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Marketing Strategy and Price One of the most important and challenging elements of the marketing mix is pricing.  Price  is the value that must be exchanged for a customer to receive a product or service. It is usually monetary and has a direct impact on sales. Many entrepreneurs are intimidated by financials and the prospect of using statements and other information to make projections. Correctly pricing your product enables your company to be competitive while maximizing your product’s profit potential. Here are several methods that entrepreneurs can use to effectively price products: Cost-Based Pricing Cost-based pricing  is the easiest way to price a product. It involves taking the cost of making the product and creating a  profit margin, which is how much profit your business stands to make after costs have been deducted. For example, if you add the direct costs for materials and labor to the indirect costs of salaries, marketing, rent, and utilities, you determine that your product costs $5 to make. Adding, say, a 30 percent profit margin would give you a sales price of $6.50. The percentage added depends on the business’s goals. This type of pricing is helpful when start-ups do not have much information about their target market and need more time to define their value proposition and business identity. Competition-Based Pricing Another option to set prices is for the entrepreneur to consider what the competition is doing—what they are charging customers. And remember, it is the competition that establishes the price range for given product/service categories. If you perform your competitive analysis properly, you will know the prices charged by your competitors. In other words, you will be able to establish the current “going rates.” What you must decide as an entrepreneur is how you will price your products/services given this range. For example, do you wish to be at the high end of the range? Do you wish to be at the low end of the range? Or, do you wish to be at the middle of the range? Now, of course, the key question is how do you know whether to price at the high end, low end, or middle of the range? Well, here is some guidance. For example, if you have a high-quality and highly differentiated product/service, you should probably charge a price at the high end of the price range. If, on the other hand, you are marketing a product/service designed to appeal to the price-sensitive customer, then you will price it at the low end of the price range. If your product/service is similar to your key direct competitors, you will charge basically the same price. Customer-Based Pricing Unlike cost-based pricing that emphasizes the cost side of the business, customer-based pricing focuses on the demand side of the business. The price ceiling is the maximum amount that customers are willing to pay for a product. This ceiling is contingent on the elasticity of demand. And elasticity of demand is generally driven by availability of substitutes and the urgency of need for the product (or strong desire for it). So, one thing you need to determine is whether there will be elastic demand (demand that increases as price decreases or demand that decreases as price increases) or inelastic demand (demand does not change if prices increase or decrease) for your product. One customer-based pricing method, skimming pricing, leverages the newness of a product to justify the highest price possible in order to “skim” the most profits off the top, meaning in the first phase of sales. As time passes, the price is lowered to accommodate for more price-sensitive customers.  Apple  often introduces its products with this particular method, charging the highest price for them until it has exhausted the market willing to buy at that price and when newer and more technologically advanced products are introduced. Then, Apple slowly lowers its pricing. On the other hand, penetration pricing  (charging a low initial price) is appropriate if you have a market with price-sensitive customers; you want to use the low initial price to discourage competitors from entering the market and when production and marketing costs fall dramatically as demand (volume) increases. However, it may also lead to “price wars” in which competitors keep dropping prices in an attempt to beat each other. Obviously, the disadvantage is diminished profits for all.  If you start with a skimming price strategy, you can, over time, lower your price to attract more price-sensitive customers. However, if you enter the market with a penetration price strategy, it is often very difficult to raise your prices. In other words, while you can move down the going price range with a skimming price strategy, you may not be able to move up the going price range if you initially used a penetration price strategy. Prestige pricing involves setting high prices on products to convey a message of uniqueness or premium quality. However, you need a clear reason why customers would want to spend more on your product. When Duracell launched its high-performance Ultra brand AA alkaline battery with a 25 percent price premium over standard Duracell batteries, Energizer quickly countered with its own high-performance battery—Energizer Advanced Formula. Believing that consumers would not pay the premium price, Energizer priced its Advanced Formula brand at the same price as its standard AA alkaline battery, expecting to gain market share from Duracell.  It did not happen. Why? Consumers associated Energizer’s low price with inferior quality in the high-performance segment. Energizer lost market share.   Some customers are demanding better value (increased benefits at the same price). Therefore, many new ventures appeal to this type of customer using value-based pricing. For example, they might offer customers “better value” by offering a greater quantity of product at the same price as competitors. A startup yogurt company, for example, offers 20 percent more product per package at the same price as a competitor that offers the standard amount. Another value-based pricing strategy is bundling two or more products in a single package deal, thus lowering the total cost compared to if the customer purchased each item separately. An example of this strategy is used by  DirectTV, which bundles its phone, Internet, and satellite services for a monthly fee. If a customer were to purchase these services separately, they would be more expensive. The benefits of bundling include gaining more revenue per customer, as they would not have paid for some services separately, and making the order-taking task simpler. Take fast-food chains, for example. Instead of asking the customer to list everything separately from the menu, they give you the name or number of the bundle. They make more profit by including the drink and sides to the main entrée, and the customer saves money and time ordering. One of the good things about using a customer-based pricing approach is that you should be able to determine the “target price” based on the customer’s perspective. Knowing this target price, you can then “back into that price.” In other words, you can “design to price.” For example, an upstart commercial furniture manufacturer used customer input to establish the optimal price point that customers were willing to pay for particular furniture pieces. The company then went back and pulled costs out of its production system, stripped away costly features the customers do not value, and designed and produced the product to meet the customers’ target price. Another advantage of using a customer-based pricing approach is the possibility of uncovering the opportunity to “price by segment” and to offer “good, better, best” product options. In other words, you might be able to develop a line of products with specific price points designed to appeal to very specific segments. For example, consider a casual clothing store for women that sells three different lines of casual dresses priced at $39, $59, and $79. This practice is known as price lining. * * * * * Ultimately, you need to consider cost, competitors, and customers when setting prices. You must know your price floor (your cost), know what your competitors are charging (the price range), and know your customers’ willingness and ability to pay (the price ceiling). While pricing must be established when starting a new business, pricing strategies should be reviewed on an ongoing basis. These occasions in particular merit consideration: When adding a new product or service to your offerings When demand shifts (due to market, consumer, or other factors) When entering a new market When competitors are making changes When your costs are changing When adjusting products/services or strategies
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Place: Choosing a Distribution Channel The three main considerations in evaluating a channel of distribution are costs, coverage, and control: Costs. In many cases, the least expensive channel may be indirect. For example, a firm producing handmade dolls may choose not to purchase trucks and warehouses to distribute its product directly to customers if it costs less to use established intermediaries that already own such equipment and facilities. Small companies should look at distribution costs as an investment—spending money in order to make money—and ask themselves whether the cost of using intermediaries (by selling the product to them at a reduced price) is more or less expensive than distributing the product directly to customers. Coverage. Small businesses can often use indirect channels of distribution to increase market coverage. Suppose a small manufacturer’s internal sales force can make 10 contacts a week with final users of the venture’s product. Creating an indirect channel with 10 industrial distributors, each making 10 contacts a week, could expose the product to 100 final users a week. Control. A direct channel of distribution is sometimes preferable because it provides more control. To ensure that the product is marketed with care, an entrepreneur must deliberately select intermediaries that provide the desired support. A small business that chooses to use intermediaries to market and distribute its product must be sure that the intermediaries understand how the product is best used and why it’s better than competitors’ offerings. Additionally, if a wholesaler carries competing products, an entrepreneur must be sure that their product gets its fair share of marketing efforts. An intermediary’s sloppy marketing support and insufficient product knowledge can undermine the success of even the best product.
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Small Business Analyzing Marketing Strategy Preparation Review the Module 5A “Preparation” items. Your Assignment Choose a small business with which you’re familiar (i.e., as an employee, as a customer, or through research) and respond to the following: What’s the name of the small business? If it has a website, please include a link. Describe the small business’s marketing strategy—target market and marketing mix (product, price, promotion, and place). Hint: When describing the product, keep in mind that it consists of more than just physical attributes, and even tangible products (goods) have intangible attributes. Beyond the basic attributes, consider package design, brand name, warranty, product image, customer service, etc. Discuss at least one recommendation you would make to improve the business’s marketing strategy. In your response to question 1, clearly identify each element of the marketing strategy using bullet points or separate paragraphs—for example, Target market Product Price Place Promotion
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6.1 What Marketing Is All About LEARNING OBJECTIVES Define marketing. Explain why marketing is so important to small business. Explain the marketing concept, the societal marketing concept, and the holistic marketing concept. Define customer value and discuss the role of marketing and delivering it. Explain market segmentation, target market, marketing mix, differentiation, positioning, marketing environment, marketing management, and marketing strategy. Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.Jack Trout, “Peter Drucker on Marketing,” Forbes, July 3, 2006, accessed January 19, 2012, www.forbes.com/2006/06/30/jack-trout-on-marketing-cx_jt_0703drucker .html. Peter Drucker Marketing is defined by the American Marketing Association as “the activity, set of institutions, and processes for creating, communicating, and exchanging offerings that have value for customers, clients, partners, and society at large.”“AMA Definition of Marketing,” American Marketing Association, December 17, 2007, accessed December 1, 2011, www.marketingpower.com/Community/ARC/Pages/Additional/Definition/default.aspx. Putting this formality aside, marketing is about delivering value and benefits: creating products and services that will meet the needs and wants of customers (perhaps even delighting them) at a price they are willing to pay and in places where they are willing to buy them. Marketing is also about promotional activities such as advertising and sales that let customers know about the goods and services that are available for purchase. Successful marketing generates revenue that pays for all other company operations. Without marketing, no business can last very long. It is that important and that simple—and it applies to small business. Marketing is applicable to goods, services, events, experiences, people, places, properties, organizations, businesses, ideas, and information.Adapted from Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 6–7. There are several concepts that are basic to an understanding of marketing: the marketing concept, customer value, the marketing mix, segmentation, target market, the marketing environment, marketing management, and marketing strategy. The Marketing Concept…and Beyond The marketing concept has guided marketing practice since the mid-1950s.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. The concept holds that the focus of all company operations should be meeting the customer’s needs and wants in ways that distinguish a company from its competition. However, company efforts should be integrated and coordinated in such a way to meet organizational objectives and achieve profitability. Perhaps not surprisingly, successful implementation of the marketing concept has been shown to lead to superior company performance.Rohit Deshpande and John U. Farley, “Measuring Market Orientation: Generalization and Synthesis,” Journal of Market-Focused Management 2 (1998): 213–32; Ajay K. Kohli and Bernard J. Jaworski, “Market Orientation: The Construct, Research Propositions, and Managerial Implications,” Journal of Marketing 54 (1990): 1–18; and John C. Narver and Stanley F. Slater, “The Effect of a Market Orientation on Business Profitability,” Journal of Marketing 54 (1990): 20–35—all as cited in Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. “The marketing concept recognizes that there is no reason why customers should buy one organization’s offerings unless it is in some way better at serving the customers’ wants and needs than those offered by competing organizations. Customers have higher expectations and more choices than ever before. This means that marketers have to listen more closely than ever before.”Charles W. Lamb, Joseph F. Hair, and Carl McDaniel, Essentials of Marketing (Mason, OH: South-Western, 2004), 8. Sam Walton, the founder of Walmart, put it best when he said, “There is only one boss: the customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.”“You Don’t Say?,” Sales and Marketing Management, October 1994, 111–12. Small businesses are particularly suited to abiding by the marketing concept because they are more nimble and closer to the customer than are large companies. Changes can be made more quickly in response to customer wants and needs. The societal marketing concept emerged in the 1980s and 1990s, adding to the traditional marketing concept. It assumes that a “company will have an advantage over competitors if it applies the marketing concept in a manner that maximizes society’s well-being”Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason, OH: Atomic Dog Publishing, 2007), 12. and requires companies to balance customer satisfaction, company profits, and the long-term welfare of society. Although the expectation of ethical and responsible behavior is implicit in the marketing concept, the societal marketing concept makes these expectations explicit. Small business is in a very strong position in keeping with the societal marketing concept. Although small businesses do not have the financial resources to create or support large philanthropic causes, they do have the ability to help protect the environment through green business practices such as reducing consumption and waste, reusing what they have, and recycling everything they can. Small businesses also have a strong record of supporting local causes. They sponsor local sports teams, donate to fund-raising events with food and goods or services, and post flyers for promoting local events. The ways of contributing are virtually limitless. Video Link 6.1 Do Well While Doing Good Small business sustainability practices. www.startupnation.com/podcasts/episodes/9564/creating-sustainable-business-practices.htm The holistic marketing concept is a further iteration of the marketing concept and is thought to be more in keeping with the trends and forces that are defining the twenty-first century. Today’s marketers recognize that they must have a complete, comprehensive, and cohesive approach that goes beyond the traditional applications of the marketing concept.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. A company’s “sales and revenues are inextricably tied to the quality of each of its products, services, and modes of delivery and to its image and reputation among its constituencies. [The company] markets itself through everything it does, its substance as well as its style. It is that all-encompassing package that the organization then sells.”Charles S. Mack, “Holistic Marketing,” Association Management, February 1, 1999, accessed January 19, 2012, www.asaecenter.org/Resources/AMMagArticleDetail.cfm?ItemNumber=880. What we see in the holistic marketing concept is the traditional marketing concept on steroids. Small businesses are natural for the holistic marketing concept because the bureaucracy of large corporations does not burden them. The size of small businesses makes it possible, perhaps imperative, to have fluid and well-integrated operations. Customer Value The definition of marketing specifically includes the notion that offerings must have value to customers, clients, partners, and society at large. This necessarily implies an understanding of what customer value is. Customer value is discussed at length in Chapter 2 “Your Business Idea: The Quest for Value”, but we can define it simply as the difference between perceived benefits and perceived costs. Such a simple definition can be misleading, however, because the creation of customer value will always be a challenge—most notably because a company must know its customers extremely well to offer them what they need and want. This is complicated because customers could be seeking functional value (a product or a service performs a utilitarian purpose), social value (a sense of relationship with other groups through images or symbols), emotional value (the ability to evoke an emotional or an affective response), epistemic value (offering novelty or fun), or conditional value (derived from a particular context or a sociocultural setting, such as shared holidays)—or some combination of these types of value. (See Chapter 2 “Your Business Idea: The Quest for Value” for a detailed discussion of the types of value.) Marketing plays a key role in creating and delivering value to a customer. Customer value can be offered in a myriad of ways. In addition to superlative ice cream, for example, the local ice cream shop can offer a frequent purchase card that allows for a free ice cream cone after the purchase of fifteen ice cream products at the regular price. Your favorite website can offer free shipping for Christmas purchases and/or pay for returns. Zappos.com offers free shipping both ways for its shoes. The key is for a company to know its consumers so well that it can provide the value that will be of interest to them. Market Segmentation The purpose of segmenting a market is to focus the marketing and sales efforts of a business on those prospects who are most likely to purchase the company’s product(s) or service(s), thereby helping the company (if done properly) earn the greatest return on those marketing and sales expenditures.Center for Business Planning, “Market Segmentation,” Business Resource Software, Inc., accessed December 1, 2011, www.businessplans.org/segment.html. Market segmentation maintains two very important things: (1) there are relatively homogeneous subgroups (no subgroup will ever be exactly alike) of the total population that will behave the same way in the marketplace, and (2) these subgroups will behave differently from each other. Market segmentation is particularly important for small businesses because they do not have the resources to serve large aggregate markets or maintain a wide range of different products for varied markets. The marketplace can be segmented along a multitude of dimensions, and there are distinct differences between consumer and business markets. Some examples of those dimensions are presented in Table 6.1 “Market Segmentation”. LifeLock, a small business that offers identity theft protection services, practices customer type segmentation by separating its market into business and individual consumer segments. Table 6.1 Market Segmentation Consumer Segmentation Examples Business Segmentation Examples Geographic Segmentation Region (e.g., Northeast or Southwest) City or metro size (small, medium, or large) Density (urban, suburban, or rural) Climate (northern or southern) Demographic Segmentation The industry or industries to be served The company sizes to be served (revenue, number of employees, and number of locations) Demographic Segmentation Age Family size Family life cycle (e.g., single or married without kids) Gender Income Occupation Education Religion Race/ethnicity Generation Nationality Social class Operating Variables The customer technologies to be focused on The users that should be served (heavy, light, medium, or nonusers) Whether customers needing many or few services should be served Psychographic Segmentation Personality Lifestyle Behavioral occasions (regular or special occasion) Values Purchasing Approaches: Which to Choose? Highly centralized versus decentralized purchasing Engineering dominated, financially dominated, and so forth Companies with whom a strong relationship exists or the most desirable companies Companies that prefer leasing, service contracts, systems purchases, or sealed bidding Companies seeking quality, service, and price Behavioral Segmentation Benefits of the product (e.g., toothpaste with tartar control) User status (nonuser, regular user, or first-time user) Usage rate (light user, medium user, or heavy user) Loyalty status (none, medium, or absolute) Attitude toward the product (e.g., enthusiastic or hostile) Situational Factors: Which to Choose? Companies that need quick and sudden delivery or service Certain application of the product instead of all applications Large or small orders or something in-between Personal Characteristics: Which to Choose? Companies with similar people and values Risk-taking or risk-aversive customers Companies that show high loyalty to their suppliers Other Characteristics Status in industry (technology or revenue leader) Need for customization (specialized computer systems) Source: Adapted from “Market Segmentation,” Business Resource Software, Inc., accessed December 2, 2011, http://www.businessplans.org/segment.html; adapted from Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 214, 227. Market segmentation requires some marketing research. The marketing research process is discussed in Section 6.3 “Marketing Research”. Target Market Market segmentation should always precede the selection of a target market. A target market is one or more segments (e.g., income or income + gender + occupation) that have been chosen as the focus for business operations. The selection of a target market is important to any small business because it enables the business to be more precise with its marketing efforts, thereby being more cost-effective. This will increase the chances for success. The idea behind a target market is that it will be the best match for a company’s products and services. This, in turn, will help maximize the efficiency and effectiveness of a company’s marketing efforts: It is not feasible to go after all customers, because customers have different wants, needs and tastes. Some customers want to be style leaders. They will always buy certain styles and usually pay a high price for them. Other customers are bargain hunters. They try to find the lowest price. Obviously, a company would have difficulty targeting both of these market segments simultaneously with one type of product. For example, a company with premium products would not appeal to bargain shoppers… Hypothetically, a certain new radio station may discover that their music appeals more to 34–54-year-old women who earn over $50,000 per year. The station would then target these women in their marketing efforts.Rick Suttle, “Define Market Segmentation & Targeting,” Chron.com, accessed December 1, 2011, smallbusiness.chron.com/define-market-segmentation-targeting-3253 .html. Target markets can be further divided into niche markets. A niche market is a small, more narrowly defined market that is not being served well or at all by mainstream product or service marketers. People are looking for something specific, so target markets can present special opportunities for small businesses. They fill needs and wants that would not be of interest to larger companies. Niche products would include such things as wigs for dogs, clubs for left-handed golfers, losing weight with apple cider vinegar, paint that transforms any smooth surface into a high performance dry-erase writing surface, and 3D printers. These niche products are provided by small businesses. Niche ideas can come from anywhere. Marketing Mix Marketing mix is easily one of the most well-known marketing terms. More commonly known as “the four Ps,” the traditional marketing mix refers to the combination of product, price, promotion, and place (distribution). Each component is controlled by the company, but they are all affected by factors both internal and external to the company. Additionally, each element of the marketing mix is impacted by decisions made for the other elements. What this means is that an alteration of one element in the marketing mix will likely alter the other elements as well. They are inextricably interrelated. No matter the size of the business or organization, there will always be a marketing mix. The marketing mix is discussed in more detail in Chapter 7 “Marketing Strategy”. A brief overview is presented here. Figure 6.1 The Marketing Mix Product Product refers to tangible, physical products as well as to intangible services. Examples of product decisions include design and styling, sizes, variety, packaging, warranties and guarantees, ingredients, quality, safety, brand name and image, brand logo, and support services. In the case of a services business, product decisions also include the design and delivery of the service, with delivery including such things as congeniality, promptness, and efficiency. Without the product, nothing else happens. Product also includes a company’s website. Price Price is what it will cost for someone to buy the product. Although the exchange of money is what we traditionally consider as price, time and convenience should also be considered. Examples of pricing decisions include pricing strategy selection (e.g., channel pricing and customer segment pricing), retail versus wholesale pricing, credit terms, discounts, and the means of making online payments. Channel pricing occurs when different prices are charged depending on where the customer purchases the product. A paper manufacturer may charge different prices for paper purchased by businesses, school bookstores, and local stationery stores. Customer segment pricing refers to charging different prices for different groups. A local museum may charge students and senior citizens less for admission.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 401. Promotion Having the best product in the world is not worth much if people do not know about it. This is the role of promotion—getting the word out. Examples of promotional activities include advertising (including on the Internet), sales promotion (e.g., coupons, sweepstakes, and 2-for-1 sales), personal sales, public relations, trade shows, webinars, videos on company websites and YouTube, publicity, social media such as Facebook and Twitter, and the company website itself. Word-of-mouth communication, where people talk to each other about their experiences with goods and services, is the most powerful promotion of all because the people who talk about products and services do not have any commercial interest. Place Place is another word for distribution. The objective is to have products and services available where customers want them when they want them. Examples of decisions made for place include inventory, transportation arrangements, channel decisions (e.g., making the product available to customers in retail stores only), order processing, warehousing, and whether the product will be available on a very limited (few retailers or wholesalers) or extensive (many retailers or wholesalers) basis. A company’s website is also part of the distribution domain. Two Marketing Mixes No matter what the business or organization, there will be a marketing mix. The business owner may not think about it in these specific terms, but it is there nonetheless. Here is an example of how the marketing mix can be configured for a local Italian restaurant (consumer market). Product. Extensive selection of pizza, hot and cold sub sandwiches, pasta and meat dinners, salads, soft drinks and wine, homemade ice cream and bakery products; the best service in town; and free delivery. Price. Moderate; the same price is charged to all customer segments. Promotion. Ads on local radio stations, websites, and local newspaper; flyers posted around town; coupons in ValPak booklets that are mailed to the local area; a sponsor of the local little league teams; ads and coupons in the high school newspaper; and a Facebook presence. Place. One restaurant is located conveniently near the center of town with plenty of off-street parking. It is open until 10:00 p.m. on weekdays and 11:30 p.m. on Fridays and Saturdays. There is a drive-through for takeout orders, and they have a special arrangement with a local parochial school to provide pizza for lunch one day per week. Here is an example of how the marketing mix could be configured for a green cleaning services business (business market). Product. Wide range of cleaning services for businesses and organizations. Services can be weekly or biweekly, and they can be scheduled during the day, evening, weekends, or some combination thereof. Only green cleaning products and processes are used. Price. Moderate to high depending on the services requested. Some price discounting is offered for long-term contracts. Promotion. Ads on local radio stations, website with video presentation, business cards that are left in the offices of local businesses and medical offices, local newspaper advertising, Facebook and Twitter presence, trade show attendance (under consideration but very expensive), and direct mail marketing (when an offer, announcement, reminder, or other item is sent to an existing or prospective customer). Place. Services are provided at the client’s business site. The cleaning staff is radio dispatched. The Marketing Environment The marketing environment includes all the factors that affect a small business. The internal marketing environment refers to the company: its existing products and strategies; culture; strengths and weaknesses; internal resources; capabilities with respect to marketing, manufacturing, and distribution; and relationships with stakeholders (e.g., owners, employees, intermediaries, and suppliers). This environment is controllable by management, and it will present both threats and opportunities. The external marketing environment must be understood by the business if it hopes to plan intelligently for the future. This environment, not controllable by management, consists of the following components: Social factors. For example, cultural and subcultural values, attitudes, beliefs, norms, customs, and lifestyles. Demographics. For example, population growth, age, gender, ethnicity, race, education, and marital status. Economic environment. For example, income distribution, buying power and willingness to spend, economic conditions, trading blocs, and the availability of natural resources. Political and legal factors. For example, regulatory environment, regulatory agencies, and self-regulation. Technology. For example, the nature and rate of technological change. Competition. For example, existing firms, potential competitors, bargaining power of buyers and suppliers, and substitutes.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 294–95. Ethics. For example, appropriate corporate and employee behavior. Figure 6.2 The Marketing Environment Small businesses are particularly vulnerable to changes in the external marketing environment because they do not have multiple product and service offerings and/or financial resources to insulate them. However, this vulnerability is offset to some degree by small businesses being in a strong position to make quick adjustments to their strategies if the need arises. Small businesses are also ideally suited to take advantage of opportunities in a changing external environment because they are more nimble than large corporations that can get bogged down in the lethargy and inertia of their bureaucracies. Marketing Strategy versus Marketing Management The difference between marketing strategy and marketing management is an important one. Marketing strategy involves selecting one or more target markets, deciding how to differentiate and position the product or the service, and creating and maintaining a marketing mix that will hopefully prove successful with the selected target market(s)—all within the context of marketing objectives. Differentiation involves a company’s efforts to set its product or service apart from the competition. Positioning “entails placing the brand [whether store, product, or service] in the consumer’s mind in relation to other competing products, based on product traits and benefits that are relevant to the consumer.”Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason, OH: Atomic Dog Publishing, 2007), 170. Segmentation, target market, differentiation, and positioning are discussed in greater detail in Chapter 7 “Marketing Strategy”. Video Link 6.2 Custom Suit Business Gets Makeover A change in marketing strategy: the name of the business. money.cnn.com/video/smallbusiness/2010/10/21/sbiz_turnaround_balani.cnnmoney Video Link 6.3 Sock Business Comes Home A change in marketing strategy: the product. money.cnn.com/video/smallbusiness/2010/11/17/sbiz_turnaround_darn_tough_vermont.smb Marketing management, by contrast, involves the day-to-day tactical decisions, resource allocations (funds and people), and carrying out of tasks that implement the marketing strategy. It is the responsibility of marketing management to focus on quality and develop the marketing plan, which is discussed in Chapter 8 “The Marketing Plan”. Video Clip 6.2 Marketing Concepts in Two Minutes (click to see video) A humorous definition of key marketing concepts. KEY TAKEAWAYS Marketing is a distinguishing, unique function of a business. Marketing is about delivering value and benefits, creating products and services that will meet the needs and wants of customers (perhaps even delighting them) at a price they are willing to pay and in places where they are willing to buy them. It is also about promotion, getting the word out that the product or the service exists. The marketing concept has guided business practice since the 1950s. Customer value is the difference between perceived benefits and perceived costs. There are different types of customer value: functional, social, epistemic, emotional, and conditional. Marketing plays a key role is delivering value to the customer. Market segmentation, target market, niche market, marketing mix, marketing environment, marketing management, and marketing strategy are key marketing concepts. The marketing mix, also known as the four Ps, consists of product, price, promotion, and place. EXERCISE Select two different kinds of local small businesses. Ask the owners how they segment the market, who they target, and how they define their marketing mix. Compare the answers that you 
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6.1 What Marketing Is All About LEARNING OBJECTIVES Define marketing. Explain why marketing is so important to small business. Explain the marketing concept, the societal marketing concept, and the holistic marketing concept. Define customer value and discuss the role of marketing and delivering it. Explain market segmentation, target market, marketing mix, differentiation, positioning, marketing environment, marketing management, and marketing strategy. Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.Jack Trout, “Peter Drucker on Marketing,” Forbes, July 3, 2006, accessed January 19, 2012, www.forbes.com/2006/06/30/jack-trout-on-marketing-cx_jt_0703drucker .html. Peter Drucker Marketing is defined by the American Marketing Association as “the activity, set of institutions, and processes for creating, communicating, and exchanging offerings that have value for customers, clients, partners, and society at large.”“AMA Definition of Marketing,” American Marketing Association, December 17, 2007, accessed December 1, 2011, www.marketingpower.com/Community/ARC/Pages/Additional/Definition/default.aspx. Putting this formality aside, marketing is about delivering value and benefits: creating products and services that will meet the needs and wants of customers (perhaps even delighting them) at a price they are willing to pay and in places where they are willing to buy them. Marketing is also about promotional activities such as advertising and sales that let customers know about the goods and services that are available for purchase. Successful marketing generates revenue that pays for all other company operations. Without marketing, no business can last very long. It is that important and that simple—and it applies to small business. Marketing is applicable to goods, services, events, experiences, people, places, properties, organizations, businesses, ideas, and information.Adapted from Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 6–7. There are several concepts that are basic to an understanding of marketing: the marketing concept, customer value, the marketing mix, segmentation, target market, the marketing environment, marketing management, and marketing strategy. The Marketing Concept…and Beyond The marketing concept has guided marketing practice since the mid-1950s.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. The concept holds that the focus of all company operations should be meeting the customer’s needs and wants in ways that distinguish a company from its competition. However, company efforts should be integrated and coordinated in such a way to meet organizational objectives and achieve profitability. Perhaps not surprisingly, successful implementation of the marketing concept has been shown to lead to superior company performance.Rohit Deshpande and John U. Farley, “Measuring Market Orientation: Generalization and Synthesis,” Journal of Market-Focused Management 2 (1998): 213–32; Ajay K. Kohli and Bernard J. Jaworski, “Market Orientation: The Construct, Research Propositions, and Managerial Implications,” Journal of Marketing 54 (1990): 1–18; and John C. Narver and Stanley F. Slater, “The Effect of a Market Orientation on Business Profitability,” Journal of Marketing 54 (1990): 20–35—all as cited in Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. “The marketing concept recognizes that there is no reason why customers should buy one organization’s offerings unless it is in some way better at serving the customers’ wants and needs than those offered by competing organizations. Customers have higher expectations and more choices than ever before. This means that marketers have to listen more closely than ever before.”Charles W. Lamb, Joseph F. Hair, and Carl McDaniel, Essentials of Marketing (Mason, OH: South-Western, 2004), 8. Sam Walton, the founder of Walmart, put it best when he said, “There is only one boss: the customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.”“You Don’t Say?,” Sales and Marketing Management, October 1994, 111–12. Small businesses are particularly suited to abiding by the marketing concept because they are more nimble and closer to the customer than are large companies. Changes can be made more quickly in response to customer wants and needs. The societal marketing concept emerged in the 1980s and 1990s, adding to the traditional marketing concept. It assumes that a “company will have an advantage over competitors if it applies the marketing concept in a manner that maximizes society’s well-being”Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason, OH: Atomic Dog Publishing, 2007), 12. and requires companies to balance customer satisfaction, company profits, and the long-term welfare of society. Although the expectation of ethical and responsible behavior is implicit in the marketing concept, the societal marketing concept makes these expectations explicit. Small business is in a very strong position in keeping with the societal marketing concept. Although small businesses do not have the financial resources to create or support large philanthropic causes, they do have the ability to help protect the environment through green business practices such as reducing consumption and waste, reusing what they have, and recycling everything they can. Small businesses also have a strong record of supporting local causes. They sponsor local sports teams, donate to fund-raising events with food and goods or services, and post flyers for promoting local events. The ways of contributing are virtually limitless. Video Link 6.1 Do Well While Doing Good Small business sustainability practices. www.startupnation.com/podcasts/episodes/9564/creating-sustainable-business-practices.htm The holistic marketing concept is a further iteration of the marketing concept and is thought to be more in keeping with the trends and forces that are defining the twenty-first century. Today’s marketers recognize that they must have a complete, comprehensive, and cohesive approach that goes beyond the traditional applications of the marketing concept.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. A company’s “sales and revenues are inextricably tied to the quality of each of its products, services, and modes of delivery and to its image and reputation among its constituencies. [The company] markets itself through everything it does, its substance as well as its style. It is that all-encompassing package that the organization then sells.”Charles S. Mack, “Holistic Marketing,” Association Management, February 1, 1999, accessed January 19, 2012, www.asaecenter.org/Resources/AMMagArticleDetail.cfm?ItemNumber=880. What we see in the holistic marketing concept is the traditional marketing concept on steroids. Small businesses are natural for the holistic marketing concept because the bureaucracy of large corporations does not burden them. The size of small businesses makes it possible, perhaps imperative, to have fluid and well-integrated operations. Customer Value The definition of marketing specifically includes the notion that offerings must have value to customers, clients, partners, and society at large. This necessarily implies an understanding of what customer value is. Customer value is discussed at length in Chapter 2 “Your Business Idea: The Quest for Value”, but we can define it simply as the difference between perceived benefits and perceived costs. Such a simple definition can be misleading, however, because the creation of customer value will always be a challenge—most notably because a company must know its customers extremely well to offer them what they need and want. This is complicated because customers could be seeking functional value (a product or a service performs a utilitarian purpose), social value (a sense of relationship with other groups through images or symbols), emotional value (the ability to evoke an emotional or an affective response), epistemic value (offering novelty or fun), or conditional value (derived from a particular context or a sociocultural setting, such as shared holidays)—or some combination of these types of value. (See Chapter 2 “Your Business Idea: The Quest for Value” for a detailed discussion of the types of value.) Marketing plays a key role in creating and delivering value to a customer. Customer value can be offered in a myriad of ways. In addition to superlative ice cream, for example, the local ice cream shop can offer a frequent purchase card that allows for a free ice cream cone after the purchase of fifteen ice cream products at the regular price. Your favorite website can offer free shipping for Christmas purchases and/or pay for returns. Zappos.com offers free shipping both ways for its shoes. The key is for a company to know its consumers so well that it can provide the value that will be of interest to them. Market Segmentation The purpose of segmenting a market is to focus the marketing and sales efforts of a business on those prospects who are most likely to purchase the company’s product(s) or service(s), thereby helping the company (if done properly) earn the greatest return on those marketing and sales expenditures.Center for Business Planning, “Market Segmentation,” Business Resource Software, Inc., accessed December 1, 2011, www.businessplans.org/segment.html. Market segmentation maintains two very important things: (1) there are relatively homogeneous subgroups (no subgroup will ever be exactly alike) of the total population that will behave the same way in the marketplace, and (2) these subgroups will behave differently from each other. Market segmentation is particularly important for small businesses because they do not have the resources to serve large aggregate markets or maintain a wide range of different products for varied markets. The marketplace can be segmented along a multitude of dimensions, and there are distinct differences between consumer and business markets. Some examples of those dimensions are presented in Table 6.1 “Market Segmentation”. LifeLock, a small business that offers identity theft protection services, practices customer type segmentation by separating its market into business and individual consumer segments. Table 6.1 Market Segmentation Consumer Segmentation Examples Business Segmentation Examples Geographic Segmentation Region (e.g., Northeast or Southwest) City or metro size (small, medium, or large) Density (urban, suburban, or rural) Climate (northern or southern) Demographic Segmentation The industry or industries to be served The company sizes to be served (revenue, number of employees, and number of locations) Demographic Segmentation Age Family size Family life cycle (e.g., single or married without kids) Gender Income Occupation Education Religion Race/ethnicity Generation Nationality Social class Operating Variables The customer technologies to be focused on The users that should be served (heavy, light, medium, or nonusers) Whether customers needing many or few services should be served Psychographic Segmentation Personality Lifestyle Behavioral occasions (regular or special occasion) Values Purchasing Approaches: Which to Choose? Highly centralized versus decentralized purchasing Engineering dominated, financially dominated, and so forth Companies with whom a strong relationship exists or the most desirable companies Companies that prefer leasing, service contracts, systems purchases, or sealed bidding Companies seeking quality, service, and price Behavioral Segmentation Benefits of the product (e.g., toothpaste with tartar control) User status (nonuser, regular user, or first-time user) Usage rate (light user, medium user, or heavy user) Loyalty status (none, medium, or absolute) Attitude toward the product (e.g., enthusiastic or hostile) Situational Factors: Which to Choose? Companies that need quick and sudden delivery or service Certain application of the product instead of all applications Large or small orders or something in-between Personal Characteristics: Which to Choose? Companies with similar people and values Risk-taking or risk-aversive customers Companies that show high loyalty to their suppliers Other Characteristics Status in industry (technology or revenue leader) Need for customization (specialized computer systems) Source: Adapted from “Market Segmentation,” Business Resource Software, Inc., accessed December 2, 2011, http://www.businessplans.org/segment.html; adapted from Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 214, 227. Market segmentation requires some marketing research. The marketing research process is discussed in Section 6.3 “Marketing Research”. Target Market Market segmentation should always precede the selection of a target market. A target market is one or more segments (e.g., income or income + gender + occupation) that have been chosen as the focus for business operations. The selection of a target market is important to any small business because it enables the business to be more precise with its marketing efforts, thereby being more cost-effective. This will increase the chances for success. The idea behind a target market is that it will be the best match for a company’s products and services. This, in turn, will help maximize the efficiency and effectiveness of a company’s marketing efforts: It is not feasible to go after all customers, because customers have different wants, needs and tastes. Some customers want to be style leaders. They will always buy certain styles and usually pay a high price for them. Other customers are bargain hunters. They try to find the lowest price. Obviously, a company would have difficulty targeting both of these market segments simultaneously with one type of product. For example, a company with premium products would not appeal to bargain shoppers… Hypothetically, a certain new radio station may discover that their music appeals more to 34–54-year-old women who earn over $50,000 per year. The station would then target these women in their marketing efforts.Rick Suttle, “Define Market Segmentation & Targeting,” Chron.com, accessed December 1, 2011, smallbusiness.chron.com/define-market-segmentation-targeting-3253 .html. Target markets can be further divided into niche markets. A niche market is a small, more narrowly defined market that is not being served well or at all by mainstream product or service marketers. People are looking for something specific, so target markets can present special opportunities for small businesses. They fill needs and wants that would not be of interest to larger companies. Niche products would include such things as wigs for dogs, clubs for left-handed golfers, losing weight with apple cider vinegar, paint that transforms any smooth surface into a high performance dry-erase writing surface, and 3D printers. These niche products are provided by small businesses. Niche ideas can come from anywhere. Marketing Mix Marketing mix is easily one of the most well-known marketing terms. More commonly known as “the four Ps,” the traditional marketing mix refers to the combination of product, price, promotion, and place (distribution). Each component is controlled by the company, but they are all affected by factors both internal and external to the company. Additionally, each element of the marketing mix is impacted by decisions made for the other elements. What this means is that an alteration of one element in the marketing mix will likely alter the other elements as well. They are inextricably interrelated. No matter the size of the business or organization, there will always be a marketing mix. The marketing mix is discussed in more detail in Chapter 7 “Marketing Strategy”. A brief overview is presented here. Figure 6.1 The Marketing Mix Product Product refers to tangible, physical products as well as to intangible services. Examples of product decisions include design and styling, sizes, variety, packaging, warranties and guarantees, ingredients, quality, safety, brand name and image, brand logo, and support services. In the case of a services business, product decisions also include the design and delivery of the service, with delivery including such things as congeniality, promptness, and efficiency. Without the product, nothing else happens. Product also includes a company’s website. Price Price is what it will cost for someone to buy the product. Although the exchange of money is what we traditionally consider as price, time and convenience should also be considered. Examples of pricing decisions include pricing strategy selection (e.g., channel pricing and customer segment pricing), retail versus wholesale pricing, credit terms, discounts, and the means of making online payments. Channel pricing occurs when different prices are charged depending on where the customer purchases the product. A paper manufacturer may charge different prices for paper purchased by businesses, school bookstores, and local stationery stores. Customer segment pricing refers to charging different prices for different groups. A local museum may charge students and senior citizens less for admission.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 401. Promotion Having the best product in the world is not worth much if people do not know about it. This is the role of promotion—getting the word out. Examples of promotional activities include advertising (including on the Internet), sales promotion (e.g., coupons, sweepstakes, and 2-for-1 sales), personal sales, public relations, trade shows, webinars, videos on company websites and YouTube, publicity, social media such as Facebook and Twitter, and the company website itself. Word-of-mouth communication, where people talk to each other about their experiences with goods and services, is the most powerful promotion of all because the people who talk about products and services do not have any commercial interest. Place Place is another word for distribution. The objective is to have products and services available where customers want them when they want them. Examples of decisions made for place include inventory, transportation arrangements, channel decisions (e.g., making the product available to customers in retail stores only), order processing, warehousing, and whether the product will be available on a very limited (few retailers or wholesalers) or extensive (many retailers or wholesalers) basis. A company’s website is also part of the distribution domain. Two Marketing Mixes No matter what the business or organization, there will be a marketing mix. The business owner may not think about it in these specific terms, but it is there nonetheless. Here is an example of how the marketing mix can be configured for a local Italian restaurant (consumer market). Product. Extensive selection of pizza, hot and cold sub sandwiches, pasta and meat dinners, salads, soft drinks and wine, homemade ice cream and bakery products; the best service in town; and free delivery. Price. Moderate; the same price is charged to all customer segments. Promotion. Ads on local radio stations, websites, and local newspaper; flyers posted around town; coupons in ValPak booklets that are mailed to the local area; a sponsor of the local little league teams; ads and coupons in the high school newspaper; and a Facebook presence. Place. One restaurant is located conveniently near the center of town with plenty of off-street parking. It is open until 10:00 p.m. on weekdays and 11:30 p.m. on Fridays and Saturdays. There is a drive-through for takeout orders, and they have a special arrangement with a local parochial school to provide pizza for lunch one day per week. Here is an example of how the marketing mix could be configured for a green cleaning services business (business market). Product. Wide range of cleaning services for businesses and organizations. Services can be weekly or biweekly, and they can be scheduled during the day, evening, weekends, or some combination thereof. Only green cleaning products and processes are used. Price. Moderate to high depending on the services requested. Some price discounting is offered for long-term contracts. Promotion. Ads on local radio stations, website with video presentation, business cards that are left in the offices of local businesses and medical offices, local newspaper advertising, Facebook and Twitter presence, trade show attendance (under consideration but very expensive), and direct mail marketing (when an offer, announcement, reminder, or other item is sent to an existing or prospective customer). Place. Services are provided at the client’s business site. The cleaning staff is radio dispatched. The Marketing Environment The marketing environment includes all the factors that affect a small business. The internal marketing environment refers to the company: its existing products and strategies; culture; strengths and weaknesses; internal resources; capabilities with respect to marketing, manufacturing, and distribution; and relationships with stakeholders (e.g., owners, employees, intermediaries, and suppliers). This environment is controllable by management, and it will present both threats and opportunities. The external marketing environment must be understood by the business if it hopes to plan intelligently for the future. This environment, not controllable by management, consists of the following components: Social factors. For example, cultural and subcultural values, attitudes, beliefs, norms, customs, and lifestyles. Demographics. For example, population growth, age, gender, ethnicity, race, education, and marital status. Economic environment. For example, income distribution, buying power and willingness to spend, economic conditions, trading blocs, and the availability of natural resources. Political and legal factors. For example, regulatory environment, regulatory agencies, and self-regulation. Technology. For example, the nature and rate of technological change. Competition. For example, existing firms, potential competitors, bargaining power of buyers and suppliers, and substitutes.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 294–95. Ethics. For example, appropriate corporate and employee behavior. Figure 6.2 The Marketing Environment Small businesses are particularly vulnerable to changes in the external marketing environment because they do not have multiple product and service offerings and/or financial resources to insulate them. However, this vulnerability is offset to some degree by small businesses being in a strong position to make quick adjustments to their strategies if the need arises. Small businesses are also ideally suited to take advantage of opportunities in a changing external environment because they are more nimble than large corporations that can get bogged down in the lethargy and inertia of their bureaucracies. Marketing Strategy versus Marketing Management The difference between marketing strategy and marketing management is an important one. Marketing strategy involves selecting one or more target markets, deciding how to differentiate and position the product or the service, and creating and maintaining a marketing mix that will hopefully prove successful with the selected target market(s)—all within the context of marketing objectives. Differentiation involves a company’s efforts to set its product or service apart from the competition. Positioning “entails placing the brand [whether store, product, or service] in the consumer’s mind in relation to other competing products, based on product traits and benefits that are relevant to the consumer.”Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason, OH: Atomic Dog Publishing, 2007), 170. Segmentation, target market, differentiation, and positioning are discussed in greater detail in Chapter 7 “Marketing Strategy”. Video Link 6.2 Custom Suit Business Gets Makeover A change in marketing strategy: the name of the business. money.cnn.com/video/smallbusiness/2010/10/21/sbiz_turnaround_balani.cnnmoney Video Link 6.3 Sock Business Comes Home A change in marketing strategy: the product. money.cnn.com/video/smallbusiness/2010/11/17/sbiz_turnaround_darn_tough_vermont.smb Marketing management, by contrast, involves the day-to-day tactical decisions, resource allocations (funds and people), and carrying out of tasks that implement the marketing strategy. It is the responsibility of marketing management to focus on quality and develop the marketing plan, which is discussed in Chapter 8 “The Marketing Plan”. Video Clip 6.2 Marketing Concepts in Two Minutes (click to see video) A humorous definition of key marketing concepts. KEY TAKEAWAYS Marketing is a distinguishing, unique function of a business. Marketing is about delivering value and benefits, creating products and services that will meet the needs and wants of customers (perhaps even delighting them) at a price they are willing to pay and in places where they are willing to buy them. It is also about promotion, getting the word out that the product or the service exists. The marketing concept has guided business practice since the 1950s. Customer value is the difference between perceived benefits and perceived costs. There are different types of customer value: functional, social, epistemic, emotional, and conditional. Marketing plays a key role is delivering value to the customer. Market segmentation, target market, niche market, marketing mix, marketing environment, marketing management, and marketing strategy are key marketing concepts. The marketing mix, also known as the four Ps, consists of product, price, promotion, and place. EXERCISE Select two different kinds of local small businesses. Ask the owners how they segment the market, who they target, and how they define their marketing mix. Compare the answers that you 
Hi Please attached. Only the attached note should be used to write the paper .
6.1 What Marketing Is All About LEARNING OBJECTIVES Define marketing. Explain why marketing is so important to small business. Explain the marketing concept, the societal marketing concept, and the holistic marketing concept. Define customer value and discuss the role of marketing and delivering it. Explain market segmentation, target market, marketing mix, differentiation, positioning, marketing environment, marketing management, and marketing strategy. Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.Jack Trout, “Peter Drucker on Marketing,” Forbes, July 3, 2006, accessed January 19, 2012, www.forbes.com/2006/06/30/jack-trout-on-marketing-cx_jt_0703drucker .html. Peter Drucker Marketing is defined by the American Marketing Association as “the activity, set of institutions, and processes for creating, communicating, and exchanging offerings that have value for customers, clients, partners, and society at large.”“AMA Definition of Marketing,” American Marketing Association, December 17, 2007, accessed December 1, 2011, www.marketingpower.com/Community/ARC/Pages/Additional/Definition/default.aspx. Putting this formality aside, marketing is about delivering value and benefits: creating products and services that will meet the needs and wants of customers (perhaps even delighting them) at a price they are willing to pay and in places where they are willing to buy them. Marketing is also about promotional activities such as advertising and sales that let customers know about the goods and services that are available for purchase. Successful marketing generates revenue that pays for all other company operations. Without marketing, no business can last very long. It is that important and that simple—and it applies to small business. Marketing is applicable to goods, services, events, experiences, people, places, properties, organizations, businesses, ideas, and information.Adapted from Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 6–7. There are several concepts that are basic to an understanding of marketing: the marketing concept, customer value, the marketing mix, segmentation, target market, the marketing environment, marketing management, and marketing strategy. The Marketing Concept…and Beyond The marketing concept has guided marketing practice since the mid-1950s.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. The concept holds that the focus of all company operations should be meeting the customer’s needs and wants in ways that distinguish a company from its competition. However, company efforts should be integrated and coordinated in such a way to meet organizational objectives and achieve profitability. Perhaps not surprisingly, successful implementation of the marketing concept has been shown to lead to superior company performance.Rohit Deshpande and John U. Farley, “Measuring Market Orientation: Generalization and Synthesis,” Journal of Market-Focused Management 2 (1998): 213–32; Ajay K. Kohli and Bernard J. Jaworski, “Market Orientation: The Construct, Research Propositions, and Managerial Implications,” Journal of Marketing 54 (1990): 1–18; and John C. Narver and Stanley F. Slater, “The Effect of a Market Orientation on Business Profitability,” Journal of Marketing 54 (1990): 20–35—all as cited in Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. “The marketing concept recognizes that there is no reason why customers should buy one organization’s offerings unless it is in some way better at serving the customers’ wants and needs than those offered by competing organizations. Customers have higher expectations and more choices than ever before. This means that marketers have to listen more closely than ever before.”Charles W. Lamb, Joseph F. Hair, and Carl McDaniel, Essentials of Marketing (Mason, OH: South-Western, 2004), 8. Sam Walton, the founder of Walmart, put it best when he said, “There is only one boss: the customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.”“You Don’t Say?,” Sales and Marketing Management, October 1994, 111–12. Small businesses are particularly suited to abiding by the marketing concept because they are more nimble and closer to the customer than are large companies. Changes can be made more quickly in response to customer wants and needs. The societal marketing concept emerged in the 1980s and 1990s, adding to the traditional marketing concept. It assumes that a “company will have an advantage over competitors if it applies the marketing concept in a manner that maximizes society’s well-being”Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason, OH: Atomic Dog Publishing, 2007), 12. and requires companies to balance customer satisfaction, company profits, and the long-term welfare of society. Although the expectation of ethical and responsible behavior is implicit in the marketing concept, the societal marketing concept makes these expectations explicit. Small business is in a very strong position in keeping with the societal marketing concept. Although small businesses do not have the financial resources to create or support large philanthropic causes, they do have the ability to help protect the environment through green business practices such as reducing consumption and waste, reusing what they have, and recycling everything they can. Small businesses also have a strong record of supporting local causes. They sponsor local sports teams, donate to fund-raising events with food and goods or services, and post flyers for promoting local events. The ways of contributing are virtually limitless. Video Link 6.1 Do Well While Doing Good Small business sustainability practices. www.startupnation.com/podcasts/episodes/9564/creating-sustainable-business-practices.htm The holistic marketing concept is a further iteration of the marketing concept and is thought to be more in keeping with the trends and forces that are defining the twenty-first century. Today’s marketers recognize that they must have a complete, comprehensive, and cohesive approach that goes beyond the traditional applications of the marketing concept.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 19. A company’s “sales and revenues are inextricably tied to the quality of each of its products, services, and modes of delivery and to its image and reputation among its constituencies. [The company] markets itself through everything it does, its substance as well as its style. It is that all-encompassing package that the organization then sells.”Charles S. Mack, “Holistic Marketing,” Association Management, February 1, 1999, accessed January 19, 2012, www.asaecenter.org/Resources/AMMagArticleDetail.cfm?ItemNumber=880. What we see in the holistic marketing concept is the traditional marketing concept on steroids. Small businesses are natural for the holistic marketing concept because the bureaucracy of large corporations does not burden them. The size of small businesses makes it possible, perhaps imperative, to have fluid and well-integrated operations. Customer Value The definition of marketing specifically includes the notion that offerings must have value to customers, clients, partners, and society at large. This necessarily implies an understanding of what customer value is. Customer value is discussed at length in Chapter 2 “Your Business Idea: The Quest for Value”, but we can define it simply as the difference between perceived benefits and perceived costs. Such a simple definition can be misleading, however, because the creation of customer value will always be a challenge—most notably because a company must know its customers extremely well to offer them what they need and want. This is complicated because customers could be seeking functional value (a product or a service performs a utilitarian purpose), social value (a sense of relationship with other groups through images or symbols), emotional value (the ability to evoke an emotional or an affective response), epistemic value (offering novelty or fun), or conditional value (derived from a particular context or a sociocultural setting, such as shared holidays)—or some combination of these types of value. (See Chapter 2 “Your Business Idea: The Quest for Value” for a detailed discussion of the types of value.) Marketing plays a key role in creating and delivering value to a customer. Customer value can be offered in a myriad of ways. In addition to superlative ice cream, for example, the local ice cream shop can offer a frequent purchase card that allows for a free ice cream cone after the purchase of fifteen ice cream products at the regular price. Your favorite website can offer free shipping for Christmas purchases and/or pay for returns. Zappos.com offers free shipping both ways for its shoes. The key is for a company to know its consumers so well that it can provide the value that will be of interest to them. Market Segmentation The purpose of segmenting a market is to focus the marketing and sales efforts of a business on those prospects who are most likely to purchase the company’s product(s) or service(s), thereby helping the company (if done properly) earn the greatest return on those marketing and sales expenditures.Center for Business Planning, “Market Segmentation,” Business Resource Software, Inc., accessed December 1, 2011, www.businessplans.org/segment.html. Market segmentation maintains two very important things: (1) there are relatively homogeneous subgroups (no subgroup will ever be exactly alike) of the total population that will behave the same way in the marketplace, and (2) these subgroups will behave differently from each other. Market segmentation is particularly important for small businesses because they do not have the resources to serve large aggregate markets or maintain a wide range of different products for varied markets. The marketplace can be segmented along a multitude of dimensions, and there are distinct differences between consumer and business markets. Some examples of those dimensions are presented in Table 6.1 “Market Segmentation”. LifeLock, a small business that offers identity theft protection services, practices customer type segmentation by separating its market into business and individual consumer segments. Table 6.1 Market Segmentation Consumer Segmentation Examples Business Segmentation Examples Geographic Segmentation Region (e.g., Northeast or Southwest) City or metro size (small, medium, or large) Density (urban, suburban, or rural) Climate (northern or southern) Demographic Segmentation The industry or industries to be served The company sizes to be served (revenue, number of employees, and number of locations) Demographic Segmentation Age Family size Family life cycle (e.g., single or married without kids) Gender Income Occupation Education Religion Race/ethnicity Generation Nationality Social class Operating Variables The customer technologies to be focused on The users that should be served (heavy, light, medium, or nonusers) Whether customers needing many or few services should be served Psychographic Segmentation Personality Lifestyle Behavioral occasions (regular or special occasion) Values Purchasing Approaches: Which to Choose? Highly centralized versus decentralized purchasing Engineering dominated, financially dominated, and so forth Companies with whom a strong relationship exists or the most desirable companies Companies that prefer leasing, service contracts, systems purchases, or sealed bidding Companies seeking quality, service, and price Behavioral Segmentation Benefits of the product (e.g., toothpaste with tartar control) User status (nonuser, regular user, or first-time user) Usage rate (light user, medium user, or heavy user) Loyalty status (none, medium, or absolute) Attitude toward the product (e.g., enthusiastic or hostile) Situational Factors: Which to Choose? Companies that need quick and sudden delivery or service Certain application of the product instead of all applications Large or small orders or something in-between Personal Characteristics: Which to Choose? Companies with similar people and values Risk-taking or risk-aversive customers Companies that show high loyalty to their suppliers Other Characteristics Status in industry (technology or revenue leader) Need for customization (specialized computer systems) Source: Adapted from “Market Segmentation,” Business Resource Software, Inc., accessed December 2, 2011, http://www.businessplans.org/segment.html; adapted from Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 214, 227. Market segmentation requires some marketing research. The marketing research process is discussed in Section 6.3 “Marketing Research”. Target Market Market segmentation should always precede the selection of a target market. A target market is one or more segments (e.g., income or income + gender + occupation) that have been chosen as the focus for business operations. The selection of a target market is important to any small business because it enables the business to be more precise with its marketing efforts, thereby being more cost-effective. This will increase the chances for success. The idea behind a target market is that it will be the best match for a company’s products and services. This, in turn, will help maximize the efficiency and effectiveness of a company’s marketing efforts: It is not feasible to go after all customers, because customers have different wants, needs and tastes. Some customers want to be style leaders. They will always buy certain styles and usually pay a high price for them. Other customers are bargain hunters. They try to find the lowest price. Obviously, a company would have difficulty targeting both of these market segments simultaneously with one type of product. For example, a company with premium products would not appeal to bargain shoppers… Hypothetically, a certain new radio station may discover that their music appeals more to 34–54-year-old women who earn over $50,000 per year. The station would then target these women in their marketing efforts.Rick Suttle, “Define Market Segmentation & Targeting,” Chron.com, accessed December 1, 2011, smallbusiness.chron.com/define-market-segmentation-targeting-3253 .html. Target markets can be further divided into niche markets. A niche market is a small, more narrowly defined market that is not being served well or at all by mainstream product or service marketers. People are looking for something specific, so target markets can present special opportunities for small businesses. They fill needs and wants that would not be of interest to larger companies. Niche products would include such things as wigs for dogs, clubs for left-handed golfers, losing weight with apple cider vinegar, paint that transforms any smooth surface into a high performance dry-erase writing surface, and 3D printers. These niche products are provided by small businesses. Niche ideas can come from anywhere. Marketing Mix Marketing mix is easily one of the most well-known marketing terms. More commonly known as “the four Ps,” the traditional marketing mix refers to the combination of product, price, promotion, and place (distribution). Each component is controlled by the company, but they are all affected by factors both internal and external to the company. Additionally, each element of the marketing mix is impacted by decisions made for the other elements. What this means is that an alteration of one element in the marketing mix will likely alter the other elements as well. They are inextricably interrelated. No matter the size of the business or organization, there will always be a marketing mix. The marketing mix is discussed in more detail in Chapter 7 “Marketing Strategy”. A brief overview is presented here. Figure 6.1 The Marketing Mix Product Product refers to tangible, physical products as well as to intangible services. Examples of product decisions include design and styling, sizes, variety, packaging, warranties and guarantees, ingredients, quality, safety, brand name and image, brand logo, and support services. In the case of a services business, product decisions also include the design and delivery of the service, with delivery including such things as congeniality, promptness, and efficiency. Without the product, nothing else happens. Product also includes a company’s website. Price Price is what it will cost for someone to buy the product. Although the exchange of money is what we traditionally consider as price, time and convenience should also be considered. Examples of pricing decisions include pricing strategy selection (e.g., channel pricing and customer segment pricing), retail versus wholesale pricing, credit terms, discounts, and the means of making online payments. Channel pricing occurs when different prices are charged depending on where the customer purchases the product. A paper manufacturer may charge different prices for paper purchased by businesses, school bookstores, and local stationery stores. Customer segment pricing refers to charging different prices for different groups. A local museum may charge students and senior citizens less for admission.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 401. Promotion Having the best product in the world is not worth much if people do not know about it. This is the role of promotion—getting the word out. Examples of promotional activities include advertising (including on the Internet), sales promotion (e.g., coupons, sweepstakes, and 2-for-1 sales), personal sales, public relations, trade shows, webinars, videos on company websites and YouTube, publicity, social media such as Facebook and Twitter, and the company website itself. Word-of-mouth communication, where people talk to each other about their experiences with goods and services, is the most powerful promotion of all because the people who talk about products and services do not have any commercial interest. Place Place is another word for distribution. The objective is to have products and services available where customers want them when they want them. Examples of decisions made for place include inventory, transportation arrangements, channel decisions (e.g., making the product available to customers in retail stores only), order processing, warehousing, and whether the product will be available on a very limited (few retailers or wholesalers) or extensive (many retailers or wholesalers) basis. A company’s website is also part of the distribution domain. Two Marketing Mixes No matter what the business or organization, there will be a marketing mix. The business owner may not think about it in these specific terms, but it is there nonetheless. Here is an example of how the marketing mix can be configured for a local Italian restaurant (consumer market). Product. Extensive selection of pizza, hot and cold sub sandwiches, pasta and meat dinners, salads, soft drinks and wine, homemade ice cream and bakery products; the best service in town; and free delivery. Price. Moderate; the same price is charged to all customer segments. Promotion. Ads on local radio stations, websites, and local newspaper; flyers posted around town; coupons in ValPak booklets that are mailed to the local area; a sponsor of the local little league teams; ads and coupons in the high school newspaper; and a Facebook presence. Place. One restaurant is located conveniently near the center of town with plenty of off-street parking. It is open until 10:00 p.m. on weekdays and 11:30 p.m. on Fridays and Saturdays. There is a drive-through for takeout orders, and they have a special arrangement with a local parochial school to provide pizza for lunch one day per week. Here is an example of how the marketing mix could be configured for a green cleaning services business (business market). Product. Wide range of cleaning services for businesses and organizations. Services can be weekly or biweekly, and they can be scheduled during the day, evening, weekends, or some combination thereof. Only green cleaning products and processes are used. Price. Moderate to high depending on the services requested. Some price discounting is offered for long-term contracts. Promotion. Ads on local radio stations, website with video presentation, business cards that are left in the offices of local businesses and medical offices, local newspaper advertising, Facebook and Twitter presence, trade show attendance (under consideration but very expensive), and direct mail marketing (when an offer, announcement, reminder, or other item is sent to an existing or prospective customer). Place. Services are provided at the client’s business site. The cleaning staff is radio dispatched. The Marketing Environment The marketing environment includes all the factors that affect a small business. The internal marketing environment refers to the company: its existing products and strategies; culture; strengths and weaknesses; internal resources; capabilities with respect to marketing, manufacturing, and distribution; and relationships with stakeholders (e.g., owners, employees, intermediaries, and suppliers). This environment is controllable by management, and it will present both threats and opportunities. The external marketing environment must be understood by the business if it hopes to plan intelligently for the future. This environment, not controllable by management, consists of the following components: Social factors. For example, cultural and subcultural values, attitudes, beliefs, norms, customs, and lifestyles. Demographics. For example, population growth, age, gender, ethnicity, race, education, and marital status. Economic environment. For example, income distribution, buying power and willingness to spend, economic conditions, trading blocs, and the availability of natural resources. Political and legal factors. For example, regulatory environment, regulatory agencies, and self-regulation. Technology. For example, the nature and rate of technological change. Competition. For example, existing firms, potential competitors, bargaining power of buyers and suppliers, and substitutes.Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 294–95. Ethics. For example, appropriate corporate and employee behavior. Figure 6.2 The Marketing Environment Small businesses are particularly vulnerable to changes in the external marketing environment because they do not have multiple product and service offerings and/or financial resources to insulate them. However, this vulnerability is offset to some degree by small businesses being in a strong position to make quick adjustments to their strategies if the need arises. Small businesses are also ideally suited to take advantage of opportunities in a changing external environment because they are more nimble than large corporations that can get bogged down in the lethargy and inertia of their bureaucracies. Marketing Strategy versus Marketing Management The difference between marketing strategy and marketing management is an important one. Marketing strategy involves selecting one or more target markets, deciding how to differentiate and position the product or the service, and creating and maintaining a marketing mix that will hopefully prove successful with the selected target market(s)—all within the context of marketing objectives. Differentiation involves a company’s efforts to set its product or service apart from the competition. Positioning “entails placing the brand [whether store, product, or service] in the consumer’s mind in relation to other competing products, based on product traits and benefits that are relevant to the consumer.”Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason, OH: Atomic Dog Publishing, 2007), 170. Segmentation, target market, differentiation, and positioning are discussed in greater detail in Chapter 7 “Marketing Strategy”. Video Link 6.2 Custom Suit Business Gets Makeover A change in marketing strategy: the name of the business. money.cnn.com/video/smallbusiness/2010/10/21/sbiz_turnaround_balani.cnnmoney Video Link 6.3 Sock Business Comes Home A change in marketing strategy: the product. money.cnn.com/video/smallbusiness/2010/11/17/sbiz_turnaround_darn_tough_vermont.smb Marketing management, by contrast, involves the day-to-day tactical decisions, resource allocations (funds and people), and carrying out of tasks that implement the marketing strategy. It is the responsibility of marketing management to focus on quality and develop the marketing plan, which is discussed in Chapter 8 “The Marketing Plan”. Video Clip 6.2 Marketing Concepts in Two Minutes (click to see video) A humorous definition of key marketing concepts. KEY TAKEAWAYS Marketing is a distinguishing, unique function of a business. Marketing is about delivering value and benefits, creating products and services that will meet the needs and wants of customers (perhaps even delighting them) at a price they are willing to pay and in places where they are willing to buy them. It is also about promotion, getting the word out that the product or the service exists. The marketing concept has guided business practice since the 1950s. Customer value is the difference between perceived benefits and perceived costs. There are different types of customer value: functional, social, epistemic, emotional, and conditional. Marketing plays a key role is delivering value to the customer. Market segmentation, target market, niche market, marketing mix, marketing environment, marketing management, and marketing strategy are key marketing concepts. The marketing mix, also known as the four Ps, consists of product, price, promotion, and place. EXERCISE Select two different kinds of local small businesses. Ask the owners how they segment the market, who they target, and how they define their marketing mix. Compare the answers that you 
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Small Business Analyzing Marketing Strategy Preparation Review the Module 5A “Preparation” items. Your Assignment Choose a small business with which you’re familiar (i.e., as an employee, as a customer, or through research) and respond to the following: What’s the name of the small business? If it has a website, please include a link. Describe the small business’s marketing strategy—target market and marketing mix (product, price, promotion, and place). Hint: When describing the product, keep in mind that it consists of more than just physical attributes, and even tangible products (goods) have intangible attributes. Beyond the basic attributes, consider package design, brand name, warranty, product image, customer service, etc. Discuss at least one recommendation you would make to improve the business’s marketing strategy. In your response to question 1, clearly identify each element of the marketing strategy using bullet points or separate paragraphs—for example, Target market Product Price Place Promotion
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Place: Choosing a Distribution Channel The three main considerations in evaluating a channel of distribution are costs, coverage, and control: Costs. In many cases, the least expensive channel may be indirect. For example, a firm producing handmade dolls may choose not to purchase trucks and warehouses to distribute its product directly to customers if it costs less to use established intermediaries that already own such equipment and facilities. Small companies should look at distribution costs as an investment—spending money in order to make money—and ask themselves whether the cost of using intermediaries (by selling the product to them at a reduced price) is more or less expensive than distributing the product directly to customers. Coverage. Small businesses can often use indirect channels of distribution to increase market coverage. Suppose a small manufacturer’s internal sales force can make 10 contacts a week with final users of the venture’s product. Creating an indirect channel with 10 industrial distributors, each making 10 contacts a week, could expose the product to 100 final users a week. Control. A direct channel of distribution is sometimes preferable because it provides more control. To ensure that the product is marketed with care, an entrepreneur must deliberately select intermediaries that provide the desired support. A small business that chooses to use intermediaries to market and distribute its product must be sure that the intermediaries understand how the product is best used and why it’s better than competitors’ offerings. Additionally, if a wholesaler carries competing products, an entrepreneur must be sure that their product gets its fair share of marketing efforts. An intermediary’s sloppy marketing support and insufficient product knowledge can undermine the success of even the best product.