Chapter – Five

Marketing in Small Business

5.1. The Marketing Perspective
•Marketing
Activities directing the flow of goods and services
from producer to consumer or user.
• Marketing consists of a multitude of activities that
include decisions about the company’s product or
services, pricing policies, promotions and methods
of distribution.
• Marketing is a process of conceiving that exchange,
and then accomplishing the tasks necessary to
deliver the goods or services in a manner that
satisfies customers and meets business objectives.
 The Marketing Mix Elements
 Marketing involves four general activities that are important to
emphasize because they capture the essence of marketing. The
four activities concern decisions about the firm’s product, its
price, methods of promotion, and how products are
distributed.
1. Product: Product includes physical objects or services being sold, together
with packaging, image, brand name and warranty and attributes that influence
consumer’s perceptions, such as colors, shapes, sizes and materials.
2. Price: Price is the monetary unit required for a purchase, and from an
entrepreneur’s view point, it is the unit of income. Prices communicate
information about value, image and competition, and they influence decisions.
3. Promotion: The act of communication that provides consumers with
information about a company’s products, its services or the venture itself is
promotion. They include advertising, personal selling, direct marketing, public
relations.
4. Distribution: It is concerned with how products or services are made available
to customers.
 Small business marketing also consists of those
business activities that relate directly to:
 Identifying a target market
 Determining target market potential
 Preparing, communicating, and delivering a bundle of
satisfaction to the target market
 The ultimate goal is to facilitate exchanges
between an enterprise and its customers.
 The exchange relationship exists as one party
becomes willing to “give something of value” to
“receive something of value” from the other
party.
 5.2. Market Segmentation
 Market segmentation is breaking down a market into
groups of customers with similar characteristics. The key
for the success of most small firms is to concentrate
their efforts and resources on one or more closely
defined market segments.
 The purpose of segmentation is:
 to tailor the marketing mix to the needs of that segment
and communicate the offering in an appropriate way,
through an appropriate medium.
 to find a way of describing groups of customers so that the
firm can better communicate with them.
 Thus a market segment is one distinct customer group
on which a business will concentrate its efforts. A market
segment, also called market niche.
 5.3. Marketing Strategies for Small and Micro Enterprises
5.3.1. Market Research in the Pre-Start-Up Phase
j Before entrepreneurs actually commit themselves to opening a
business they have to answer the following:
1. Who is the Customer? A clear profile of potential customers is a basic
element of market research.
 Sex and Age: these are two essential characteristics to identify in the
customer scenario.
 Income Status: the ability to buy and the amount of money will influence
the product or service concept, price, nature of promotions, and method
of distribution.
 Occupation and Education: both of these factors can significantly
influence an entrepreneur’s decisions.
 Other Customer Characteristics: these include family profiles, such as
being married, single, or divorced; teenage children away at college, one
of both parents working etc. Customers can also be identified by ethnic
group, religion and domicile.
2. Where is the Market? part of the customer scenario will
involve locating the potential customer base.
 Market Size and Changes it is important to determine
the potential for current and future sales.
 Local Market Characteristics: differ significantly because
of population size, economic development, industrial
profile, ethnic groups, weather, legislation and culture.
 Segmenting the Market: a market segment is one
distinct customer group on which a business will
concentrate its efforts.
3. Who are the market players? existing competitors should be
identified and finding out the products or substitutes.
4. How will customers be reached? a distribution system is the
physical process of getting products to market or providing
services.
 Sources of Market Intelligence
 Existing competitors: identified through telephone
directories, association, licensing agencies,
advertisements, and public documents
 Trade publications: specialized publications, magazines,
news letters, catalogs, and brochures.
 Securities Analyst’s Reports: Securities brokers,
investment bankers, private investment companies, and
experienced private investors.
 Government sources: volumes of government reports
and document in the public sector. (e.g. Department of
Commerce, Chamber of Commerce etc).
 Potential customers: informal discussion with the end-
users.
 5.3.2. Competitive Analysis: Research after Start Up
 A competitive analysis is essentially a structured method of examining
an organization or industry in order to provide a clear understanding of
the factors that affect a business. Michael Porter’s (Competitive
Strategy) five forces model of competition, is a strategic management
technique for established profit- seeking companies.
1. The threat of entry: other companies entering the industry might be
threatened because of:
 Capital requirements: if the type of business requires a large critical
capital investment, fewer entrepreneurs are likely to enter the industry.
 Economies of scale: due to large scale of production, the cost of
production can be minimized, which benefits the firm to offer a product
or service at a competitive price.
 Experience: cost advantages are often enjoyed by those who were first
into a business or who have experience in the technology required.
 Distribution systems: lacking established distribution systems or access to
them is a major barrier to new entrants.
 Differentiation: extent to which an enterprise can establish a brand
image, service, product innovation, or reputation describes its
differentiation or distinct competency. By being distinct, an enterprise
can command its market niche, discouraging new entrants.
2. The Power of Buyers: entrepreneurs may think in terms of
retail customers, but often they are in the position of selling
to organizations much larger than their own enterprises.
When buyers are relatively large and command a high
percentage of the smaller company’s sales, the buyers
wield/exercise negotiating power; entrepreneurs
become price takers and often rely for their very
existence in one or two buyers.
Assuming few major obstacles to entry- competitors can
mount significant challenges by outbidding the
entrepreneur for price buyers.
In addition, buyers may arbitrarily choose to create their
own capability to supply the entrepreneur’s products or
services.
Determinants of Buyer Power
 Bargaining leverage
 Buyer concentration vs. firm concentration
 Buyer volume
 Buyer switching cost relative to firms
 Buyer information
 Ability to backward integration
 Substitute products
 Price sensitivity
3. The Power of Suppliers: when entrepreneurs are buyers, they
must be concerned with the market power of their suppliers.
 Most new ventures start small and consequently buy
materials and supplies from larger companies. Therefore,
suppliers control prices and terms of sale.
 This situation usually results in high costs to the new
enterprise, and if the entrepreneur is in a low-margin
business (such as fast food retailing) the market leverage
created by a powerful supplier can dictate success and
failure.
 Supplier power is taken to be high when there are only a few
suppliers giving an entrepreneur few options to shop for
inventory.
 Determinants of Supplier Power
 Differentiation of inputs
 Switching cost of suppliers
 Presence of substitute inputs
 Supplier concentration
 Importance of volume of suppliers
 Cost relative to total purchase in the industry
 Impact of input on cost and differentiation
4. The Threat of Substitutes: a direct substitute is one that
performs the same services or has exchangeable attributes
with respect to the entrepreneur’s business.
 Indirect substitutes exist as choices between unlike products
or services when buyers make allocation decisions.
 Entrepreneurs with special use products, such as medical
equipment, have few direct or indirect substitutes to
consider.
 Those in commodity goods, such as soft drinks, must
consider many direct substitutes but few indirect ones
because the consumer rarely makes a rational choice among
dissimilar expenditures.
 Entrepreneurs in high priced durable goods such as furniture,
have tremendous competition from direct and indirect
substitutes.
5. Competitive Rivalry: the extent to which an enterprise faces
competitive rivalry is partially the result of a combined effort
of the other four forces.
 Rivalry also depends on the nature of the industry, trends
towards new technology, industry growth potential, and
intensity of competition among major market players.
 If all competitors are roughly the same size, then the
industry will be sensitive to prices and advertising, but
relatively insensitive to outsiders.
 If an industry has companies of various sizes with
differentiated products, then product attributes, prices,
promotions, and distribution methods will result in market
confusion and instability.
 Rivalry Determinants
o Industry growth
o Fixed/storage cost
o Product difference
o Brand identity
o Switching costs
o Concentration and balance
o Information complexity
o Diversity of competitors
o Corporate stakes
o Exit barriers
 5.4. Marketing Strategies
• A marketing strategy is a formulated plan that
describes how a new venture will compete.
 It focuses the enterprise the activities related to
competing in its market niche, subsequently
providing guidelines for decisions about:
 strategic objectives,
 allocation of resources, and
 responsibilities required to implement a marketing plan.
 Strategic Objectives
 Objectives vary- some are simple, others can be quite complex.
Entrepreneurs should be able to establish objectives that can be
easily measured.
 Several types of objectives can be considered with similar
measurable criteria.
 Growth, Profitability, Customer Service, Human
Resources, Other Objectives, etc.
 Growth: is measured through sales activities and should be
expressed in terms of sales or units sold. The sales volume
should reflect accurate sales forecast.
 Profitability: Every commercial enterprise will have profit
objectives, but these can be expressed in several ways. In a
business where prices and costs are sensitive, an entrepreneur
will want to track “return on sales”.
 Customer Service: an essential objective is to define how the
enterprise will serve customers. The definition can be
expressed in terms of product quality, diversification, or
innovation.
 Human Resources: most excellent companies have resource
objectives such as helping employees improve their career
opportunities, or improving performance through job skill
training.
 Other Objectives: all entrepreneurs want something from
their enterprises; their preferences may include autonomy,
opportunity to be innovative, or the challenge of a new life
style. Personal objectives will be accounted for a well-
articulated marketing strategy that guides decisions.
 General Approaches to Strategy
 Most new ventures concentrate on a product or service
in a selected market, and although entrepreneurs may
think about diversification.
 They must first establish the fundamental business
endeavor. Once established, a venture may be positioned
to diversify into new products or markets.
 These strategies are called product or market
diversification.
 A vertical integration is a strategy of expanding
backward into the vendor chain to secure resources, or
of reaching forward into distribution channels to
consolidate intermediaries.
 The primary strategies for new ventures are shown
below.
 Common Start-Up Strategies
 Concentration

Focal product, service or Directed to a distinct market

line of merchandise segment or niche

 Concentric diversification of products and services

Focal product, service or New products or services closely Directed to the same market
line of merchandise related to those initially offered. segment or niche as those
initially offered
 Concentric diversification of markets or customers

Focal product, service or Focus of products, services New market segments open
line of merchandise or line of merchandise is through expanded range of
maintained customers, niches
 Concentration
Entrepreneurs will want to consider how to grow, and the pace
of growth.
 Growth can be achieved by concentrating on a specific market
with high-priced goods for selected clients in up market
locations.
 An intense growth can also be achieved through “market
penetration” tactics that include;
 low prices,
 pervasive advertising, and
 sales promotions.
 New market development
Another method of intense growth is to develop several closely
associated markets. This is called concentric diversification in
which the entrepreneur emphasizes finding new customer
niches.
 New Product Development
A third alternative is product diversification which means to
develop new products or services that are closely associated with
existing product and services. This is also called concentric
diversification, and is some instances, related diversification.
Entrepreneurs consciously choose to add to their product lines,
yet they stick close to their initial products or services, building on
their distinct competencies.
 Other Strategy Considerations
 Business plans that are successful in attracting investors and
lenders will have a market strategy that portrays a vision of
accelerated growth.
 A proposed new product might be acceptable to investors only if
the entrepreneur intends to set up a wholesale distribution system
or establish a plant for manufacturing.
 These options for “integration” imply an early plan to stage the
enterprise-that is to time the sequence of events to make it
successful.