2. A positioning or marketing strategy that focuses on the features of a product, such as its technical merits, is usually much less effective than a campaign focusing on the merits of the product. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 14 II. Key Marketing Issues for New Ventures A. Selling Benefits Rather Than Features Two different approaches to promoting a cell phone Approach Selling Features Selling Benefits Conclusion Illustration “Our cell phones are equipped with sufficient memory to store 100 phone numbers.” “Our cell phones lets you store up to 100 phone numbers, “O ll h l 100 h b giving you the phone numbers of your family and your friends at your fingertips.” While features are nice, they typically don’t entice someone to buy a product. The first statement tells a prospect how many phone numbers the cell phone will hold, but doesn’t tell the prospect why that’ss important. The second statement tells a prospect why having that important The second statement tells a prospect why having sufficient memory to store 100 phone number is important, and how buying the product will enhance his or her life. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 15 II. Key Marketing Issues for New Ventures B. Establishing a Brand 1. A brand is the set of attributes – positive or negative – that people associate with a company. 2. Some companies monitor the integrity of their brands through a program of brand management, or protecting the image and value of an organization’s brand in consumers’ minds. 3. The difference between a company’s brand and its positioning strategy is this: the brand is all about the attributes and promises that people associate with a company, and the position is all about the details. i t ith d th iti i ll b t th d t il University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 16 II. Key Marketing Issues for New Ventures B. Establishing a Brand 4. Start‐ups must build a brand from scratch. One of the keys is to create a strong personality for the firm that appeals to the chosen target market. a. So how does a new firm develop a brand? On a philosophical level, a firm must have meaning in its customers’ lives. It must create value. b. On a more practical level, brands are built through a number of techniques, including advertising, public relations, sponsorships, support of social causes, and good performance. t f i l d d f University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 17 II. Key Marketing Issues for New Ventures B. Establishing a Brand c. Ultimately, a strong brand can be a very powerful asset for a firm. i. Brand equity is the term that denotes the set of attributes and liabilities that are linked to a brand and enables it to raise a firm’s valuation. ii Co ii. Co‐branding refers to a relationship between two or more firms branding refers to a relationship between two or more firms where the firms’ brands promote each other. Examples: AT&T Universal Master Card Citibank/American Airlines/Visa Card Healthy Choice Cereal by Kellogg’s Coach edition of the Lexus ES series Eddie Bauer edition of the Ford Explorer Braun/Oral‐B Plaque Remover University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 18 II. Key Marketing Issues for New Ventures B. Establishing a Brand What’s a Brand? Different Ways of Thinking About the Meaning of a Brand University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 19 Key Marketing Issues for New Ventures y g B. Establishing a Brand University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser http://ww ww.millwardbro own.com/Sitess/optimor/Med dia/Pdfs/en/BrandZ/BrandZ‐‐2007‐RankinggReport.pdf II. A primer in Entrepreneurship Fall Semester 2009 20 Key Marketing Issues for New Ventures y g B. Establishing a Brand University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser http://ww ww.millwardbro own.com/Sitess/optimor/Med dia/Pdfs/en/BrandZ/BrandZ‐‐2007‐RankinggReport.pdf II. A primer in Entrepreneurship Fall Semester 2009 21 III. The Four Ps of Marketing For New Ventures 1. Once a company decides on its target market, establishes a position within that market, and establishes a brand, it is ready to begin within that market, and establishes a brand, it is ready to begin planning the details of its marketing mix. 2. A firm’s marketing mix is the set of controllable, tactical marketing tools that it uses to produce the response it wants in the target market. 3. Most marketers organize their marketing mix into four categories: product, price, promotion, and place (or distribution). d t i ti d l ( di t ib ti ) University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 22 III. The Four Ps of Marketing For New Ventures http://www.youtube.com/watch?v=mJ7mL5CUAno University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 23 III. The Four Ps of Marketing For New Ventures Product Price M k ti Mi Marketing Mix Promotion University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser Place (or di t ib ti ) distribution) A primer in Entrepreneurship Fall Semester 2009 24 III. The Four Ps of Marketing For New Ventures A. Product 1. A firm’s product, in the context of its marketing mix, is the good or service it offers to its target market. 2. Determining the product or products to be sold is central to the firm’s entire marketing effort. 3. As the firm prepares to sell its product, an important distinction should be h f ll d d h ld b made between the core product and the actual product. While the core product may be a CD that contains an antivirus software While the core product may be a CD that contains an antivirus software program, the actual product, which is what the customer buys, may have as many as five characteristics: a quality level, features, design, a brand name, and packaging. d k i University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 25 III. The Four Ps of Marketing For New Ventures B. Price 1. Price is the amount of money consumers pay to buy a product. It is the only element of the marketing mix that produces revenue; all other elements represent costs elements represent costs. 2. Most entrepreneurs use one of two methods to set the price for their products: cost‐based products: cost based pricing or value pricing or value‐based based pricing. pricing. a. In cost‐based pricing, the list price is determined by adding a markup percentage to a product’s cost. b. In value‐based pricing, the list price is determined by estimating what consumers are willing to pay for a product, and then backing off a bit to provide a cushion. id hi University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 26 III. The Four Ps of Marketing For New Ventures B. Price Two Approaches to Pricing Approach to Pricing Description Cost‐Based Pricing In cost‐based pricing, the list price is determined by adding a markup percentage to a product’s cost. The advantage of this method is that it is straightforward, and it is relatively easy to justify method is that it is straightforward, and it is relatively easy to justify the price of a good or service. The disadvantage is that it is not always easy to estimate what the cost of a product will be. Value‐Based Pricing In value In value‐based based pricing, the list price is determined by estimating pricing, the list price is determined by estimating what consumers are willing to pay for a product and then backing off a bit to provide a cushion. What a consumer is willing to pay is determined by his or her perceived value of the product and by the number of choices available in the marketplace. Most experts recommend value‐based pricing because it hinges on the consumer’s perception of what a product or service is worth. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 27 III. The Four Ps of Marketing For New Ventures B. Price 3. Regardless of the method of pricing, a company can’t charge a premium price without delivering on its positioning and branding promises, and unless circumstances are right unless circumstances are right. 4. To charge a premium price, one or more of the following circumstances must be present: must be present: Demand for the product is strong relative to supply; Demand for the product is inelastic; The product is patent protected and has a clearly defined target market; Th d ti t t t t d dh l l d fi d t t k t The product offers additional features that are valued; A new technology is being introduced; The product is positioned as a luxury product. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 28 III. The Four Ps of Marketing For New Ventures C. Promotion 1. Promotion refers to the activities the firm takes to communicate the merits of its product to its target market. Ultimately, the goal of these activities is to persuade people to buy the product activities is to persuade people to buy the product. 2. The two most common activities entrepreneurs use to promote their firms are advertising and public relations. firms are advertising and public relations. a. Advertising makes people aware of a product or service in hopes of persuading them to buy it. Advertising’s major goals are to do the following: Raise customer awareness of a product; Explain a product Explain a product’ss comparative benefits; comparative benefits; Create associations between a product and a certain lifestyle. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 29 III. The Four Ps of Marketing For New Ventures C. Promotion b. Public relations refers to efforts to establish and maintain a company’s image with the public. There are a number of techniques that fit the definition of public relations These include: that fit the definition of public relations. These include: Press releases; New conferences; Media coverage; Articles in the industry press and periodicals; Civic, social, and community involvement. , , y University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 30 III. The Four Ps of Marketing For New Ventures C. Promotion Steps Involved in Putting Together an Advertisement University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 31 III. The Four Ps of Marketing For New Ventures C. Promotion Public Relations Techniques Press release Media coverage Articles in industry A ti l i i d t press and periodicals Blogging Monthly newsletter News conference Civic, social, and community involvement University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 32 III. The Four Ps of Marketing For New Ventures http://www youtube com/watch?v=MZIBUDg4CT4 http://www.youtube.com/watch?v=MZIBUDg4CT4 University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 33 III. The Four Ps of Marketing For New Ventures D. Place (or Distribution) 1. Place, or distribution, encompasses all the activities that move a firm’s product from its place of origin to the consumer. A distribution channel i th is the route a product takes from the place it is made to the customer t d tt k f th l it i d t th t who is the end user. 2 The 2. The first choice a firm has to make regarding distribution is whether to first choice a firm has to make regarding distribution is whether to sell its products directly to consumers or through intermediaries (such as wholesalers and retailers). University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 34 III. The Four Ps of Marketing For New Ventures D. Place (or Distribution) a. Selling Direct: Many firms sell direct to customers. Being able to control the process of moving their products from their place of origin to the end user instead of relying on third parties is a major i i t th d i t d f l i thi d ti i j advantage of selling direct. The disadvantage of selling direct is that a firm has more of its capital tied up in fixed assets, because it must own or rent retail outlets or must field a sales force to sell its products. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 35 III. The Four Ps of Marketing For New Ventures D. Place (or Distribution) b. Selling Through Intermediaries: Firms that sell through intermediaries typically pass off their products to wholesalers who place them in retail outlets to be sold. An advantage of this l th i t il tl t t b ld A d t f thi approach is that the firm does not need to own as much of the distribution channel. The disadvantage of selling through intermediaries is that a firm loses control of its product. There is no guarantee that Best Buy or Circuit City will talk up the firm’s product as much as the manufacturer would if it had its own stores. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 36 III. The Four Ps of Marketing For New Ventures D. Place (or Distribution) Selling direct versus selling through intermediaries Approach to Distribution Selling Direct Selling Through g Intermediaries Description Many firms sell direct to customers. Being able to control the process of moving their products from their place of origin to the end user instead of relying on third parties is a major advantage of selling direct. The disadvantage of selling direct is that a firm has more of its capital tied up because it must own or rent retail outlets and must field a sales force. and must field a sales force. Firms who sell through intermediaries pass off their products to wholesalers who place them in retail outlets to be sold. An advantage of this approach is that the firm does not need to own as advantage of this approach is that the firm does not need to own as much of the distribution channel. The disadvantage of selling through intermediaries is that a firm loses control of its product. University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 37 III. The Four Ps of Marketing For New Ventures D. Place (or Distribution) Selling direct versus selling through intermediaries University of Zurich ISU – Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Fall Semester 2009 38
