Marketing the New Venture - Pearson Education

[Pages:10]Marketing the New Venture

Outline

The Marketing and Entrepreneurship Interface Marketing Concept and Orientation

Customer Orientation Marketing Research Marketing Strategy Selection of Markets and Segments Marketing Activities Sales Forecasting Summary

Success is never final. --WINSTON CHURCHILL

Learning Objectives

After reading this chapter you will understand:

I The major marketing activities for an entrepreneur.

I How marketing research is conducted for new ventures.

I How the diffusion process can be used to introduce innovative products.

I How a new venture's marketing capabilities and plan can be a strategic resource.

I How a new venture can prepare a reasonable sales forecast.

1

2

1. Both are concerned with customer needs. The marketer develops the customer's psychographic profile and documents buyer behavior patterns. The entrepreneur has seen or intuited an opportunity in the market--a gap between what current firms can deliver and what the customer wants or needs.

2. Both evaluate new product or new service ideas. The marketer conducts tests-- concept, product, and market--to gather data concerning the prospects for an innovation. The entrepreneur envisions resource combinations and configurations (both existing and potential) and creates a venture to exploit them. Both need to understand the product and service diffusion and adoption process.

3. Marketing behavior and entrepreneurial behavior have other similarities. Both are continuously scanning the environment and evaluating information. Both are boundary spanning activities, going outside their own organization to build relationships with others. Both are aggressive representatives of their organizations and products to the community at large.

4. Both are growth-oriented. Marketers and entrepreneurs are interested in increasing the scope of their business: selling more to current customers, developing new customers, and finding additional products and services that meet the needs of the customer base.

Thus marketing and new venture creation share common interests. However, just as there are the positive interfaces, there are negative ones as well. These are traps for the entrepreneur and marketer. Four pitfalls marketers and entrepreneurs share are:

1. Both tend to believe that growth is assured by an ever-expanding number of people with wealth who will continue to purchase the product at increasing prices indefinitely.

2. Both tend to believe that there is no competitive substitute and that the product or service offered is unique.

3. Both have unwavering faith in the benefits of the experience curve--the notion that costs decrease over cumulative production. This leads to the strategic obsession with selling more and more of the same product.

4. Both tend to have a preoccupation with product issues; this is especially true of brand managers in marketing and engineer/inventor entrepreneurs.4

Marketers and entrepreneurs are therefore linked by common perceptions, goals, and behaviors. Yet many entrepreneurs underestimate the value of marketing and ignore many of marketing's key functions. A study of venture capitalists indicated that effective market analysis could reduce new venture failure rates by 60 percent. The same study found that 75 percent of entrepreneurs ignored negative marketing information.5 In this chapter we will flesh out the significant marketing decisions and functions that the new venture must perform.6 We will follow the format of the marketing section of the business plan presented in Chapter 5. By following the examples and illustrations in this chapter students can develop their own marketing plans.

We begin by considering the new venture's overall marketing concept and orientation. Then we examine the marketing resources controlled by and available to entrepreneurs and their firms. Next we review the key elements of a new venture's marketing strategy, with special emphasis on market research--potentially a source of

3

The opening quote is a reminder that the entrepreneur still faces many challenges after the new venture is created and initial success is achieved. The completion of the business plan is only one milestone along the way. The next four chapters describe the ongoing requirements for the new enterprise. In these chapters we see that the marketing, finance, and organizational functions reflect continuous efforts to develop and maintain competitive advantage and to keep the firm entrepreneurial. There is no rest for those pursuing the entrepreneurial dream.

Effective marketing in today's competitive international environment requires constant vigilance and effort. "If you can't sell a top-quality product at the world's lowest price, you're going to be out of business," says Jack Welch, chief executive officer of the General Electric Company.1 Just having a top-quality product is insufficient. Quality is becoming a commodity--even Americans can do it!2 Besides, there may be more than one standard for quality, and it may change over time. Without doubt, various top-quality products and services are available at any given time. Determining what represents top quality for a specific customer is often a marketing decision.

The opening quotation also implies that even if you succeed, there are no guarantees for the future. Although business is like a game, there is no clock, and the game never ends. Adding to the complexity, more than one game is going on at one time. Customers are not all the same: They have different preferences and standards, they are located in different parts of the world, and they belong to various demographic groups. The choices of which games to play are marketing choices. They are the result of the venture's marketing strategy.

Marketing contributes to a venture's success in two ways: (1) it defines the manner of communicating the firm's resource advantages, and (2) it can be a source of sustainable competitive advantage (SCA). The first role of marketing is fairly straightforward. Organizations are created to add value to resources for buyers, and the culmination of all this activity is the transaction between buyer and seller and their subsequent relationship. Because marketing activities focus directly on the nature of the transaction--the product, its price, the location and time of transaction, and communications related to the event---marketing activities influence the success of the firm.

The second role of marketing is to be "its own resource." That is, marketing can be a source of SCA. Marketing capabilities and strategies can be rare, valuable, hard to copy, and nonsubstitutable. Aspects of the marketing strategy can exist across resource categories. Various elements may have technological components, human dimensions, and reputational characteristics, and the effective coordination of these elements also requires organizational resources. The development of marketing capability by the new venture is therefore a double imperative. The omission of a marketing plan by the entrepreneurial team is a red flag for investors and concerned stakeholders.

The Marketing and Entrepreneurship Interface

How are marketing and entrepreneurship similar? Marketing activities have much in common with entrepreneurial activities, and many entrepreneurs equate the ability to sell with entrepreneurial success.3 Although selling remains an important element, marketing is more than selling. Marketing and entrepreneurship interface at four different points:

4

SCA. We conclude by describing various methods of sales forecasting. Sales forecasts (and, concurrently, actual sales) are the crucial outcome of the venture's marketing activities and provide the bridge between the entrepreneur's plans and aspirations and the organization's financial potential and performance.

E-NOTES 6?1 MARKETING AND ENTREPRENEURSHIP

Marketing and entrepreneurship both: ? cater to customer needs ? evaluate new product or new service ideas ? function as scanners, evaluators, boundary scanners and representatives

for their venture ? are growth oriented ? often have misconceptions about consumers, competition, costs, and product

Marketing Concept and Orientation

Where does the entrepreneur begin thinking about marketing? The initial point is the marketing concept. The marketing concept is a managerial prescription (an "ought-to-do") for setting marketing goals and managing exchange transactions. It requires an understanding of potential and actual customer needs and of costs of meeting those needs. The venture then devises and implements a total system that integrates the marketing function with the other business functions. The single most important objective of marketing is customer satisfaction. Customer satisfaction is achieved when the firm has provided user-based quality and value (the quality/price ratio) to its buyers.

CUSTOMER ORIENTATION

The total marketing concept is fairly well established in most small businesses and new ventures.7 But it is not the only point-of-view that ventures take. The marketing concept can be contrasted to other business postures, namely, a production orientation, a sales emphasis, or a social orientation.

A production orientation is preoccupied with manufacturing-based or productbased quality. It is internally directed at the activities of the firm and its functions. Production-oriented ventures are often founded by engineers, inventors, or high-tech wizards--people who are fascinated by the gadgets and gizmos they are attempting to bring to market.

A sales orientation is not a marketing orientation. Sales-oriented firms are interested in selling--that is their number one priority. Issues such as developing longterm relationships with customers, integrating business functions to provide maximum satisfaction, and working hard to deliver the product or service at the lowest possible price are not primary concerns. For sales-oriented ventures, moving product out the door is job number one.

Occasionally, firms that have a social orientation are successful. Examples such as Ben and Jerry's ice cream and The Body Shop prove that a social conscience is not necessarily in conflict with business effectiveness. Often customers purchase these firms' products to affirm their own social tendencies. The firms are able to charge a

5

premium, which is a form of tax, that customers willingly pay knowing that a certain percentage goes to support the social causes espoused by the founding entrepreneurs.

Even experienced entrepreneurs can and do fail to employ the marketing concept when launching their businesses. Take the case of Minnesota Brewing Co., which almost lost it all by not knowing its market before introducing its products.8 The firm was founded in 1991 and operated out of a closed Heileman Brewing plant. Investors ponied up $3.3 million to produce, distribute, and sell beer to a loyal blue-collar market. But along the way, the company forgot its customer. Laments lead investor Bruce Hendry, "Looking back, I've gotten a million-dollar education on how to sell beer-- what to do and what not to do." The lesson: Know your market before you leap.

The venture had a number of important factors going for it: a landmark location, low-interest state-subsidized loans, and a highly reputed management team. It even had the good fortune of having the local St. Paul newspaper run a contest, called "Name the Beer," for the firm's first product. The winning name was Pig's Eye Pilsner (Pig's Eye was the city's name before it became St. Paul). But all the momentum was wasted as the venture's management made marketing mistake after mistake.

? Mistake 1. The firm did not name the beer "Pig's Eye." It chose "Landmark" as its first product's name. Hendry said it sounded more dignified. But it had no appeal and was considered boring. Beer drinkers were not impressed by dignity.

? Mistake 2. The beer was brewed to taste like old-style European beers--heavy and slightly bitter. Consumers, however, expected the beer to be a light lager like the typical American brew.

? Mistake 3. The venture's advertising campaign was misleading. It promised a lighter-tasting beer, like the Schmidt brand that used to be brewed in the old Heileman plant.

? Mistake 4. The price was wrong. Landmark was priced as a premium beer and cost as much as Budweiser. Competitors cut prices when Landmark was launched to make it seem even more expensive. Customers expected to pay $9.99 a case and were shocked when the price was $14.99.

Sales were disappointing and reached only one third of break-even. The investors, who prided themselves on their marketing expertise, had double-crossed themselves by moving away from what they knew to be the customer's needs. Before they lost it all, they needed a turnaround. Here's what they did: They developed a new, lighter beer and tested it on hundreds of drinkers at local bars, in focus groups, and in taste tests. They named the beer Pig's Eye Pilsner and priced it at $8.99 a case. The firm launched a new ad campaign that spoofed Stroh's "Swedish bikini team" ads. They developed a logo character named Pig's Eye Parrent (reputedly the founder of the city of Pig's Eye) whose grinning leer beneath his eye patch makes him appealing to men and women. The results have been impressive. Case sales are well over break-even and rising, intense brand loyalty is developing, and Pig's Eye Parrent's image will grace other products through a number of licensing deals. Says Hendry, "Pig's Eye saved our shirt."

MARKETING RESEARCH

Marketing research eventually put Minnesota Brewing back on track and turned the company around. The marketing concept requires that customer satisfaction be the primary objective, and understanding what customer satisfaction means in any partic-

6

ular business concept requires extensive knowledge of the potential purchasers. Marketing research is designed to provide that information.

Marketing research can be defined as "the systematic and objective process of gathering, coding, and analyzing data for aid in making marketing decisions."9 In Chapter 3 we introduced a framework for analyzing customers, competitors, and industry forces, but the needed data came from marketing research. Effective marketing research can help the new venture answer such important questions as:

? Who is the customer? The customer profile includes demographic characteristics, values and attitudes, buyer and shopping behavior, and buyer location. Customers can be local, regional, national, or international. Understanding the customer is the basis for market segmentation.

? Who are the players? The competitive profile of existing competitors and potential competitors can indicate the likelihood of retaliation and the nature of the reaction. For example, Minnesota Brewing failed to realize that competitors would cut prices to impede its new product's introduction.

? How can the customer be reached? The distribution networks and channels represent the actual delivery of the product or service. Sometimes the answer to this question falls back on standard industry practices: "ship by common carrier," "retail channels," "in-house sales force." But other times the distribution system is the business--as at Avon, Domino's Pizza, and Amway.

Conducting Marketing Research Many entrepreneurs conduct some sort of marketing research in the early stages of new venture creation.10 Marketing research is also a common practice among small businesses. As many as 40 percent of smaller businesses do marketing research, and the vast majority are satisfied with the results.11 Marketing research need not be an expensive and time-consuming exercise. Answers to the important marketing questions are frequently well within the grasp of the entrepreneur, and most marketing research can be done by the founders themselves.12

Conducting marketing research is a six-step process.

Step 1. Marketing research begins with a definition of the purposes and objectives of the study. The entrepreneur must pinpoint the aspect of the product or market that requires the research: product features, design characteristics, packaging. Knowing what questions need answers will help save time and money and make the results easier to interpret. In this important preliminary stage, the researcher should be clear on the specific nature of the problem. The key for the researcher is to determine what facts, knowledge, and opinions would help the entrepreneurs make a better decision.13

Step 2. The next step is to determine the data sources best suited to the objectives of the study. Data come from two types of sources: primary and secondary. Primary data are generated from scratch by the research team. Three common entrepreneurial primary-data projects are the concept test, the product test, and the market test.

Concept testing occurs very early in new venture planning, often before the final venture configuration is complete. The purpose of the concept test is to determine whether customers can envision how the product or service will work and whether they would purchase it. The customers respond to a description of the product or service; no physical representation yet exists. After reading the description, customers are asked if they understand the product and if they are likely to purchase.

7

Concept testing can also be used for potential investors, suppliers, or members of the managerial team. Each of these groups is in a position to evaluate the new venture concept, and the entrepreneur can gauge whether the concept is likely to be accepted by these important stakeholders. In addition, feedback from these people at the concept stage enables the entrepreneur to make the type of adjustments and alterations to the concept that can save time, money, and reputation down the road.

Product testing requires having potential customers or investors react to the actual use of a new product or service. The subjects may use the product briefly, even take it home for a more intensive test. Product testing is less abstract than concept testing, and therefore the responses are more reliable. However, some products are so expensive to manufacture, even as prototypes, that product testing becomes unrealistic, and concept testing must suffice.

Market testing is the most complex and expensive approach, but it is also the most realistic and most likely to produce reliable results. In a market test, the product or service is introduced using the full marketing strategy but in a limited area that is representative of the broader market. It is an attempt to duplicate the conditions of actually marketing the product, usually on a limited geographic scale. For ventures with a limited geographic reach anyway, the market test is the actual beginning of business operations. Small manufacturing operations that seek broad product distribution would be candidates for market test research.

Each of the three types of test has its costs and benefits, and proper selection requires a fit between the entrepreneur's needs and resources and the type of product or service under consideration. Table 6?1 summarizes each test and its appropriateness to a variety of situations.

Secondary sources consist of data, information, and studies that others have already completed and published. These sources are useful for planning original data collection activities because they provide in-depth background information on customers and markets. They can be extremely useful for the new venture's marketing research efforts because most are easily accessed and either free or inexpensive. A virtually unlimited volume of information is available from hundreds of sources. Sometimes already-published studies are examples of concept, product, and market

TABLE 6?1 Marketing Research: Appropriateness of Primary-Data Collection Methods

New Venture Characteristic

Concept Test

Product Test

Market Test

Single-product venture Multi-product venture Importance of product performance Importance of pricing strategy Importance of promotion Importance of distribution Introduction of innovations, continuous Introduction of innovations, occasional

High Moderate to low High High Moderate to high Moderate to high High Low

High Low High High Low Low High Moderate

High Moderate High High Moderate to high Moderate to high High High

Source: Adapted from G. Hills and R. LaForge, "Marketing and Entrepreneurship: The State of the Art," in The State of the Art of Entrepreneurship, eds. D. Sexton and J. Kasarda (Boston: PWS-Kent, 1992), 164?190.

8

tests similar to those the new venture might conduct itself. These are frequently available in public libraries and always available in the business library of major business schools. Additional resources can be located by searching the Internet.

Step 3. The third step in marketing research is to develop the data collection instrument or test. Marketing research data can come from a single source or multiple sources. If a variety of sources are employed, the results are more likely to be valid. For customer studies, personal and telephone interviews, focus groups, and direct observation might be appropriate. Mail studies and surveys are common data sources. Whichever method is chosen in step 2, a properly designed data collection instrument is required. This is self-evident for interviews and survey-type research, but it is also important for secondary data sources. These data sources have the potential to overwhelm the marketing researcher because there are so much data and the researcher will tend to believe that all of it is important. Too much data are as dangerous as too little because of the extra expense and the difficulty of coding and analyzing large data sets. The researcher should have a clear idea of the specific data required before investigating secondary sources.

Step 4. The fourth step is the design and choice of the sample. Occasionally the researcher will be able to speak to all of the firm's customers or collect data on all of the companies of interest. If this is the case, the researcher has not a sample but a census. Usually, however, there are too many people or companies to speak to, so it is necessary to choose a small proportion of them as representative of the total population. This is a sample. The key issues in sample design are representativeness and reliability. A sample does not have to be large to be representative of the whole population. National polls of voters may contain as few as 1,500 participants representing 60 million voters. Yet these polls are often very accurate. For statistically pure national samples, the venture probably should employ professional marketing researchers. For smaller, do-it-yourself efforts, the researchers simply need to ensure that the people they speak to have the information desired. Very small samples of one, two, and three respondents are seldom sufficient.

Step 5. The fifth step is data collection. This is the actual execution of the study. Data need to be collected in an unbiased and uniform manner. The correct design of the instrument and of the sample help to ensure this. Additional measures are also needed, such as training survey recorders and telephone interviewers, checking data records for errors, and scanning responses.

Step 6. The final stage of a marketing research project is the analysis of the data and the interpretation of the results. Often a final report is written, even when the project is relatively small and the goals of the study fairly narrow. This ensures that a record exists for the future and that others in the organization can refer to the study as necessary.

Many entrepreneurs must do their market research with limited funds. They face a "chicken or egg situation"--they cannot obtain financing without good market research, and they are unable to afford a large market research effort without financing. But the most expensive research is research conducted in a slovenly way. At best, it will lead to repeating the effort; at worst it will lead to erroneous conclusions. Still, the entrepreneur must conduct good market research "on the cheap." Cost-saving recommendations include:

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download