Chapter 11

1. Entrepreneurship: Successfully Launching New Ventures, 1/e Bruce R. Barringer R. Duane Ireland Chapter 11

2. Chapter Objectives(1 of 2) • Explain the purpose of market segmentation. • Describe the importance of selecting a target market. • Explain why it’s important for a start-up to establish a unique position in its target market. • Describe why it’s important to position a company’s products on benefits rather than features. • Illustrate the two major ways in which a company builds a brand.

3. Chapter Objectives(2 of 2) • Identify the four components of the marketing mix. • Explain the difference between a core product and an actual product. • Contrast cost-based pricing and value-based pricing. • Explain the differences between advertising and public relations. • Weigh the advantages and disadvantages of selling direct versus selling through intermediaries.

4. Selecting a Market and Establishing a Position(1 of 1) • Important Questions That All Startups Must Ask • In order to succeed, a new firm must address this important issue: Who are our customers are how will we appeal to them? • A well-managed start-up approaches this query by following a three-step process: • Segmenting the market, selecting or developing a niche with a target market, and establishing a unique position in the target market.

5. Segmenting the Market • Market Segmentation • The first step in selecting a target market is to study the industry in which the firm intends to compete and determine the different target markets in that industry. • 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. • Markets can be segmented in a number of different ways, including product type, price point, and customers served. • For example, the computer industry can be segmented by product type (i.e., handheld computers, laptops, PCs, microcomputers, and mainframes) or customers served (i.e., individuals, businesses, schools, and government).

6. Selecting a Target Market • Target Market • Once a firm has segmented the market, the next step is to select a target market. The market must be sufficiently attractive and the firm must have the capabilities to serve it. • Typically, a firm doesn’t target an entire segment of a market because many market segments are too large to target successfully. • Instead, most firms target a niche with the segment. • For example, one segment of the computer industry is handheld computers. Within this segment, there are several smaller niche markets that represent a narrower group of customers with similar interests.

7. Establishing a Unique Position(1 of 2) • Positioning • After selecting a target market, the firm’s next step is to establish a “position” within it that differentiates it from 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. • 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 separates it from its competitors.

8. Establishing a Unique Position(2 of 2) • Positioning (continued) • 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, stationary, and even invoices and thus becomes associated with the company. • An example is Nike’s familiar tagline, “Just do it.” • The beauty of this simple three-word expression is that it applies equally to a 21-year-old triathlete and a 65-year-old mall walker. • This clever tagline, along with Nike’s positioning strategy, helped it expand its product line beyond running shoes to athletic products for all age-groups.

9. Selling Benefits Rather Than Features(1 of 2) • Selling Benefits Rather Than Features • Many entrepreneurs make the mistake of positioning their company’s products or services on features rather than benefits. • 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 what the merits of the product can do. • Consider the example of the following slide.

10. Selling Benefits Rather Than Features(2 of 2) Two different approaches to promoting a cell phone Approach Illustration “Our cell phones are equipped with sufficient memory to store 100 phone numbers.” Selling Features “Our cell phones let you store up to 100 phone numbers, giving you the phone numbers of your family and your friends at your fingertips.” Selling Benefits 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’s important. The second statement tells a prospect why having sufficient memory to store 100 phone numbers is important, and how buying the product will enhance his or her life. Conclusion

11. Establishing a Brand(1 of 3) • Establishing a Brand • A brand is the set of attributes—positive or negative—that people associated with a company. • These attributes can be positive, such as trustworthy, dependable, or easy to deal with. • Or they can be negative, such as cheap, unreliable, or difficult to deal with. • The customer loyalty a company crates through its brand is one of its most valuable assets. • Brand Management • Some companies monitor the integrity of their brands through a program called “brand management.”

12. Establishing a Brand(2 of 3) • Establishing a Brand • So how does a firm establish a brand? • On a philosophical level, a firm must have meaning in its customer’s lives. It must create value—something for which customers are willing to pay. • 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. • A firm’s name, logo, Web site design, and even its letterhead are part of its brand. • It’s important for start-ups, particularly if they plan to sell to other businesses, to have a polished image immediately so that they have creditability when they approach their potential customers.

13. Establishing a Brand(3 of 3) • Power of a Strong Brand • Ultimately, a strong brand can be a very powerful asset for a firm. • Fifty-two percent of consumers say that a known and trusted brand is a reason to buy a product. • Cobranding • One technique that companies use to strengthen their brands is to enter into a cobranding arrangements with other firms. • Cobranding refers to a relationship between two or more firms where the firm’s brands promote each other.

14. The Four Ps of Marketing for New Ventures Product Price Marketing Mix Place (or distribution) Promotion

15. Product(1 of 2) • Product • A firm’s product, in the context of the marketing mix, is the good or service it offers to its target market. • The initial rollout is one of the most critical times in the marketing of a new product. • All new firms face the challenge that they are unknown and that it takes a leap of faith for their first customers to buy their products. • Some start-ups meet this challenge by using reference accounts. • A reference account is an early user of a firm’s product or service who is willing to give a testimonial regarding his or her experience with the product or service.

16. Product(2 of 2) • Core Product vs. Actual Product • As a firm prepares to sell its product, an important distinction should be made between the core product and the actual product. • The core product is the product itself, such as a CD that contains an antivirus program. • The actual product, which is what the customer buys, may have up to five attributes: a quality level, features, design, a brand name and packaging.

17. Price(1 of 2) • Price • 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 a cost. • The price a company charges for its products sends an important message to its target market. • For example, Oakley positions its sunglasses as innovative, state-of-the-art products that are both high quality and visually appealing. This position in the market suggests a premium price that Oakley charges. • Most entrepreneurs use one of two methods to set the price for their products, as shown on the next slide.

18. Price(2 of 2) Cost-Based vs. Value-Based Pricing Approach to Pricing Description 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 the price of a good or service. The disadvantage is that it is not always easy to estimate what the costs of a product will be. Cost-Based Pricing 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. 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 prices because it hinges on the consumer’s perception of what a product or service is worth. Value-Based Pricing

19. Promotion(1 of 4) • Promotion • Refers to the activities the firm takes to communicate the merits of its product to its target market. • There are several common activities that entrepreneurs use to promote their products and services. • Advertising • Advertising is making people aware of a product or service in hopes of persuading them to buy it.

20. Promotion(2 of 4) • Advertising (continued) • Advertising’s major goals are to do the following: • Raise customer awareness of a product • Explain a product’s comparative benefits • Create associations between a product and a certain lifestyle • Advertising has some major weaknesses, including the following: • Low credibility • The possibility that a high percentage of the people who see the ad will not be interested • Message clutter • Relatively costly compared to other forms of promotions • The perception that advertising is intrusive

21. Promotion(3 of 4) • Public Relations • One of the most cost-effective ways to increase the awareness of the company’s products is through public relations. • Public relations refer to efforts to establish and maintain a company’s image with the public. • The major difference between public relations and advertising is that public relations is not paid for—directly. • The cost of public relations to a firm is the effort it makes to network with journalists and other people to try to interest them in saying or writing good thing about the company and its products.

22. Promotion(4 of 4) Techniques that are defined as public relations

23. Place (or Distribution)(1 of 2) • Place • Place, or distribution, encompasses all the activities that move a firm’s product from its place of origin to the consumer. • The 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). • Within most industries, both choices are available, so the decision typically depends on how a firm believes its target market wants to buy its product.

24. Place (or Distribution)(2 of 2) Selling direct versus selling through intermediaries Approach to Distribution 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. Selling Direct 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 much of the distribution channel. The disadvantage of selling through intermediaries is that a firm loses control of its product. Selling Through Intermediaries