You should use this section to cover your long-term product strategy in more detail than section 6.1. If you are providing a service then you should consider your service(s) as your product(s). Is your present product range viable and how can it be improved? Which new products do you need to develop to meet changing market conditions and how can you go about it? You will need to consider:
- Features/benefits analysis
- Would additional features or services add value to your offering?
- Are there elements of your offering which are unnecessary in the eyes of your customers and can be removed?
- Unique selling proposition of your products
- Proposed new products
- Have you included in your range those products or services which are more likely to be in demand in future?
- Have you some product or service lines that have highly seasonal demand - can you maximise the 'quiet times'?
- How does the profitability of each product line compare?
- How does the future potential for each product line compare?
Price affects how much of your product is sold, to whom it is sold, what services must go with it and ultimately how much profit you make.
If you are currently developing a new product or service you will know that setting a price can be one of the most difficult decisions you make in business. On the other hand, you may be in a position that having set a price, it is now difficult to make necessary adjustments without sending the wrong signals to your market. When pricing is handled sensitively it can have a dramatic effect on the profitability of your firm.
There are no infallible rules for setting the right price, as different businesses at different times use pricing to achieve quite different objectives. There are four key factors which affect your decision, and all must be carefully considered before moving forward.
All prices must, in the long term, cover the costs of generating or marketing your product or service and produce a reasonable profit. You need to be aware, however that:
- There can be difficulties establishing true costs
- You may end up with a price lower than the market is willing to pay
- Your 'long term' may be different to that of your competitors
- You may need to consider costs across the whole range, rather than for the individual product
In setting your price you need to take account of the effect price can have on your sales volumes. If there is little difference between brandsin your market price sensitivity is likely to be high and small price differences will seriously affect demand. You need to be careful, however, as many business people have found that too great a price drop may sell many more units and make them work much harder, but won't actually increase sales revenue!
Alternatively, if your product or service is differentiated from your competition you may find that your customers are not as sensitive to price as you first thought.
You need to consider the prices charged by your competitors, to give you a benchmark against which to position your own price. You should not slavishly follow competitors prices however, as you should be striving to differentiate your product or service in some way to make your offering unique.
Your pricing policy will send messages to the marketplace about your product.
- For many products there is a 'going price' which it can be dangerous to go below, as people will assume your product is inferior, or competing in a different sector of the market.
- If you are selling an up-market product through exclusive distributors a high price is likely to increase acceptability.
- Psychologically many people still perceive £3.99 to be around the £3 price mark, and, more importantly, you may find that your customers are as receptive to a price of £5.99 as £5.70.
- You don't need to charge the same price for your product or service in all segments. You may find that, for example, you can charge more for pre-packaged fruit than for fruit provided to be sold loose. Alternatively, you may find that your service is perceived and used differently by the various segments of your market e.g. a cleaning company may be able to charge more per hour for domestic cleaning, than for offices.
Having considered the above, you still need to decide which level of price you will set. You will need to resolve four basic issues:
Why did you introduce the product?
If you have already covered your overheads and are using spare capacity you can use marginal costing and lower prices. If it is a long term commitment to the market requiring investment you will have to consider a different policy.
Should you 'skim the cream'?
If your new product is superior to the competition you can sell it at a higher price than competition. The volume sold may be small, but the profit margins will be high.
Should you adopt 'penetration pricing'
This route aims to get quick acceptance by setting low prices at launch so as to achieve high volumes quickly.
What will the competitors do?
You need to consider what countermeasures your competitors may take. How vulnerable are they? Will they be forced to defend themselves aggressively? Are they in such a secure position that they can take long term actions to undermine your position?
Distribution Strategy (Place)
Your customers will expect to find your products:
- Available when and where they need them
- In quantities that suit them
- In surroundings that enable them to make a good choice between products
- With access to other services to help them use the product (such as after sales service)
This is the time to think of new strategies for distributing your products or services. Have you considered the following options:
- Dealing directly with your customers - retailing, selling through the internet, mail order
- Using a specialist intermediary - agent, specialist outlet, catalogue company, retailer
- Use a wholesaler - reduce administration
When choosing remember to consider the following:
- Your customers
- Your product characteristics
- The nature of the distributor
- Your competitors
- Your company size
- The environment in which you are operating
No matter how wonderful your product, no matter how unique your service, the world is unlikely to beat a path to your door unprompted. You need to carry out promotional activity to attract the right sort of business, in the right quantity, at the right time and to distinguish you from the competition.
Promotion is not just about advertising your business, nor is it just about selling. It's about pulling together a range of techniques, in the most cost-effective way you can, to initiate, increase and maintain awareness of what you offer to your customers. You need to move your customers from total lack of awareness through to the point at which they actually buy and buy again.
You may also wish to use the planning process as the opportunity to carry out additional market research into your customer's needs, your perceptions in the marketplace and how you could improve your product/service.
The components that make up the Promotion element of the Marketing Mix are known as the 'Promotional Mix'. Technically there are four elements - Public Relations, Advertising, Promotion, and Packaging. Often Personal Selling is substituted for packaging and the mix is known as the Communications Mix. In addition, as Direct Marketing increases in importance it is often referred to as another component of the mix, although technically is part of Advertising.
Public Relations Strategy
Good PR will generate understanding and positive interest in your business. It will whet potential customers' appetite for more information, prompt enquiries, re-establish dormant contracts and reinforces your image with existing customers.
PR is a long-term process, to do with developing an image and a reputation with your customers and the market as a whole. Often this image is created by cumulative effect, based on the quality of your printed materials, your staff, and the willingness of your customers to broadcast their good experiences. You can however devise strategies to focus your approach, aimed at enhancing your reputation with people whose opinion you value.
You need to set objectives for your PR so that you have a clear idea what communications message you want to send out. Your PR activities should then aim to reinforce those messages in the mind of the public.
Publicity is the part of PR which involves capitalising on 'newsworthy' events or opportunities - using the press to sending a positive message to your marketplace. This is a more tactical activity and a publicity plan should be included in your one-year plan.
Many people believe PR to be free. This is why a lot of small businesses are not very good at it!
Managing your PR can take up a lot of time and it is often easy to miss good PR opportunities simply because you are too busy, or too close to the story. Many small businesses use the services of a PR agency. This does not need to be expensive and may pay for itself in the long term - consider whether this route should be part of your strategy.
You must remember however, that PR cannot be used to guarantee results as you have no direct control over what is reported, how and when.
Advertising is an almost universal tool. You can use it to gain your customers' attention, attract customers' interest, create desire for your product and service and then prompt them to buy.
Advertising is defined by the American Marketing Association as:- 'Any paid form of non-personal presentation and promotion of ideas, goods or services by an identifiable sponsor'. Some people believe direct mail is classed as an advertising activity.
There are many ways you can advertise your business, and the opportunities are growing. Advertisements can be placed in local and national press, in magazines, and on the internet. You can also create ads for poster sites, radio, cinema and TV. Advertising can be as simple as dropping leaflets through doors in your local town, or placing posters in shop windows. You can use direct mail to carry out a mail shot to potential customers, existing customers or lapsed customers.
With the more simple advertisements the printer or the person who has sold you the space should be able to help you construct them. For more ambitious campaigns you probably will need the help of an ad agency.
To create your strategy you need to have a clear understanding of:
- The message you want to send - this should be simple and consistent throughout your activities.
- The target audience you want to reach - at this stage you should know what products or services you want to send to which market segments.
You will then need to decide which type of activity will best reach your target audience, and carry your message. Cinema advertising is good for targeting young people, trade magazines are good for targeting specific industries, whilst leisure and lifestyle titles could be used to target particular age groups.
Businesses often find impact can be significantly improved by repeating campaigns or running the same campaign in different media e.g. posters and leaflet drops.
Direct Marketing Strategy
The US Direct Marketing Association defines direct marketing as 'An interactive system of marketing which uses one or more advertising media to effect a measurable response/and or transaction at any location'.
Effectively to be classed as direct marketing your activity must involve response, it is often two way communication, developing a relationship between supplier and customer. Response is carefully measured in an attempt to take the waste out of marketing and should be part of your long-term strategy. Activity through virtually any media can be classed as direct marketing, including telemarketing and it is one of the fastest growing marketing disciplines in the UK.
For most small business, direct mail is the type of direct marketing activity carried out most commonly. Leaflets are sent through the post, with the aims of eliciting a response - be it purchase, trial loyalty, relationship building, or one of many other objectives.
Sales Promotion Strategy
Although often considered as a tactical activity sales promotion is an essential part of the marketing mix. It has been said that sales promotion can be used to persuade people to take a course of action, which without that persuasion, they would not normally take.
The Institute of Sales Promotion defines sales promotion as 'a range of tactical marketing techniques, designed within a strategic marketing framework, to add value to a product or service, in order to achieve a specific sales and marketing objective.'
Your sales promotion strategy could be developed to support the following activities:
- Introduction of new products - by encouraging stocking or trial
- Attract new customers - by encouraging stocking or trial
- Maintain competitiveness - by providing discounts or special pricing
- Reduce seasonality - by encouraging consumption out of season
- Increase the amount people use your product
Promotions could include free samples, coupons, competitions, temporary price reductions, buy one get one free offers or free gifts. If you sell your products through a third party you could also look at providing point of sale material, or special promotions aimed at encouraging your distributor to sell or stock more products.
The most expensive and the most effective form of promotion is personal selling. Even if your business does not have a sales force you will have found yourself selling at sometime - whether you were selling your idea to the bank or encouraging a shop to stock your product.
You need to develop strategies for targeting the right markets, prospecting, developing accounts, and customer care.
- How will your sales activities be supported by other elements of the promotional mix? Can you use direct mail to generate leads? Is your PR so good that sales people can easily gain sales appointments? Have people heard of you?
- Do you have the optimum number of sales people and are they deployed correctly? Are they split geographically, or would it be better to have them focusing on different products or different market areas? Should you have someone focusing on new business only, or managing key accounts?
- Have you given enough consideration to the people and processes side of the business to deliver good customer care (see Services Marketing).
This is also the time to consider whether a sales team is necessary, or whether you could use emerging techniques such as e-commerce, or telesales to support or replace some of your sales team.
You are probably familiar with the use of packaging to protect your product, help distribute your product and sometimes, to meet regulations.
You can, however, use it as a tool to differentiate a product, either visually or in terms of the convenience it offers to the consumer. Packaging design is an inherent part of the brand identity of a product.
If you are marketing a service, you already know that there are certain basic characteristics which differentiate your business from an organisation which simply markets a product. Alternatively you may be supplying products, but have a strong service element associated with that role e.g. the retail business.
For service industries three extra elements have been added to the marketing mix: who gives the service (people), how the service is given (process) and the environment in which the service is given (physical evidence).
This is because services are intangible and inseparable from the provider of the service. It is often difficult to maintain consistency of service and you face the constant challenge of matching demand with supply as you cannot store a service. Your customers do not end up owning a physical item, but leave you having enjoyed an experience.
Services are provided by people for people, and if the people providing the service are inefficient, rude or unkempt, your customer's experience will be spoilt. Whilst good customer care is important whatever you are selling, if you are selling services then your product is ruined. Your strategies need to cover the following:
- Selection and Training - are you recruiting the right people in the first place? Are you providing them with the tools to do the job? Training does not need to be expensive - you can carry it out yourself, or set up team meetings to practice role-play.
- Internal Marketing - are you actively promoting a culture of service within the firm? This could include good service awards, staff newsletter and team meetings.
- Presentation - do your staff behave and dress in a manner that reflects well on you as an organisation, and your service.
You need to consider strategies that will ensure that your team can deliver a consistent level of service to all customers at all times. In a service industry busy periods and quiet periods are often unavoidable, and encouraging staff to follow routines will help to ensure that whatever the pressures, a level of service will be maintained.
You can treat the appearance of your staff and your premises in the same way that packaging can be used to create or enhance brand image. As your product is intangible, staff and premises are often the only tangible elements a customer sees. Would your staff benefit from a uniform? If customers' visit your premises, is there a unique feature about the building or location you can exploit? Alternatively can you create a brand image using distinctive décor? This 'corporate identity' is especially important if you have more than one outlet.
In addition, you might consider other things that your customers can take home with them that are physical evidence of the service you provide. This could include membership cards, loyalty cards, or certificates. Companies which provide gift experiences such as helicopter flights often send out videos and gift certificates in a presentation pack before the flight, and a certificate of achievement afterwards.