15.2. The Marketing Plan

Choosing the right mix

The marketing section of a business plan should aim to outline how the business intends to price, promote, distribute, and sell the product – the marketing mix.

Having a good product, with clever design, is not enough in itself to sell it. In order to make sales, the product must be carefully targeted at those consumers who are likely to buy. This targeting requires that the product be designed to appeal, not just in its physical design, but also in its price, promotion, packaging, and distribution.

All aspects of a business are concerned with marketing, because everything a business does has some impact on sales, and ultimately profits. Marketing is a total approach to business which focuses on the needs of customers, from something as simple as the trading name of the business, the design of stationery, the helpfulness and knowledge of sales staff, to the price and quality of the product itself.

The marketing section of the business plan is very important, not just in encouraging business managers to organize their thoughts about how to achieve sales, but also in persuading potential lenders that the business will work. It should contain a realistic sales target (in terms of both volume and value) and details of how the marketing mix will be used to achieve it.

Here is an overview of some of the important marketing questions you will need to address in your business plan:

• Is the market declining/static/increasing, and why?

• Who are your major competitors?

• What features of their products/services enable them to compete successfully with you?

• What are your major strengths and those of your products/services that make you competitive in your business market?

• What level of sales do you anticipate achieving? In the next 6 months: _____ In the following 6 months: ____

• What makes you certain of achieving these levels of sales?

• What methods do you intend using to market and sell your products/services (e.g. advertising, direct mailing, trade fairs)?

What’s a name?

You may choose to name your business after your own name. However, from a promotional point of view, it may be better to choose a trading name that reflects the product you are selling, or one that suggests a particular feature of the business, such as quality, speed of service, or value for money. For example, consider the following business names: General Motors; Richer Sounds; Prontaprint; Kwik Save. What do they tell you about these businesses?

Product

Choosing the right product is vitally important. Unless your product is unique and you can create a want for it through advertising, it is important to produce a product for which the market is expanding. This will require research. The appearance of a product, in terms of size, shape, colour, texture, taste, smell, labelling, brand image, and incorporated technology, will all influence the buying decision of the consumer. Because consumers’ desires are forever changing, it is important for a business to keep researching the market and adapting products accordingly. Product development – strategies, costs, and resources involved – is normally considered within a production plan.

Organizations will often use best practice benchmarking in product development. This involves observing the products and processes of rival companies, and then improving on them. Methods of benchmarking can include taking apart rival products to see how they were made, analyzing published data (for example, in company reports), or simply talking to suppliers, distributors, and customers.

Pricing

The price at which the product will sell will ultimately be determined by the forces of consumer demand and producer supply. If price is set too high, the product will not sell. If set too low, there will be an excess of demand which will force the firm to raise price, at least until they can expand output to meet the demand.

Choosing the right price is, therefore, a key part of the marketing mix. But this does not mean that the good or service has to be cheap in order to attract customers. Consumers may be suspicious of a low price because it may suggest poor quality. Whatever price is charged should be consistent with all of the other marketing messages given by the marketing mix. For example, if the promotion, advertising, packaging, and retail outlets through which the product is distributed all suggest high quality, then the price should be correspondingly high.

Costs will also need to be taken into account in the pricing decision. If price fails to cover the cost of production, the firm will make a loss. In the long term, the best price for a product is one that will maximize profits by creating the best combination of sales volume, price, and costs. However, in the short term, the goals for pricing might be different. For example, price may be set low initially in order to build the business by gaining sales. In practice, many small businesses take a lead from other businesses, by charging a similar price to that of their rivals.

Promotion

A good product will not sell, even if the price is right, if customers do not know it exists. Ensuring that the market knows about the firm’s products is known as product promotion. The key steps in efficient product promotion are as follows:

• Tell potential customers of the existence of the firm and/or its products.

• Get customers to visit the firm and/or to see the products.

• Encourage customers to buy.

• Persuade customers to make a repeat purchase in future.

Effective promotion is about turning the target market into loyal and satisfied customers. A business outlining its promotional strategy for its business plan will therefore need to ask the following kinds of questions:

What is the promotion seeking to achieve? The objectives of a promotion could be simply to ensure that customers know of the existence of a new business, or to pursue them to ask for further information, or to visit the business, or to place an order, and to continue to make repeat orders.

What kind of promotional message will achieve the objectives? To create a persuasive message, a business needs to identify what is different or special about the product or business – that is, its unique selling point. If there is little about the product which is different, the owners need to ask what can be portrayed through advertising and promotions as being different – for example, quality, after-sales care, free gifts, helpful sales staff, etc. In this way, promotion creates a brand image in the mind of the consumer.

What media will be used? A wide variety of media can be used to communicate the firm’s promotional message. These may vary from promotions on free carrier bags, to primetime television advertising. The choice of promotional medium is as important as the promotional message, because if the right message is sent out using the wrong media, the target market will not hear it, and the promotion will fail. Clearly, the right media is not just the one which reaches the target market: the media also has to be affordable. Many small businesses use Yellow Pages, local newspaper advertising, specialist magazines and leaflets, as low-cost ways of reaching their target market.

Distribution

Distribution is about where and how the product is sold. In buying a product, consumers consider its place and method of sale along with the features of the product itself. For example, people buying bread and milk late on a Sunday evening or Bank holiday from a local ‘corner shop’ will often pay up to double the price they would pay at a supermarket on a weekday. This is simply because of the convenience of being able to shop late at night, when other stores are closed. In other words, the benefits of timing and ease of access to the local store are being sold along with the bread and milk.

A plan for distribution may be created by asking the following questions:

• Who will buy the product or service? The aim here is to identify a target segment. This will help identify the kinds of outlet where the product should be distributed in order to reach the target market.

• Why will customers buy? The answer to this will reveal the package of features and benefits that customers will look for. If, for example, it includes ‘good after-sales service’, the product might need to be distributed through established department stores and high street shops. If not, then mail order or distribution through discount chains might be appropriate.

• How will the product be delivered to customers? Distribution will also involve a consideration of the cost, speed, and security of physically transporting products by road, rail, sea, or air. Transport costs can often be a significant element in the total costs of a business.

Selling methods

The organization of sales and sales staff requires careful planning. Sales staff need to be carefully trained in order to acquaint them with the features of the product, and how it can be favourably compared to competitors’ products. The selling section of the marketing plan may aim to target particular types of customer, by choosing retail outlets in particular localities or by targeting mailshots at certain customer groups. The sales section of the plan should make it clear how the business will:

• Influence customers’ attitude towards the product

• Make people desire the product

• Convince customers that buying the good is the right decision

Selling methods might include:

• Visiting customers

• ‘Cold calling’ by telephone or doorstep calls

• Mailshots

• Telesales

• Trade magazines and trade fairs

• Contracting wholesalers

• Advertising in business directories and Yellow Pages

• Posters and leaflet distribution

• Local and national radio advertising

• Free gifts and samples

• Cards in shop windows

• Catalogues and mail order

• Home demonstrations and sales parties in homes

Preparing a marketing budget

A good marketing plan will estimate the costs of the proposed marketing strategy, and express this in a budget. A budget will enable the entrepreneur to evaluate whether or not the marketing plans are realistic. Once costed, the marketing plans could prove to be too expensive and so have to be scaled down; alternatively, the cost could be very modest and so allow some extra marketing effort. The budget will also provide a means by which the entrepreneur can monitor and control the operation of the marketing plan in practice, by carefully comparing actual marketing expenditure to planned expenditure.

The budget should estimate the amount likely to be spent on each aspect of the marketing plan. This will include market research, all types of advertising, promotions, distribution, and selling. The costs of many of these items can be estimated accurately. For example, press and leaflet advertising can be costed simply by contacting local newspapers and printers. Other items, such as the amount to be spent on selling expenses (e.g. expense amounts and training for sales staff), cannot be costed by contracting outside agencies, but will have to be estimated by business managers.

A number of different methods are used by firms in order to allocate funds to these kinds of subjective budget headings. Methods can be based on:

• A fixed percentage of the next year’s estimated sales value

• A fixed percentage of this year’s sales value

• Estimates of what competitors spend

• Estimates of how much extra revenue an activity will generate

The marketing budget should also indicate how the planned expenditure will be phased across the year, usually using a monthly breakdown. The budget should be presented in a similar format to other kinds of operating budgets.

Timing and scheduling the marketing plan

In order to ensure that the marketing plan is successful, it is necessary to carefully work out priorities, and then schedule the timing of activities, so that the key marketing activities are carried out in the correct sequence. For example, the product must be designed, packaged, and priced before sales staff can be trained. Shop-counter promotions created to encourage consumers to sample the product can only take place once the product has been distributed – and so on. Techniques such as GANNT chart and Critical Path Analysis (CPA) can assist with timing and scheduling of marketing activities.