What is Marketing: Part 1 - Introduction

What is Marketing?

Many people believe - and my previous posts on this blog may serve to reinforce the belief - that "marketing" is synonymous with "advertising."  However, advertising is just one component of what marketing does.

Marketers would say that "marketing" is a broad field that includes all aspects of serving a need.

Activities conducted by the marketing department include:

1. determine the marketing mix (product, price, positioning)
2. make the product available to the consumer through appropriate channels
3. inform the consumer that the product is available (that's the advertising bit)
4. Finally, evaluate the success or failure of past marketing efforts.   

Trying to sum up the entire field of marketing got a bit unwieldy for a single blog post, so I’ll tackle this topic in a “What is Marketing” miniseries.

Next up: the Marketing Mix.

What is Marketing: Part 2 - The Marketing Mix

The Marketing Mix

Part 2 in the “What is Marketing” series.

Determine the marketing mix

The "marketing mix" is the balance of three components:

1. Product 
2. Price
3. Positioning

The marketing mix should be developed in response to a recognized need on the part of the target market.  Therefore, all marketing begins with targeting; and when marketing efforts get rocky, targeting is what you return to.

Targeting

Targeting is the art of figuring out who your customers are, and then orienting your entire business strategy so that it aligns with those customers' wants and needs.  The understanding of who your customers are and what it is that they need is the information that drives your business decisions.  The best way to begin a marketing campaign is to contact your customers, or a representative sample of them, and ask them to tell you what they would like.  Primary information such as survey data is invaluable in assisting you to understand how to proceed with your brand development strategy.

Product design

Once you know what your customers want, you can set about trying to design it.  Obviously, the particular need you choose to address will be related to your firm's core competency.

Returning to the example I used in previous posts on this blog: imagine that you have been sewing a line of handmade clothing and selling your clothes at a local street fair.  You've been doing it for a while and you're ready to expand.

Your core competency is not the ability to stitch a hem: there's a machine in China that's better at that than you are.  Your core competency is your creative ability to conceptualize a unique design and to put it together with secondhand materials and found objects to create trendy clothes.

Based on your past sales data and informal interviews with customers, you know that most of your customers are young (in their 20's) female city dwellers with a college education.  They like your clothing for the uniqueness of the pieces and the flashy styles you create.

So, as you look to expand, should you try to develop a less flashy line, in an attempt to reach the masses who are not yet buying your products?  No!  You already know that your existing customers value you for your flashy styles.  Go with it.  As you look to expand, maintain consistency in the products sold under your brand, so that regardless of where they encounter it, customers will recognize it for the unique identity that it offers.  Find more customers who are just like your existing customers: they are your niche, your target market.

Price

The cost of the product should reflect the value of the product to the customer.  The cost of raw materials is only a small factor when calculating the total cost...  unless the cost of raw materials is substantial, in which you may wish to reconsider your inputs.  You can engage in Process Costing to meet your targets; although that's more Operations Management and Accounting than it is marketing specifically, but it's all tied together.  Once all the factors are properly weighted, the price should be "right" for the time of sale, accounting for convenience, market conditions (competition), the uniqueness of the product, and the consumer's own budgetary constraints.  When the price is "right," a transaction is conducted, and both the buyer and the seller obtain value.

Positioning

Positioning is the brand personality.  Positioning incorporates yes the physical location (position) of any outlet but also the reputation of the company, the exclusivity or ubiquity of the brand, and any statements made by the brand about the consumer.

Price is a component of positioning.  Selection of channel partners is also a key component of positioning.  That brings us to making the product available.

Next time: sales channels.

What is Marketing: Part 3 - Channel Management

Sales Channels

Part 3 in the “What is marketing” series.

Channel management 

At this phase of your marketing plan, you are ready to make the product available to the consumer.
Now that you’ve identified a customer group and developed a product for them, it’s time to reach those customers through appropriate channels.  You want to preserve your brand’s positioning while expanding your business.  Your stall at the street fair is a direct channel, but it reaches a limited slice of your total potential customer segment.  You want to find more channels to your customers, and in the interest of taking your offering to where your customers are, you determine to sell your products through channel partners.

Adding channel partners

Should you immediately try to strike a deal with a volume distribution channel, like a store down at the mall?  No!  You produce one-of-a-kind fashion pieces; they don’t go on the rack with mass-produced t-shirts.  Of course, major retail outlets wouldn’t touch you at this point, because you don’t have the business infrastructure to sell through them; but you don’t want those guys anyway.  You need a high-touch sales channel; someplace that’s going to give your customers the attention they want.  You need to sell your products through a small fashion boutique or similar upscale business.  Talking to the owners and finding someone who’s willing to make a deal could require some work, but you are dedicated.

Your online sales channel

But now you’re concerned that you need a low-touch sales channel, to reach members of your target demographic who may not exhibit the behavior characteristics of patronizing trendy downtown boutiques.  To reach this segment, you will probably start by setting up accounts with Etsy and eBay.  Eventually you may decide that you want more control over the customer experience of your online sales channel than you can get when selling through Etsy or eBay; and when you reach that point, you will want to get a website of your own.  There are ways to get a website on the cheap; but you are likely to end up with a cheap-looking website.  I admit a professional bias in this regard, but my recommendation is to work with a local marketing design professional to come up with a package project to meet your business needs at a budget that you can view as a worthwhile investment in growing your business.

Next time: Inform the target market that the product is available with advertising.

What is Marketing: Part 4 - Advertising and Branding

Advertising and Branding

Part 4 in the “What is Marketing” series

Inform the consumer that the product is available

As long as your business was limited to a stall at a street fair, the only advertising you needed was maybe a sign, and a tall hanger to show off your wares to the passing foot traffic.  Now you’re selling it in shops that may not give you window space.  At this point you become concerned, first with notifying people that your products are available through these channels, and secondly with trying to increase the odds that consumers who visit these channels will ask for your product by name.  Suddenly you are concerned with branding.

Brand development

If you’re investing in marketing activities (and in this context, I do mean “advertising” primarily) then you want to maximize the return you get on that investment.  If you advertise and convince prospects to visit your channel partners, then you want them to be able to ask for your products by name when they walk in the door; and for that, you need a brand name.  A brand also helps you to improve repeat customer retention – the tendency of previous customers to come back and buy from you again in the future.  The more familiar they are with your product, the more likely they are to associate it with a friendly sense of recognition.  If you have a name and mark that you implement consistently across your customer touchpoints, then your customers will be more likely to remember you from one contact to another.

Choosing a brand name and logo

Ideally, when selecting a brand name, you want something memorable, short, and descriptive; a name that will represent your company’s quirky personality and tie that in to the quirky self-image of your best customers.  In this case, your product line already has a brand name: if you hope to retain your existing name recognition and customer base, then you will probably continue to use the name from your old street fair stall sign.  You can probably safely have your logo professionally redesigned, though, unless you are happy with the one you have.  Try to be sure you work with a professional who is comfortable producing a logo that will work in a variety of media: not just something that would look flashy on a web page; but something you could have embroidered onto your clothing items, when you get bigger and start producing your products in large quantities.

Brand awareness

Now you are ready to introduce your brand to the world.  This is the expensive undertaking we all know and love from the continuous advertisements we are subjected to everywhere we go and doing everything we do.  But you don’t want to blanket every available media channel with your marketing message: you want to target your customers specifically.  Not only that, but you want to target consumers by the channel they are likely to utilize: trendy downtown pedestrians through the trendy local weeklies; internet shoppers through Google ads.  I talked about advertising a bit in a previous post, and I’ll probably come back to it again in a future post, if I manage to stay motivated.  I guess for now suffice to say that advertising is a crucial component of any marketing strategy.

This is an ongoing process.  You’ll notice that many large, successful brands never stop advertising, especially consumer brands in competitive markets with minimal differentiation.  There’s a reason for this.  Pursue your chosen strategy for a time, and then it will be time to evaluate your progress.

Next time: evaluate the results of marketing activities.

What is Marketing: Part 5 - Evaluate Marketing Efforts

Part 5 of the “What is Marketing” series.

Evaluate marketing efforts

Finally, at the end of any marketing cycle, it is essential to evaluate the success or failure of the marketing efforts.  Did the marketing activities generate the expected return?  Sales data will inform judgments of success.  If the marketing effort was successful, that success may be replicated or built on.
On the other hand, if the marketing effort was not successful (e.g. if the sales targets were not met) then the marketing department must assess what errors were made, and determine the best potential repositioning strategy going forward.  Customer surveys and interviews with other channel partners and stakeholders such as customer service representatives may help the company to understand why a marketing campaign did not resonate with customers.

Conclusion

This miniseries has discussed the components of marketing, and how they relate to the development of a micro-enterprise with big dreams.  In short, to sum up, the entire marketing process should always be centered on the customer: understanding the customer’s perspective; relating to the customer in product design and communications efforts; designing a product and a sales strategy that will deliver the right product at the right price and all the rest.  It begins with determining who you’re selling your products to; and it is continuously improved by actually asking them what they would like best.  Future posts may discuss survey techniques and choice-based conjoint; but I think this is enough for today.

Resources

The “What is Branding” series was informed by the following resources.

Coughlan, A., Anderson, E., Stern, L., and El-Ansary, A.  (2006).  Marketing channels (Seventh edition).  Upper Saddle River, NJ: Pearson Prentice Hall.

Keller, K.  (2008).  Strategic brand management: building, measuring, and managing brand equity (3rd ed).  Upper Saddle River, NJ: Pearson Prentice Hall.

Kotler, P. and Keller, K.  (2009).  Marketing Management, Thirteenth Edition.  Upper Saddle River, NJ: Pearson Prentice Hall.

Ries, A., and Ries, L. (2002).  The 22 immutable laws of branding: How to build a product or service into a world-class brand.  New York, NY: Collins Business.

Now What?

Earlier posts in this series have covered selecting a product offering, identifying your target market, and writing your first business plan.
Once you have a business plan written, you will want to implement it. If you are already in business, then you are probably implementing your business plan on the fly, making changes to your business as you find time to tackle those projects.  If you are just starting your business, then you are likely to encounter various logistical hurdles when you attempt to implement your business plan: securing financing, obtaining the appropriate business licenses and permits, leasing a facility, contracting with suppliers, hiring employees, dealing with tax accountants and insurance salespeople, and all the other boring, complicated, technical details that make starting your own business less fun than you might have dreamed.  Well, that's work, and sometimes you just gotta roll up your sleeves, get the job done, and move on.  For now, we'll assume that you have taken care of these details.  (We may come back and revisit some of them in a later post.) 
Ideally, your well-rounded business plan would have included at least an outline of your initial marketing plan.  However, we'll assume for now that you're operating your startup on a shoestring, and that you haven't given much thought to marketing, other than to say to yourself, "That's too expensive!"

If You Build It...  They Might Not Come After All

It is alluring to believe that one can successfully pursue the "Field of Dreams" approach to business. However, unfortunately, countless business owners discover every year that this optimistic view is fatally flawed. You could create the greatest product ever; you could sell it from the most fantastic outlet space in the history of your industry; you could provide your customers with the best customer service in the world: and your business could still fail if you don't do enough to promote it.

You Need to Advertise

I know, I know, everyone hates advertising. Business owners despise advertising for its upfront cost and the absence of a guarantee that it will do anything at all for their business. Consumers loathe advertising because it is such a pervasive, constant barrage, and especially because these days many companies are using technology to engage in marketing practices that feel like a violation of the Constitutionally guaranteed Fourth Amendment right to privacy. Don't be one of those companies.
It is possible to advertise your offering without annoying people excessively. On the other hand, if you don't actively engage in some marketing activities, you will probably be going out of business soon.

This is where you say, "But I'm an Exception to the Rule!"

Of course, there are always exceptions. There are hole-in-the-wall boutiques and restaurants that rely on their location and some word-of-mouth promotion from their customers. You'll notice that most of them tend to last less than three years; but some very few manage to eke out a marginal existence for decades. You probably think you can do what those few did, and maybe you will; but statistically speaking, well let's just say that if you want to improve your odds of success, you should advertise.
Perhaps you are a consultant working for just one or two major clients who you met through your last job: you may say to yourself, "I don't need to advertise, because I already have more work than I can do." That may be true, for now; but ask yourself, are you running a business just to get by for now? or are you trying to establish a growing concern that will be highly profitable in the long run? Wouldn't your business make more profit if you hired a junior employee? You would probably need to engage in some degree of sales and marketing activity to get enough new business to keep your junior employee busy. Also, be sure to consider the worst-case scenario: what if your current clients decide not to renew your contract? If you don't have a backup, you could quickly end up in a financially precarious position.

You Still Need to Advertise

If nobody knows that you exist, then they will not seek you out. Even if you have a storefront shop in a trendy district, people who are familiar with your brand identity are more likely to walk through your door than people who see you as a perfect substitute for the slightly more well known competitor down the street.
Regardless of your industry or your offering, you need to market your business in order to be profitable.
 You cannot rely solely on word of mouth to bring you enough customers to grow your business. (That includes social media: it's trendy, but don't count on it to benefit you as a small business owner.) Except in highly specific circumstances, you can't rely on your location to bring you customers either; and even then, if you don't have a promotional campaign, then you had better be providing something that is so highly unusual, desirable, and hard to find that people will be willing to actually hunt you down in order to find it.
No, regardless of your industry, your product offering, your service guarantee, your specialized knowledge, your quality materials, your superior design, and whatever else you have to offer: regardless of any of these, if you want your business to grow, you have to advertise it. Otherwise, you may discover that "if you build it, nobody at all might come"; and then you're out of business with a lot of bills.

Choosing Where to Advertise

Earlier you identified your target market: the group or "type" of people who are most likely to purchase your offering. You considered some of their probable characteristics: location, age, gender, income, level of education; any characteristics that might be relevant to their potential relationship with your offering.  Now you can begin to take what you know about this group of people, and extrapolate from that the most appropriate way to communicate with them effectively.  If you are selling a highly specialized product that is solely used by aerospace engineers, then you will want to figure out which trade publications are read, and which websites are frequented, by your target demographic; and then you will want to advertise through those magazines and websites. 

Case Example: You Have a Booth Where You Sell Clothes You Made Yourself

If you are selling cutting edge fashions at a street fair, you might bring in enough customers just by having a large, showy booth; a well-organized display; a great location within your local market; and a prominent sign to make you noticeable.  This basic visual presentation of your business to your prospective customers is critically important, due to the effect of first impressions as well as the more basic challenge of getting noticed in the first place amidst all the noise and clutter; and you may actually find it quite surprisingly expensive to obtain a choice location and an attractive sign.  This is marketing at its most basic. 

The Next Level

Taken to the next level, you could engage in marketing activities to increase your level of sales during the street fair, and to bring you additional sales continually, in between street fairs and even in the off season. 
In this example, your target demographic consists of trendy young people who live nearby.  
You could hang fliers on telephone poles; but the telephone companies discourage this, and in some places they may even attempt to fine you. 
Instead, you should research several potential media outlets, and invest in the one that is most likely to be effective, NOT the one that is most affordable. Remember, your Return on Investment is more important than the initial expense. Plan your activities accordingly.

Get a Website

You'll probably want to start by setting up a website for your small business. A future post in this series will delve into the detailed ins and outs of web design and website hosting more extensively. For now, suffice to say, you can get great hosting for not very much money; and if you can't afford a professional website design service, many hosting plans include a WYSIWYG do-it-yourself online design tool option which allows you to create and maintain your own website at no additional cost.

Direct Mail

Take a photo of your booth during a street fair. Have it printed on a postcard, along with your booth location and your web address. Buy a consumer mailing list from one of the many companies that sell such lists. You can refine your list by region and demographic characteristics, for example, women between the ages of 18 and 27 who live in a certain ZIP code. A few days before the next street fair, send your postcard to as much of your list as you can afford. You may want to include a limited time discount offer to get customers through the door right away; but don't make it such a deep discount that you lose money on the promotion.

Print Advertisements

Find out what publications are being read by your target audience, and advertise in those publications. If you're in Portland, OR, and you're trying to connect with trendy young people, then you'll probably want to advertise in the Mercury weekly newspaper. If you want to connect with a larger audience, people with more sophisticated taste, or people who actually have a disposable income of their own, then you would also advertise in the Willamette Week. If you specifically want to communicate with the students at PSU, then you would buy an ad in the PSU student newspaper.

Advertise Online

Depending on your industry, Search Engine Marketing (SEM) is often highly cost-effective. In volume-driven industries where per-sale profits are low, the Cost-per-Click (CPC) is typically low as well. In industries (such as auto sales or Business-to-Business) where a single sale may lead to a large customer lifetime value, CPC's are often much higher; but if you get a reasonable conversion rate on your clicks, then the premium is easily justified by just a couple of large orders.
Advertising on the websites that are most likely to be frequented by your target market may be more expensive than Search Engine Marketing, but the trade-off is a more direct line of communication to a specific group. Whether this trade-off will lead to a pay-off in monetary terms will depend on your situation, and you will want to monitor your campaigns closely to ensure that they are performing as expected.

Local Radio

Buying advertisements on local radio stations may be a bit spendy for a street vendor, but if you have opened a physical shop or online store, you may find radio advertisements provide a great value, connecting your business with a large audience for much less than the cost of TV.

Be Creative

The unusual gets attention. If your campaign is unusual enough, you could benefit from "viral" effects (where consumers pass along your ad to each other) or even media attention, which is great publicity that money can't buy.

For Now

That should be enough for you to get started thinking about your marketing campaign. We'll post more to this space as we have time.
Until next time, best of luck with your business.

Your First Business Plan

At this point, you have made initial decisions about what product or service you will be offering; and you have made a preliminary selection of your target demographic.  The time has come to write your first business plan.

Don't be a perfectionist about your first business plan.  This is a rough draft, and you should expect to revise it several times.  As your business grows, you will gain experience and insight into your own operations and your customers' motivations; and these will spark new ideas that you can incorporate into your future business plans.  For now, you just need some clearly defined goals to keep yourself on track.  Also, your business plan can be crucial to helping you obtain some of your initial funding.  

So sit down with a cup of hot cocoa, or your seasonally appropriate beverage of choice, and write out a thoroughly detailed explanation of how you will achieve business success.  You will need to address such details as:

Products: you have already made your decision about initial products you will be offering.  You may revise your product line in the future, to stay competitive or to address customer demand; but to begin, keep it simple, and try to do a small number of things with excellence, rather than spreading yourself too thin.

Customers: you have already identified an initial target market.  In the future, you may revise your estimation of who your ideal customers are; or you may decide to expand into additional target markets.  For now, include in your business plan who your initial target market is, why they are a good target, and what factors will motivate your target audience to actually kick down some cash and become customers.

Distribution channels:  distribution is one of the most important aspects of your business.  How will you connect buyer demand to the product or service you are offering?  Will you have a street corner cart, a stall or booth at an open-air market, a physical storefront or shop, or a large industrial facility?  Will your products be carried in retail outlets such as grocery stores or shopping malls?  Alternatively, if you are a service provider, you may decide to keep your internal operations completely separate from your customer relations.  For example, your clients might phone in to a call center (or your mobile phone) and request an in-person visit from a service technician. 
Finally, will your business have a web presence?  Your website is an important marketing tool that can also serve as a secondary distribution channel.  This series of blog posts will address the topic of websites in more detail in a future post; so for now, suffice to say that Basementia Design™ can help you set up your e-commerce website. 

Employees: within your business plan, briefly outline who will be performing the essential work of your company.  Estimate how many employees your organization will require, what their job descriptions will be, how many hours per week you expect them to work and at what rate of compensation.  Who will answer the phone, who will meet with customers, who will process the paperwork, who will make the products or supply the labor, who will package and ship the products, who will process the payments, and who will do all the bookkeeping?  These questions are at the heart of your business model.  Even if you intend to do all the work yourself, try to note all the different functions you will be performing; you may discover that your job will be easier if you can hire a part-time assistant to take care of certain details while you perform other essential duties.  Finally, note that not all work has to be performed by an employee of your company: many companies commonly hire an outside contractor or consultant to help with certain business functions, from facilities maintenance and housekeeping to payroll and tax accounting.  This brings us to:

Suppliers and Contractors:  your relationships with suppliers and outside contractors may be just as important to the success of your business as your relationships with your customers.  Your suppliers provide your raw materials, equipment, and critical infrastructure.  Some critical portion of your value chain activity may be outsourced to a contractor; for example, many companies contract with a call center to handle their customer service requirements; and most major manufacturing firms subcontract some portion of their manufacturing work to partner firms who can more efficiently supply certain components.  Take the example, imagined in previous posts in this series, of a work-from-home business model sewing clothes to sell at an open-air market.  Your suppliers, contractors, and business partners include the store where you purchase your fabric, buttons, zippers, needles, thread, and other sewing supplies; the manufacturer, retailer, and servicer of your sewing machine; the utility companies that supply your residential business with electricity and telephone communications; and of course the organizers of the open-air market, who organize the events and lease you your stall space for a fee.  Quality components, competitive pricing, and timely access are all critical to your business, so note all these relationships in your business plan, and briefly state which ones provide an excellent value to your company and which ones could possibly be improved by seeking out your present supplier's competitors. 

Corporate Structure: your business plan should note the legal structure of your company.  Is it a sole proprietorship, a limited liability partnership, or a corporation?  Choose your company's legal structure depending on who has bought in, or may be reasonably expected to buy in; but keep in mind that your choice has serious legal and tax implications.  Often, a company's corporate structure is determined by its capital structure: the source of financing may determine the company's legal structure.  This topic is worthy of its own future detailed post in this blog series.  For now, my previous overview of business structures is posted on Basementia's website.  Once you have settled on a legal structure, you will have to file the appropriate paperwork and pay the necessary fees to make it a reality.


Marketing Strategy: your marketing strategy is sure to evolve and change more rapidly than your overall business plan.  Nonetheless, your business plan should consider a preliminary strategy.  Will you use signage, stickers, or handouts such as business cards, fliers, and brochures?  Will you purchase print advertising in newspapers or trade magazines?  Will you purchase ad spots on billboards, radio, or television stations?  Will you have a website; and if so, will you purchase advertisements through Google AdWords and similar programs?  Will you work with a marketing firm or design your ads yourself?  How many customers do you hope to reach with your ads, how much will the ads cost you, and how many sales will your ads need to drive in order to provide a worthwhile return on your expense?  Give these questions some thought before you consider your business plan complete, because they will help you determine the final step, which is one of the most important aspects of the creation of a new business.

Financing:  without proper financing, your business startup is dead in the water.  None of your suppliers or contractors will want to wait until your business becomes profitable before they receive payment.  You should try to estimate how long it will take for your company to become profitable, and estimate how much it will cost to fully fund your business operations, including your own salary, throughout that period.  Next, whatever you have estimated, it was probably low, so try to obtain twice that much capital.  Sources of capital financing may be generally broken down into equity financing and debt financing.  Cash that you contribute out of your own pocket or bank account is equity, and you should track it carefully, because it represents the basis of your ownership of the company, and may be tax deductible depending on usage; see IRS regulations for details.  Cash provided by friends, family members, and business partners is generally also equity financing, and provides those stakeholders with an ownership position in your company, which also gives them a legal claim to a portion of your company's assets in the event of bankruptcy liquidation.  Borrowed money is debt financing; and debt financing is typically characterized by the need to make interest payments.  Large, established companies can issue bonds; but your best bets for debt financing will start with your personal credit card, and may also include bank loans and Small Business Administration loans.  Additional financing sources may be available through certain programs in your local area.  There are no hard and fast rules, but personally, I would advise against heavily leveraging your company through debt financing until the business is profitable enough to be able to pay off the loans plus interest.

Well, that's a lot to think about!  Best of luck writing your initial business plan.  Future posts to this blog will expand on some of these concepts, and address the implementation of your business plan as you turn your idea into a reality.