Marketing: Objectives, Strategies & Tactics
Session 5
Date:
Due:	Section IV: Parts A and B
Class Opener (10 min.)
Articles of interest, best / worst news, brainteaser, etc.
Instructor Topics (60 min.)
(5 min.)	1.	Overview of Marketing Strategies
(15 min.)	2.	Product Strategies
Product Line and Product Life Cycle
Product Positioning
Branding, Packaging and Service Enhancements
(20 min.)	3.	Pricing Strategies
Pricing Objectives
Planning for Profit
Making Price Fit Your Marketing Mix
(10 min.)	4.	Promotional Strategies
(10 min.)	5.	Placement Strategies
Guest Speaker (30 min.)
Local entrepreneur or brand manager
Break (20 min.)
Refreshments
Networking activity
Work Period (60 min.)
Exercise: Pricing and Break-Even Analysis
Homework Review—Session 4
Workbook Preview—Session 5
Assignment for Session 6
WORKBOOK	Complete the worksheets in Workbook Session 5. WRITE	After completing the Session 5 worksheets, follow the instructions on the Writing Your Business Plan page at the end of the worksheets to write Section IV. Marketing Plan: C. Marketing Objectives, Strategies and Tactics. TEXT	Read Chapters 13 through 16 (The Art of Selling, Customer Management, E-Commerce, Online Marketing and Social Media).

Learning Objectives
Understand the importance of the marketing mix. Understand how product life cycle affects marketing decisions. Understand the basics of product positioning. Understand pricing objectives and strategies. Understand the basics of break-even analysis. Understand common promotional tools, and select the most effective mix for your business.

Additional Instructor Notes
Session 5
Overview of Marketing Strategies
NOTE: The lecture discusses B2C and B2B marketing. Please consider the makeup of your class and emphasize the material that’s most relevant to your students.
In previous sessions, we talked about market segmentation and identifying target markets. Review these definitions briefly, if necessary. Then, discuss the importance of developing marketing strategies that fit your target market. If possible, bring up a local business with effective marketing strategies for its target customers.
The Marketing Mix
The marketing mix is the combination of elements that must be correctly balanced to create a successful marketing plan. It consists of the Four Ps: product, price, placement and promotion.
The Four Ps look at marketing from the seller’s point of view. By contrast, the SIVA model looks at them from the customer’s point of view. Use OHD 5-1 to explain. Although we use the familiar Four Ps model, students should always keep the customer-oriented SIVA model in mind.
In looking at each element, consider how changing one affects the others. For instance, how you price your product affects how you distribute it and how you promote it (and vice versa). Throughout this session, encourage students to look at the big picture and ask themselves whether specific marketing strategies and tactics are compatible with others.
Product Strategies
Use OHD 5-2 to introduce the topic of product strategies. Note that understanding features and benefits is the first step in developing effective product strategies.
Product strategies vary by type of product:
Convenience products include nondurable goods like dish soap, aspirin and candy. Most customers buy these products regularly, but don’t put much effort into differentiating between them. Thus, businesses usually market them widely for a low or competitive price.
Shopping products are goods that consumers invest more time and emotion into purchasing, such as clothes, televisions, furniture, bicycles and computers. Buying usually entails research and comparison. Image, reputation, status and emotional factors are likelier to influence buying decisions. Businesses usually market these goods selectively.
Specialty products appeal to a small, specific subsection of the population. They include luxury goods and one-of-a-kind items such as custom jewelry, as well as industrial goods like arc welders and fume hoods. Distribution tends to be limited or exclusive, and prices tend to be higher. Consumers tend to be much more selective and may have a specific brand in mind. For example, someone who has his heart set on a Cartier watch will probably not bother comparing the cost or features of watches from Seiko or Rolex.
Product Line
Illustrate expanding the depth of your product line (offering more colors of scarves) versus expanding its width (selling hats as well as scarves).
Inventory control is one of a retailer’s biggest challenges, and depth and width have a significant impact on it. Example: If you sell only one or two items, and they’re all the same color and size, how much inventory do you need to keep on hand? Now, suppose each of these items comes in three sizes and colors. You would probably need to keep a lot more inventory on hand!
Small businesses need to keep their product line manageable. Juggling too many products can cause problems, particularly during startup. It’s usually better to focus on the things you do best.
Product Life Cycle
Use OHD 5-3 to explain how the stages of the product life cycle affect marketing strategies. If possible, use common or regional products as examples (or products offered by your class).
Product Positioning
After identifying your ideal market segments, you must decide how to position your product within those segments. How will you make it stand out from competing products? Do you offer better quality? Lower prices? Safer ingredients? Faster turnaround time? Good positioning requires understanding your product benefits and knowing what they’re worth to customers.
Ask the question: How have Coke and Gatorade positioned their products? Why? Ask students for other examples of successful positioning.
Have students look at the Positioning Statement Worksheet on page 5-78 of the WORKBOOK. Explain how to create a positioning statement, and how to use the positioning statement to guide marketing messages. Use OHD 5-4 to go over tips for effective positioning statements. If possible, bring in examples of positioning statements to share.
Branding
Again, marketing is everything you do to promote your business. Thus, everything you do should reinforce your marketing message. Branding is about creating a consistent message for your business and making sure it comes through whenever you interact with the public.
Your brand identity is how you present your product to the world. When customers see your name or logo, it promises them certain things. Every time you deliver on that promise, your brand identity is strengthened. Any time you break it, your brand suffers.
Brand image refers to the feelings your brand evokes in consumers’ hearts and minds.
In other words, brand identity is how you want to be seen, while brand image is how you are seen. Ideally, they should be identical. If you think of yourself as a radio transmitter, branding is a like getting your signal through loud and clear, without any static.
All businesses will create a brand image, whether they want one or not. Branding means taking charge of this process instead of leaving it to chance (or worse, to your competitors).
The first step in creating a brand is choosing a name for your company and product. Ask the question: What makes a good brand name? Compare answers to the list on OHD 5-5.
Choosing a logo
Your logo is the graphic symbol of your brand. You can choose a logo that reflects your product, but you don’t have to. Many firms use abstract logos and let their reputation assign a meaning.
Example: What do golden arches have to do with hamburgers (or with food, for that matter)? Nothing, until McDonald’s turned them into the symbol of its brand. Now, virtually everyone associates them with McDonald’s food and service.
Characteristics of a good logo:
Simple and instantly recognizable
Reproduces well in black and white, or in a smaller size
Looks equally good on business cards, T-shirts, billboards, and smartphone screens
Your logo should be professionally designed, and you should get as many outside opinions on it as possible. Given the importance of your logo, and the length of time you’re likely to have it, this is not an area to cut corners. A low-quality logo is no bargain!
Your branding statement
Once you’ve thought about what your brand’s promise is and why your customers will value it, it’s time to write your branding statement. Example: Green Thumb Plant Care makes a day at the office like a walk in the park.
Your branding statement should guide everything your company does, so that your brand identity is clear, consistent and obvious. Use OHD 5-6 to explain brand management basics.
Use OHD 5-7 to clarify the difference between mission, positioning and branding statements.
Packaging
Packaging decisions should reflect your positioning and branding. If you sell a product, what brand identity do you want your packaging to project? What do customers expect?
Packaging isn’t just for products. For a service business, “packaging” might include things like website design, work uniforms, vehicles, and printed materials such as business cards and invoices. Most important, it includes the appearance and behavior of you and your employees.
Your location is also a form of packaging. Dirty floors, broken signs, inadequate lighting—all of these things can make your business seem shoddy or unwelcoming. By contrast, if your business is the only clean, attractive store in the neighborhood, where will people prefer to shop?
The same goes for your online presence. A website with strange fonts and colors, and lots of misspellings, will not be taken seriously.
In addition, careful packaging decisions can free your business from regulatory oversight, reduce shipping costs, earn customer goodwill, and increase your access to foreign markets.
Service Enhancements
As we’ve mentioned, customer service is one of the best ways for small businesses to compete with larger businesses, because they enjoy the advantage of much closer customer contact.
Thinking from the customer’s perspective is the best starting point for great customer service. Emphasize this point: Everything you need to know about customer service, you already know. After all, you are a customer!
Pricing Strategies
NOTE: Stress that this is just a first look at pricing. The goal of this segment is not to create the perfect pricing strategy, but to get familiar with important pricing and profitability concepts.
Setting the right price is one of your most important and difficult marketing decisions. It requires you to consider your cost of doing business, the psychological and financial impact of price on your target customers, and the pricing response of your competitors.
Pricing is the process of figuring out how much to charge per sales unit. A bookstore’s sales unit would be a single book, while a housecleaner’s sales unit could be an hour of work ($15 an hour), or a specific job ($75 to clean out the garage).
Use OHD 5-8 to define basic pricing terms. Cost is often called the floor. You can’t go below it, or you’ll be charging less than your product costs you to deliver. Value is the ceiling. It’s the maximum your customers will pay, based on what they think your product is worth. That means your cost should be as low as your brand identity (i.e., quality and positioning) permits, and your value should be as high as possible.
The goal is to find a price where the seller and the buyer both feel like they got a good deal. For a seller, a good deal means covering costs and making a profit that sustains long-term operations and growth. For a buyer, a good deal is an affordable price that matches up with perceived value. Prices that are too high discourage buyers; prices that are too low won’t keep your business afloat.
Note that most customers are looking for the best value rather than the lowest price. In fact, underpricing can make customers less likely to buy. When we’re concerned about getting a good product, spending a little more often makes us feel better about our decision.
Demand refers to the amount of your product that customers are willing and able to buy at a specific price. A customer who has $10 to spend might be willing to buy two pillows if your price is $5 per pillow, but only one if your price is $7 per pillow. Being able to afford the product is an essential part of demand; just wanting the product doesn’t count.
Other issues that tie into demand include seasonality (demand for snowshoes is higher in winter than summer); convenience (consumers will pay more to save time); and elasticity (i.e., the sensitivity of your customers to the price of your product).
Ask the question: What factors might influence how you price your product? Use OHD 5-9 to summarize common pricing considerations.
Remember: Your goal is not to set a price that will make consumers want to buy, but to make a product that consumers will want to pay for!
Use OHD 5-10 to introduce the 4 Cs of Pricing.
Pricing Objectives
Your pricing objectives depend on your business and financial goals, costs, competitive environment, and plans for growth. Use OHD 5-11 to identify common pricing objectives.
Discuss planning for profit based on profit goals, volume goals or both. The bottom line: Profit doesn’t just happen—you need to plan for it! This means looking closely at pricing strategies.
Choosing pricing strategies
Once you’ve identified pricing objectives, costs, growth plans, and profit goals, it’s time to look at strategies. OHD 5-12 covers the basics. Use the following points to expand the discussion:
Cost-plus pricing is the easiest pricing strategy. It entails totaling fixed and variable costs and adding a target return. Because it ignores the impact of consumer demand, brand identity and positioning, it can lead to a price that’s out of sync with your market. Also, it’s easy to miss hidden costs. It works best when demand and competition are stable.
Competitive pricing involves basing your price on your competitors’ price. Example: If you make handprinted greeting cards, and your main competitors sell similar cards for $2.50 to $3.50, you might price your cards at $3.00. This strategy goes the status quo pricing objective. Note that competitors’ costs or brand may be very different from yours!
Competition-based pricing is common in large, highly competitive industries like airline travel, soft drinks and crude oil. Follow-the-leader pricing aligns with an industry’s price leader, while pegged pricing aligns with industry-wide norms.
Loss leader. This is a common strategy for retail stores and websites.
Multiple pricing. In some cases, this is an actual discount. In others, the single-item price is inflated. Example: You want to sell your cards at $2.50 each, so you boost the price of single cards to $3 and offer two for $2.50. This strategy supports profit maximization.
Penetration pricing. This is a method of revenue maximization; it boosts sales but delivers less profit per sale. This can be a better strategy than maximizing short-term profits, if you can sustain it long enough to reap the benefits. It can also be a barrier to entry for competitors during the introduction stage.The downside is that competitors may respond by lowering their prices, which could lead to a price war. Also, customers may reject your product if you raise your prices too much or too quickly.
Premium pricing. Customers are willing to pay more when they feel price indicates quality or exclusivity. You can use this strategy to maximize profit or to stand out as a quality leader.
Price skimming is useful when your new product is unique or innovative and buyers will pay top dollar to get it right away. As demand drops and competition increases, prices are gradually reduced. This is what distinguishes skimming from premium pricing, where a high price is consistently maintained. Skimming can be adjusted to multiple segments.
Retail pricing. To get a retail price, you multiply the wholesale price by a certain percentage (called a markup), and add that to the wholesale price. Example: A retailer using a 50-percent markup would buy a T-shirt for $8 and sell it for $12 ($8 + $4).
Value-based pricing. The goal is to charge an above-average price while leaving customers with the feeling that they’ve gotten a good deal.
Pricing services
Service businesses must focus their pricing strategies on the ability and capacity of the owner, the productivity of workers, the requirements of the customer, and the nature of the competition.
Before approaching a customer, list the benefits your service provides. At the same time, take a hard look at your costs. It’s easy for service providers to overlook things like travel time, transportation, research and phone or email consultation. Understanding everything that goes into your service is essential to setting an appropriate price.
Understand your market
What pricing is standard in your industry and region? If you offer a service that can be provided remotely—such as graphic design—you may also need to look at the fees charged by international competitors. Understanding market forces will give you an idea of the amount prospective clients expect to pay. From there, consider how the value you offer sets you apart.
Understand your value
Underpricing your services to develop a client base is usually a bad strategy. What happens if you can’t reach your profit goals or deliver the specified results at that price? It’s better to charge what your service is worth. If you don’t seem to value your time, neither will your clients!
When negotiating prices, you are the expert on your skills, your costs and your quality. Don’t treat price objections as a cue to offer steep discounts, to defend yourself or to complain about your high costs. Instead, treat price objections as a chance to highlight the value you offer.
This doesn’t mean you should never negotiate a lower price. It’s good to be flexible, but you should always receive something in return (a longer contract, an extended deadline, etc.).
Understand your costs
Service providers often underestimate indirect costs, or overhead. One way to calculate your overhead rate is to total your indirect expenses over a given period—i.e., all expenses that are not labor or materials—and divide this number by the cost of labor and materials for that period.
Example: Suppose your indirect expenses for last year were $18,000, and your cost of labor and materials was $45,000. This gives you an overhead rate of 0.4, or 40 percent. This is the extra amount you need to charge—above labor and materials costs—to cover your overhead expenses. This doesn’t include profits, so you will need to add your desired profit margin as well.
Understand your time
Tracking time is one of a service provider’s most important tasks. If you don’t track your time, you will have to estimate it. And unfortunately, service providers often underestimate their time. The result? They work long hours without ever seeming to get ahead.
Making Price Fit Your Marketing Mix
No matter which pricing strategy you use, it should match the other elements of your marketing mix. Review your pricing strategies regularly to make sure they fit your costs, customers, competition, and profit and growth goals. Use OHD 5-13 to elaborate.
Promotional Strategies
A good promotional strategy lets consumers know what your product is, what its benefits are, why it’s better than competing brands, and how they can buy it. A great promotional strategy inspires goodwill, trust and respect and turns customers into loyal ambassadors for your brand.
Like every other element of the marketing mix, successful promotion requires a strategy. The goal is to create a promotional mix with the right blend of advertising, sales promotion, direct marketing, personal selling and publicity.
Target the right audience. All promotional messaging must start with your target customer in mind. You’ve already segmented your customers and gathered demographic and psychographic data. Now, this can tell you which media channels are most likely to reach your customer and what type of message or promotion is most likely to sway them.
Set the right objectives. Typical objectives include reaching a certain percentage of your target market, achieving a certain level of sales, or coaxing customers away from a competitor. Industry sources, newspapers, and radio and television stations can provide good estimates of the monthly sales patterns for your industry. They know their demographics, which can help you to set realistic objectives.
In the past, customers were often treated as a captive audience for one-way promotional messages. Today, consumers increasingly control when, how and whether they will pay attention to promotional messages. They can block ads on digital TV, digital radio and online, and they are more likely to ignore or mistrust the ads they do see. Company-sponsored advertising is the least-trusted source of product information, according to a study by Forrester Research.
Today, true customer engagement requires dialogue, interaction and sharing. This is a very important point when choosing an online promotional strategy, as we’ll see in Session 6.
Advertising
You can use advertising to:
Introduce a new product
Increase sales (e.g., through special promotions)
Differentiate your product through features and benefits
Make an emotional connection
Communicate company values (e.g., donation to charities, schools or disease research)
Reach and frequency
Reach describes the percentage of target customers who see your ad during a campaign.
Frequency describes the number of times they see it.
Although it’s not foolproof, reach and frequency information provides a relatively easy way of comparing the impact of advertising options:
Cost per thousand (CPM) measures the cost of reaching 1,000 readers with a print message. You can calculate it by multiplying your ad cost by 1,000 and dividing the result by the circulation: If your ad costs $500, and the circulation is 10,000, then the CPM is $50 per thousand (500 x 1,000 ÷ 10,000 = 50).
Cost per point (CPP). A “point” is a broadcast media metric equivalent to 1 percent of the listening audience. To calculate CPP, divide your ad cost by the number of points it delivers.
Sales reps for media outlets can provide you with detailed reach and frequency information.
Planning advertisements
Use OHD 5-14 to discuss the elements of effective advertising.
WHO: The Right Audience
Which customers are you trying to reach? Is this a broad campaign for a general-interest audience, or are you narrowly targeting a single segment? With your customer profile in hand, you can analyze media choices to see which of them are most likely to reach this audience.
WHY: The Right Goals
Do you want to build wide awareness with a radio campaign, or drive sales with a narrowly targeted mobile coupon? Are you reminding people of a product they’re familiar with, or trying to get them to try something new? Clarity about what you want to accomplish will improve your communications and make it easier to measure your response.
WHAT: The Right Message
This is the most creative part of advertising, and it relates directly to your positioning strategy. How will you encourage your target customers to buy? What message will appeal to them and motivate them, based on your understanding of their demographics and psychographics?
Regardless of the type of advertising, the message must contain the following elements:
Offer. What are you trying to sell?
Benefit. What will this product do for your customer?
Proof. Evidence that the benefit is real (pictures, testimonials, demonstrations, awards).
Call to action. Ask the customer to do something (call now for free delivery, etc.), and give the information needed to take that action (name, address, phone, hours of operation).
The right message is one that grabs people’s attention, holds their interest, clearly identifies product benefits, and inspires them to act.
When: The Right Time
The average person is hit with over 5,000 advertising impressions each day, so work closely with media reps to determine when people are paying the most attention to advertising.
Frequency. According to advertising experts, a customer must hear or see an ad at least four times before the message sinks in. For this reason, it’s usually better to run a smaller campaign with higher frequency than a large one-time ad. Not only will this increase your frequency, but it can also lower advertising costs.
Consistency. It takes about six months for a new business to get noticed, for people to change their buying behavior and for competitors to react. For this reason, consistent advertising is essential.
WHERE: The Right Place
Ask the question: Where will people who are interested in your product be most likely to see your ad? Again, knowing the customer helps you make good decisions. Your customer analysis can be a big help here: Are your customers are more likely to listen to the radio, watch TV, read the newspaper or use social media?
Next, think about optimal ad placement. Examples: Businesspeople read the financial section of the newspaper, while baseball fans read the sports section. Teenagers may not listen to the local oldies or talk-radio station, so you may have to choose a different format to reach them.
HOW MUCH: Your advertising budget
How much you will spend depends on your goals and on what you can afford. It also depends on how widely and frequently you want your message to be heard. Advertising can be expensive—particularly for a startup—so look for creative, low-cost ways to get your message out.
Types of advertising
NOTE: Focus on tools you think will be most appropriate for your class (except for online marketing, which we’ll address more thoroughly in Session 6).
As noted in the TEXT, there are many promotional tools available. The students’ task is to determine which tools will best meet their needs. Use OHD 5-15 to start this discussion.
Print media
Newspapers. Daily and weekly newspapers can be good for running short-term local promotions or for keeping your business in the public eye. Sales reps should be able to give you detailed demographic information, in addition to an official circulation number from the Alliance of Audited Media.
Magazines can be a very effective way to reach a narrow target audience. Visit your target magazine’s website, or contact them by phone, to get a media kit with advertising rates, lead time, reader demographics and audited circulation numbers.
If you decide to include a coupon or other special offer in a print ad, check your text carefully before submitting the ad and make certain that you clearly state an expiration date; mistakes on coupon can be very costly! Always ask for a proof, and have multiple people check it carefully.
Broadcast advertising (radio and TV)
Radio and TV commercials are called “spots.” A typical spot is 30 or 60 seconds long. Radio and TV spots are ideal when you want to reach target customers at a specific time of day.
Cable TV ads can reach viewers with very specific interests for a relatively low cost. Individual channels may appeal to specific demographics, making it easier to target ads.
Broadcast TV ads reach a broader audience and are best for products with a wide appeal.
Radio provides flexible coverage of a wide range of audiences. You can choose the best time and station for your target audience and hit them with multiple ads.
Ad rates depend on the number of spots you buy, their length, and the day and time on which they run. You may be able to negotiate bargain rates. Always document such deals in writing.
Online advertising
Online advertising includes messages delivered through websites, local business directories and social media. Benefits may include low cost, targeting niche customers, viral marketing and customer engagement. Creative possibilities include podcasting, offering an e-book, or producing tutorials through SkillShare. We’ll discuss online marketing further in Session 6.
Signage
Even the most elaborate sign is cheaper over its lifetime than any other advertising medium. Use OHD 5-16 to present the ABCs of effective signage.
Billboards and other outdoor advertising
Billboards are priced by visibility; you’ll pay a premium price for larger signs in high-traffic areas. Generally, billboards are best for building brand awareness or for advertising wide-interest goods like food or health products, online and tech services, or costly items like furniture or cars.
An important cost of billboard advertising is design. Large graphics require expertise that not all designers have. You also need professional proofreading. Typos are a lot more noticeable when they’re 10 feet tall!
For a small business, more modest forms of outdoor advertising may deliver more bang for the buck. Branded vehicles are an inexpensive alternative, and they have the advantage of being mobile. Also, ads in or on public transportation vehicles and shelters may allow you to target specific consumers (e.g., students on a bus serving the local community college).
Newsletters
Even businesses with a small marketing budget can use software to create an inexpensive but attractive newsletter—provided they have above-average writing, editing and graphic design skills. If you don’t have these skills in-house, you may need to hire a contractor.
Brochures
Brochures allow you to go into lots of detail about your business and products, while also giving people a strong sense of your quality and values.
Before you start work on your brochure, decide what you want readers to take away from your it. Choose one or two goals—like introducing your business and product line—and make sure your text and graphics serve those goals. Include professional color photos of your products, or of jobs you’ve completed. State your team’s experience and skills. Describe anything that makes your business special, such as a community connection, a charitable aim or a compelling story.
Check price and company info carefully! Outside proofreaders may not catch these errors.
Direct marketing
Direct marketing is one of the least expensive (per sale generated), most flexible and fastest-growing advertising methods. It includes direct mail, email marketing, telemarketing and mobile marketing. These methods allow businesses not just to reach specific market segments—or even individual customers—but also to tailor their message to each. As more data become available—and database technology become more sophisticated and affordable—the ability to target specific customers is increasing by leaps and bounds.
Telemarketing uses the telephone or mobile phone to contact prospects. This includes mobile marketing conducted through SMS/MMS messages, or texts. Telemarketers are subject to very strict regulations. Emphasize the importance of understanding state and federal laws before engaging in telemarketing of any kind.
Email marketing. The key to successful—and legal—email promotions is to give prospects the choice of opting in to your mailing list to receive updates, bulletins and special promotions. As with telemarketing, you must understand the laws before sending a single message. We’ll discuss email marketing further in Session 6.
Other Promotional Tools
Sales promotions
Consumer promotions are short-term incentives that typically gather customer data while increasing consumer demand or product availability, such as coupon mailings, online coupons (e.g., Groupon), contests, discounts and sales.
Trade promotions are incentives that businesses offer to retailers and wholesalers for stocking their products, such as discounts for ordering in bulk.
We’ll discuss online coupons in Session 6. For now, note that sales promotions require careful planning. Make sure that every part of your business system—from manufacturing to sales—can meet increased demand without any loss in speed, accuracy, quality or customer service.
You also need a clear goal. To attract new customers, a free sample may be more appealing than a two-for-one deal. To build loyalty, a frequent shopper program may work better than a coupon.
Once you’ve decided on your promotion, explain it clearly. The simpler an offer is, the more attractive it is. Lots of small print, restrictions and exceptions will make customers wary.
Last, choose the right media. If you want to build loyalty, an email announcing a subscribers-only sale might be a good idea. If you’re holding a contest, Twitter and Facebook are logical ways to announce it. Whatever method you use, track and measure your results so you can build on proven strategies as you grow.
Cross promotions
Discuss scenarios where businesses share the cost of promotion to gain exposure for both businesses. Example: A florist might consider a cross promotion with a candy store for Valentine’s Day specials. Each business could offer customers a discount or coupon at the other business, or keep some of the other business’s product on hand for combined sales.
OPTIONAL EXERCISE: As a group, brainstorm cross promotions for businesses in your class.
Cooperative advertising
This entails sharing the cost of advertising with your suppliers. Usually, you pay for the advertising up front, and your suppliers reimburse you for some of the cost upon proof of advertising. Example: A paint company might pay a contractor to promote its brand.
Specialty advertising
These are giveaway items—like pens and coffee mugs—on which you print your business name, logo and info. Make sure the item fits your brand. If you offer American-made goods, don’t give away keychains made in China. If you have a green brand, don’t hand out plastic trinkets. This may seem obvious, but lots of big businesses have made embarrassing mistakes like these!
Word of mouth
Products that perfectly satisfy customers’ needs make a lasting impression that they will gladly pass on to others. Word of mouth can be strongly amplified by blog comments, social media channels and online reviews. Again, these messages are also more credible to consumers.
Of course, word of mouth isn’t always positive. If you disappoint customers, they may not tell you—but they will tell their family, friends, coworkers and acquaintances. And if they go online, they may tell the whole world! Example: If there’s a cockroach on a table in your cafe, a diner can easily film it on a smartphone and post it to YouTube.
Quality control and outstanding customer service are the two greatest tools for maintaining positive word of mouth and minimizing the effects of negative word of mouth.
Networking
Networking can be an effective and inexpensive way to promote your business. As we’ve said before, you should keep widening your circle of contacts to include customers, investors, vendors, distributors and other entrepreneurs.
Thanks to social media, this is easier than ever before, and your access to prospects and partners is much wider. Think about what you can do for the people you meet and what they can do for you. You never know if they’ll become customers or refer customers to you.
You can even develop a network of partners who refer people to each other’s businesses. For instance, a gardener could refer a customer to someone who hauls yard waste, or a drycleaner could refer a customer to someone who cleans carpets. This can be a powerful tool for growth!
Public relations and publicity
Public relations are organized efforts that businesses undertake to present themselves positively to customers, government officials, stockholders, lenders and other businesses.
Publicity is unpaid communication about a business or its product in the mass media. Because it’s unpaid, it’s one of the most credible promotional sources for small businesses.
You can generate publicity by preparing a press release for radio, newspapers, magazines or local TV stations. Use OHD 5-17 to discuss other options for public relations and publicity.
Press release tips
You might prepare a press release to announce an event in which you’re participating or a change at your business. Hiring new people, offering a new service, donating to charity or holding a contest are all good reasons to send a press release to local media.
The easier you make it for people to help you promote your business, the more likely you are to get publicity. When preparing a press release, keep it simple (one double-spaced page is ideal).
Send your press release to local newspaper, radio and TV stations. Don’t overlook weekly community or college papers and public radio stations. If you have a good photo, include it.
Your Promotional Plan
You should always plan carefully before spending your hard-earned cash, and that’s especially true when planning promotions.
Set a promotional budget
You can either decide on a fixed budget and divide it among each promotional tool, or you can set spending levels for each tool and total them to arrive at your budget.
By using reach and frequency information, you can estimate how much it costs to advertise per customer. This gives you a standard for comparing advertising choices.
Create a promotional calendar
Set your budget at least 12 months in advance, so you have funds available for important holidays or events. Usually, a promotional calendar lists when promotions and events will occur, how long each will last, what its purpose is, and the total budget for each event. This enables you to use your budget more efficiently and to avoid gaps in your promotional efforts.
Once you’ve picked your advertising tools, decide when to use each one. If you offer a seasonal product, coordinate your message with your customers’ purchase cycles. You can air ads in a few large bursts at scheduled intervals, or spread them over a wider period to maintain awareness.
For businesses that wish to introduce a new product, frequency tends to be more important than reach. Businesses often use a “burst” strategy when they want to create an early, intense impact. Seasonal businesses and short-term sales promotions usually rely on this strategy.
Measure your results
Discuss the necessary steps in measuring promotions. Example: Your goal is to sell 45 flower arrangements at $25 each over the next month. To accomplish that goal, you advertise in the local paper. To measure the effect of that ad, you must:
Establish your baseline sales. What’s the average weekly number of flower arrangements you sold during the previous four weeks?
Track your sales over the time your ad was running.
Track your sales for four weeks after the ad to see if there’s any delayed effect.
Having analyzed your sales before, during and after your campaign, you can determine how many extra arrangements sold. Divide the cost of running the ad by the extra number of arrangements. If it cost more to run the ad than you earned from sales, the ad was not effective.
The best way to know what worked is to ask customers how they heard of you. You can also count coupons, measure the response to contests or sweepstakes, and compute sales levels during promotions. Then, consider these questions:
Did your promotion communicate the right message?
Did the message fit your product positioning strategy and reinforce your brand identity?
Did you reach your target customers? If so, how did they feel about your message?
How did each element of your promotional mix affect sales?
How can you do better next time? What should be in your next promotional plan?
Be creative!
Now that you understand the basics, break the rules and get creative! Tried-and-true techniques are just the jumping-off point for more unconventional and innovative entrepreneurial methods.
Placement Strategies
Explain placement as it relates to the place of doing business (location) and the process of delivering products or services to customers (distribution). It’s important to choose the right type of distribution from the start, because strategies can be difficult to change once they’re in place.
Choosing a distribution strategy requires you to assess your capabilities and resources. Can you handle warehousing and shipping operations? If not, you may need a wholesaler or distributor. Can you afford to hire and train a sales team? If not, you may need to work with agents or brokers. Do you offer green products? If so, you may need to green your supply chain. The TEXT discusses these issues.
Location
Use OHD 5-18 to explain the concept of location as it relates to marketing strategies. Is your business close to your customer base? Will there be transportation challenges?
Distribution
There are two basic distribution channels:
Direct distribution means that you supply your product directly to your customer, whether through mail order, a retail outlet, a digital download, or by providing a service. When you sell directly, you can control how your products are presented and respond quickly to customer needs. You also avoid the costs associated with intermediaries. However, you may have higher costs for marketing, sales and order processing.
Indirect distribution relies on intermediaries such as wholesalers or distributors. Each intermediary gets a percentage of the profits. On the other hand, a good intermediary will reduce costs or boost sales enough to make the tradeoff worthwhile.
And there are three basic types of distribution:
Intensive distribution aims to get the product into as many outlets as possible. This strategy makes sense when customers make little or no distinction between one brand and another (e.g., ballpoint pens or shoelaces). The consumer’s primary interest is convenience.
Selective distribution places the product in a limited number of outlets specializing in products of that type (e.g., sporting goods or computers). Usually, these products are bought less often, represent a larger percentage of household income, and require more research and emotional investment than intensively distributed convenience goods.
Exclusive distribution is most commonly used for luxury items and expensive machinery, but it’s also a common strategy for specialty items aimed at a niche market. Be cautious about agreeing to an exclusive deal. Make sure your contract includes duties, performance measures and a cancelation clause.
Earlier, we explained that every interaction with a customer communicates something about your business. This remains true when you’re choosing distribution channels and partners. Your distribution channels must fit your product, price and promotion strategies. Imagine trying to place premium handcrafted jewelry at 7-11, or selling staplers at a farmers’ market!
Use OHD 5-19 to discuss the basics of distribution, and OHD 5-20 to discuss common distribution considerations. Then, use OHD 5-21 to discuss distribution strategies.
Distribution strategies for service businesses
Your marketing plan should clearly describe how and where your customer will receive your services. At your home or office? At the customer’s home or office? At a street fair? Online?
Consider the cost of each option. If you will go to your customer, your price must cover your travel. If customers will come to you, your price must cover the cost of maintaining and insuring an office or workspace. Also, consider what your competitors are doing. If your main competitor requires customers to come to an office, you may be able to compete by making house calls.
Guest Speaker
Local Entrepreneur or Brand Manager
Prepare some questions that you want your guest speaker to address in 20 minutes of talking, plus 10 minutes of questions. Give them to your guest well in advance.
Suggestions
How did you decide on the right price for your product?
How does pricing affect your business’s brand identity?
How did you position your product? How did you come up with a positioning statement?
What challenges did you have (or still have) in pricing your product?
What is the biggest challenge in managing your brand?
Work Period
Exercise: Pricing and Break-Even Analysis (20 mins.)
NOTE: Although students have not yet compiled all of their cost data, understanding the theory behind pricing is essential. In this session, we’ll use sample numbers so students can see how the formulas work. In Session 7, they’ll apply what they’ve learned to their own numbers.
Have students turn to page 5-93 of the WORKBOOK, which is titled Pricing and Break-Even Example. (Your Answer Key for this worksheet is at the end of these notes.)
Using one OHD at a time, have students work through the exercise as follows:
Start with OHD 5-22, showing only the definition of Variable Expenses (use a cover sheet to keep part of the OHD hidden as you go). Then, help students identify the Variable Expenses under the list of expenses on the Pricing and Break-Even Example, which has the same set of facts and numbers used on OHDs 5-22 through 5-26.
Costs that aren’t variable are obviously fixed. They go under the Fixed Expenses column.
Next, ask students what the selling price of one T-shirt is, and have them write that in the appropriate place. Move your cover sheet down on OHD 5-22 to show Selling Price.
Have students total variable expenses and enter the total in the appropriate place on their worksheets. Move your cover sheet down to reveal Total Variable Expenses.
Finally, reveal the rest of OHD 5-22 and explain Contribution Margin. Have students look at the worksheet, and show them that the formula Selling Price - Variable Expenses = Contribution Margin appears on their worksheet as well. Make sure they understand that the Contribution Margin is the amount each sales unit contributes toward fixed expenses.
Now, it’s time to explain Fixed Expenses more fully, so let’s move on to OHD 5-23.
Have students go back to the list of expenses. Ask them to fill in the Fixed Expenses column and total it. Then, use OHD 5-23 to show the total for fixed expenses. Pose the question at the bottom of the OHD. See what kind of answers you get, and where the discussion leads, before showing them how to calculate!
Have students go back to the worksheet and fill in total Fixed Expenses for the month, as well as the Contribution Margin. Then, show them how to calculate how many T-shirt sales it will take to pay for fixed expenses.
Use OHD 5-24 to explain it all again, using a chart instead of numbers. Afterward, use OHD 5-25 to go through it one more time, this time focusing on break-even. Point out that break-even can be calculated in units or dollars.
Ask the question on the bottom of the worksheet: What happens to the break-even point if you lower the price? Discuss. Then, be prepared to show the numbers again on the board. If your class needs more practice, run through the exercise again with a higher price.
Of course, breaking even isn’t enough to keep you in business. Use OHD 5-26 to discuss the importance of planning for profit based on profit goals, volume goals or both. The key concept here is that profit doesn’t just happen. You need to plan for it!
Homework Review—Session 4
Discuss any questions about Parts A and B of the Marketing Plan. In particular, ask if any problems arose in researching market potential.
Workbook Preview—Session 5
Briefly review each worksheet set in this session and answer any questions that arise. Emphasize the importance of estimating advertising costs in preparation for the financial worksheets in Session 7. Note that students will probably need to tweak their pricing strategy after completing the Session 7 worksheets, which entail calculating actual costs. At this point, the important thing is to understand the basic concepts of pricing, break-even and profitability.
Assignment Review—Session 6
Have students look at the Assignment for Session 6 at the bottom of the Session 5 Student Outline page. Stress the importance of reading the Session 6 text before the next class.
Use OHD 1-14 to show the second half of the NxLeveL® Business Plan Outline, so that students understand how this assignment completes Session IV, Part C. Use the NxLeveL® sample business plans to show how this section can be written.
Overheads for Session 5
OHD	5-1	The Four Ps vs. SIVA
OHD	5-2	Product Strategies
OHD	5-3	The Product Life Cycle
OHD	5-4	Positioning Statement Tips
OHD	5-5	What Makes a Good Brand Name?
OHD	5-6	Brand Management Basics
OHD	5-7	Mission, Positioning and Branding
OHD	5-8	Basic Pricing Terms
OHD	5-9	Pricing Considerations
OHD	5-10	The Four Cs of Pricing
OHD	5-11	Pricing Objectives
OHD	5-12	Pricing Strategies
OHD	5-13	Making Price Fit Your Marketing Mix
OHD	5-14	Elements of Effective Advertising
OHD	5-15	Common Promotional Tools
OHD	5-16	The ABCs of Signage
OHD	5-17	Public Relations Ideas
OHD	5-18	Location Considerations
OHD	5-19	Distribution Basics
OHD	5-20	Distribution Considerations
OHD	5-21	Distribution Strategies
OHD	5-22	Understanding Your Costs
OHD	5-23	Understanding Your Costs—continued
OHD	5-24	Break-Even Analysis
OHD	5-25	Your Break-Even Point
OHD	5-26	Planning for Profit
Suggested Supplemental Materials for Session 5
SBDC brochures on advertising, display, customer service, etc.
SBA brochures on pricing and break-even analysis
Current articles on pricing strategies, pricing challenges, trends, etc.
Samples of new or unusual product packaging options
Samples of service business image materials (e.g., business card, letterhead, invoice)
NxLeveL® sample business plans
You have the option of finding reputable articles and publications for use in class, or suggesting that students search them out on their own and share what they find with the rest of the class. Keep track of supplemental materials you used by making notes below. (This will be helpful if you choose to teach this course again.)
Supplemental materials used for Session 5

Pricing and Break-Even Example—Answer Key
You make personalized T-shirts. Your competitors sell a similar shirt for between $8 and $11. Therefore, you decide to price your T-shirt at $10. Let’s see how many T-shirts you must sell to cover your fixed and variable expenses, and thus to break even.
Here’s a list of your expenses:
T-shirt | $3.00 | Insurance per month | $50.00
Rent per month | $800.00 | Shipping expense | $ 0.50
Hourly labor | $1.00 | Bookkeeping per month | $100.00
Sales commission | $1.00 | Loan payment per month | $300.00
Telephone | $100.00
Now, sort these expenses into variable expenses and fixed expenses:
Variable Expenses |  | Fixed Expenses
| $ |  | $
| $ |  | $
| $ |  | $
| $ |  | $
| $ |  | $
Total Variable Expenses (per unit) | $ | Total Fixed Expenses (per month) | $
The contribution margin is the selling price per unit, minus variable expenses per unit. It represents the amount that each unit of sale contributes toward fixed expenses and profits.
What is the selling price of a T-shirt? |  | $ _________
What are the variable expenses of a T-shirt? | ( - ) | $ _________
What is the contribution margin? | ( = ) | $ _________
How much does each T-shirt you sell contribute toward your fixed expenses? | $ _________
What are your total fixed expenses for a month? | $ _________ per month
What is your contribution margin per T-shirt sold? | $ _________ per T-shirt
How many T-shirt sales will it take to pay for your monthly fixed expenses? | __________ T-shirts
(Fixed Expenses ÷ Contribution Margin = Number of shirts you must sell to break even.)
What happens to the break-even number if you decide to lower the price to $9?

T-shirt		3.00

Rent			800.00

Hourly labor	1.00

Telephone	100.00

Commission	1.00

Insurance	50.00

Shipping		0.50

Bookkeeping	100.00

Loan	300.00

5.50	1,350.00

10.00

5.50

4.50

1350.00

300

$9.00 (price) - $5.50 (variable costs) = $3.50 (contribution margin)
$1,350 (fixed costs) ÷ $3.50 (contribution margin) = 386 T-shirts