Marketing Strategy For Entrepreneurs
The Marketing Mix
A company’s marketing strategy must closely align with its resources and capabilities. Entrepreneurial companies with limited resources have little room for strategic mistakes. Segmentation, targeting, and positioning are key marketing dimensions that set the strategic framework. The marketing mix – the four P’s of product, price, place, and promotion – is a set of tools your company can use to achieve its marketing goals. The marketing mix is so basic to a company’s business model that it often defines the company or corporate strategy.
Pricing Strategy
Developing an optimal pricing strategy is a daunting challenge for even the most sophisticated entrepreneurial company. Entrepreneurs incur many costs in starting a venture. Some are fixed costs, which do not change with the volume of production, and some are variable sots, which do change with the volume of production. To operate successfully, an entrepreneurial venture must not only recover both fixed and variable costs but also must make a reasonable profit. Many entrepreneurs, in setting prices, use a cost-based method, marking up a product based on its cost plus a desired profit margin. Another method, often used in conjunction with a mark up, is matching competitors prices. A common problem with these methods is that they allow entrepreneurs to price too low, thereby leave money on the table. Pricing to low can hurt the long-term profitability of the venture. Moreover, pricing too high also has a serious downside.
An alternative to cost-based and competitive pricing is percieved value pricing, which is especially viable for pricing a new or innovative product or service. Entrepreneurs also can pursue strategies that trade off high profit margins for high sales, or vice versa. Determining the full value of a product/service and then using effective communications to convince target customers to pau for that valye are challenging tasks even for an established company.
So what is the right approach for entrepreneurs? If possible, approach perceived value pricing with pre-market price testing, estimating the number of units customers will purchase at different price points. This will give you the flexibility to operate at a profitable rate as you can adjust your price point to meet your business objectives.
Distribution Strategy (Place)
Distribution presents special challenges for entrepreneurs because channels of distribution are difficult to set up initially. Finding the right channel can be far less difficult than breaking into the right channel. Distribution can be problematic for entrepreneurial service companies as well as for those that manufacture goods. Distribution decisions for a service company often are location decisions, because many services require that service providers interact directly with customers. As early stage service companies grow, new locations often are the most important means of attracting new customers and increasing sales.
Poor distribution decisions have haunted many entrepreneurial companies. William Bygrave & Andrew Zacharakis authors of Entrepreneurship explain, “Dell Computer, in its early years became worried about the limitations of its direct-to-consumer model and decided to go into the retail marketplace with its personal computers. The low product margins and high promotional costs of the new channel took Delly by surprise, and the company lost millions of follars before it quickly pulled out of the retail channel.”
There is a great deal of interdependency in a distribution channel: each channel member has a particular function to perform, and each relies on the others. Entrepreneurs especially are inclined to rely on other companies to fulfill certain distribution tasks. Distribution and channel strategy includes three types of channel coverage:
- Intensive coverage – Works for consumer goods and other fast-moving products
- Selective distribution – Brings the product to specific distributors, often limiting selection geographically by establishing a dealer network.
- Exclusive distribution – Often used for luxury products (i.e. Exclusive rights to distribute)
Another important channel for entrepreneurs are channel partnerships. These relationships have important implications for entrepreneurs as often times the channel member with the most power will prevail; for this reason, channel power is an important concept in distribution strategy.
Research has shown that many of the most serious obstacles to entrepreneurial success are related to distribution. Specifically, entrepreneurs tend to be overdependent on channel partners and short on understanding channel behavior in their industry. It is critical that entrepreneurs take the time to learn about distribution and make fact-based decisions about channel design and channel partnerships to overcome potential threats to good distribution strategy.
Product Strategy
We can divide the product strategy into the core product and the augmented product. The core product is the essential good or service, while the augmented product is the set of attributes peripherally related to it. Another way to look at the product variable part of the marketing mix is in terms of goods and services. Many entrepreneurs establish companies based on a new product or product line. When developing any new product your company must ensure that it is truly addressing a real consumer need. There has to be a real customer value proposition! Customer value is the difference between total customer benefits and total customer costs, which are both monetary and non-monetary. A product attribute is not a benefit until consumers buy into the advantage. You must formalize a strong positioning statement that requires four main parts (i.e. Target group and need, brand, concept, and point of difference). The product diffusion curve (below) captures adoption behavior graphically, showing customer segments called innovators, early adopters, early majority, late majority, and laggards.
Entrepreneurs sometimes put to much time and energy concentrating on the product as they conceive it rather than how customers may want it. Entrepreneurs need to know which attributes customers consider important and how customers rate the company’s products-and competing products-on each attribute. In a business environment with intense global competition and fast-paced technology, entrepreneurs must continue to develop new products in order to maintain a profitable market position, even after creating a winning new venture. Just remember to do your research and understand what your customers needs are and how they perceive your product.
Marketing Communications Strategy (Promotion)
Marketing communications convey messages to the market – messages about the company’s products and services as well as about the company itself. Bygrave & Zacharakis state, The marketing communications element of the marketing mix is a mix within a mix: the communication mix is defined as advertising, sales promotion public relations, personal selling, and direct marketing.”It is common marketing wisdom to use a variety of tools in marketing any product or service. Two communication strategies are push and pull.
- A push strategy aims to push a product through the channel using tools such as trade promotions, trade shoes, and personal selling to distributors or other channel members.
- A pull strategy’s goal, is to create end-user demand and rely on that demand to pull the product through the channel. Pull strategies, which are directly targeted to end users, include advertising and consumer sales promotions, such as in store specials.
When selecting media, entrepreneurs match their communications goals to media capabilities. Entrepreneurs who create successful marketing strategies must have a clear vision of their goal. They also must understand how one strategic element affects another, because if the marketing mix elements of product, price, distribution, and communications are not perfectly compatible they strategy will not work
Source: William Bygrave & Andrew Zacharakis. (2008). Entrepreneurship
