How to Increase Your Customer Base

Learning to maximize sales referrals is critical to boosting your business, but it shouldn't replace marketing to new prospects

Recently, a saleswoman handed me her business card with a symbol on it that said her business was 100% based on referrals. I thought this was a great idea until I realized there's a dark side to a pure referral-based business.

Now, let's not overlook how great referrals are. First of all, prospective customers who are referred from your fans are probably going to be nice people. Since birds of a feather flock together, assuming you sell to customers who are pleasant, they're likely to refer others of their ilk. Who wouldn't like to spend all day selling and writing orders with delightful customers?

GETTING PERSONAL. Referrals are also often presold. When Customer Bob refers you to his friend, Jane, he has probably already told Jane some wonderful things about you and your wares. A sincere testimonial like that gets Jane half-sold before she has even spoken with you. If she isn't qualified, she may refer you to someone else in her network. If Jane is a qualified prospect, you will close her sale faster.

Referred customers are also more loyal to their vendors than non-referred clients, because there's a friendship factor among them. If Javier, Ming, and Samuel are all personal friends with each other and customers of yours, too, they're more likely to keep buying from you, because buying from someone else may weaken the bonds of their personal friendships.

This woman's card trumpeted to the world that she was 100% referral-based, and affected me on a subconscious level. Without saying a word, she set the expectation that people should refer clients to her. It stimulated me to go through my mental Rolodex to see if I knew anyone I could refer to her. It also branded her as worthy of referrals.

Yes, there are many benefits to having a referral-based business, but there is one catch: You may eventually work through all your customers' strong connections, like a garden that has had all its nutrients depleted, or a hand of cards that has been played out.

CUSTOMER COSTS. This is why salespeople and companies with long-term success never stop marketing. Those salespeople who keep setting and breaking sales records year after year don't ask, "How long do I have to market until I can just sit back and grow my business from 100% referrals?" Rather, they have learned the importance of continually adding new customers who are not related to their present client base.

The reason is simple: From these new, non-referred customers, you can then start to generate referrals from new spheres of influence, new "flocks," if you will. It's similar to opening a new branch office in a distant land. Suddenly, a whole set of new relationships and possibilities emerges that you would never have discovered if your business remained 100% referral-based.

There is a drawback to marketing for new customers vs. getting referrals from existing customers: The cost per new customer is much higher when you have to market to attract them. Although marketing is exciting, your bottom line will take a big hit if you choose to ignore referrals and focus exclusively on marketing.

REFERRAL REWARDS. Obviously, a mix of new customers from referrals and marketing efforts will yield the most sales at the least cost and maximize your profits. The best percentage for your mix will change over time.

When you started selling, you probably spent the vast majority of your time marketing for new customers. As your list of happy customers started to grow, and you started to receive and ask for referrals, the mix started to change. After several years, you will probably maximize your results with a mix of around 75% of new customers from referrals and 25% from marketing.

Since referrals will always be the best source of business, you may want to set up a formal referral program. These are popular with many Realtors and other salespeople, but they could be modified to apply to almost any industry. Just make sure you reward your referrers consistently and generously. You can even buy and sell referrals online from sources like InnerSell.com.

Genie Fuller, founder of Houston-based Winning Referrals, says you can't just wait for your customers to refer others to you. So she teaches professionals three "referral rituals": reminding your customers of what you have accomplished for them, recapping two or three "meaningful nuggets" that differentiate your services from the competition, and helping them identify your target customers.

BE DIRECT. When I heard Genie speak years ago, she recommended that salespeople help their customers think of someone specific to refer. Instead of asking your customers, "Do you know anyone you could refer to me?" she suggested that you phrase your question more specifically -- for example, "Do you know anyone at your workplace who drives a Lexus?"

I laughed when she reminded us that sometimes those customers will say, "I don't know anyone at work like that, but I serve on a charity board with two people who drive a Lexus." The point, of course, is that you're still getting the type of referral you wanted. In so doing, you also avoided that awkward, dreaded Bermuda Triangle of, "Gee, if I know anyone to refer to you, I'll let you know."

There's no perfect path to increasing your sales, but asking for referrals and teaching your faithful customers to refer you will increase your client base. Add to that a solid, targeted marketing program, and you will maximize your sales. Happy selling

E-commerce

Electronic commerce, commonly known as e-commerce or e-Commerce, consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown dramatically since the wide introduction of the Internet. A wide variety of commerce is conducted in this way, including things such as electronic funds transfer, supply chain management, internet marketing , online transaction processing, electronic data interchange (EDI), automated inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World wide web at least at some point in the transaction's lifecycle, although it can encompass a wider range of technologies such as e-mail as well. E commerce is a new technology.

A small percentage of electronic commerce is conducted entirely electronically for "virtual" items such as access to premium content on a website, but most electronic commerce eventually involves physical items and their transportation in at least some way.

E-commerce or electronic commerce is generally considered to be the sales aspect of e-business.

History

Early signification

The meaning of the term "electronic commerce" has changed over the last 30 years. Originally, "electronic commerce" meant the facilitation of commercial transactions electronically, usually using technology like Electronic data interchange (EDI) and Electronic funds transfer (EFT), where both were introduced in the late 1970s, for example, to send commercial documents like purchase orders or invoices electronically.

The 'electronic' or 'e' in e-commerce refers to the technology/systems; the 'commerce' refers to traditional business models. E-commerce is the complete set of processes that support commercial business activities on a network. In the 1970s and 1980s, this would also have involved information analysis. The growth and acceptance of credit cards, automated teller machines (ATM) and telephone banking in the 1980s were also forms of e-commerce. However, from the 1990s onwards, this would include enterprice resource planning systems (ERP), and data warehousing. Perhaps the earliest example of many-to-many electronic commerce in physical goods was the Boston Compute Exchange, a marketplace for used computers, launched in 1982. The first online information marketplace, including online consulting, was likely the American Information Exchange, another pre-Internet online system, introduced in 1991.

Activities

In the dot com era, it came to include activities more precisely termed "Web commerce" -- the purchase of goods and services over the WWW, usually with secure connections (HTTPS , a special server protocol that encrypts confidential ordering data for customer protection) with e-shopping cards and with electronic payment services, like credit card payment authorizations.

Today, it encompasses a very wide range of business activities and processes, from e-banking to offshore manufacturing to e-logistics. The ever growing dependence of modern industries on electronically enabled business processes gave impetus to the growth and development of supporting systems, including back-end systems, applications and middleware. Examples are broadband and fibre-optic networks, supply-chain management software, customer relationship management software, inventory control systems and financial accounting software.

Web development

When the Web first became well-known among the general public in 1994, many journalists and pundits forecast that e-commerce would soon become a major economic sector. However, it took about four years for security protocols (like HTTPS) to become sufficiently developed and widely deployed. Subsequently, between 1998 and 2000, a substantial number of businesses in the United States and Western Europe developed rudimentary web sites.

Although a large number of "pure e-commerce" companies disappeared during the dot-com collapse in 2000 and 2001, many "brick-and-mortar" retailers recognized that such companies had identified valuable niche markets and began to add e-commerce capabilities to their Web sites. For example, after the collapse of online grocer Webvan, two traditional supermarket chains, Albertsons and Safeway, both started e-commerce subsidiaries through which consumers could order groceries online.

The emergence of e-commerce also significantly lowered barriers to entry in the selling of many types of goods; accordingly many small home-based proprietors are able to use the internet to sell goods. Often, small sellers use online auction sites such as eBay, or sell via large corporate websites like Amazon.com, in order to take advantage of the exposure and setup convenience of such sites.

$259 billion of online sales including travel are expected in 2007 in USA, a 18 percent increase from the previous year, as forecasted by the "State of Retailing Online 2007" report from the National Retail Federation (NRF) and Shop.org.

Success factors

In many cases, an e-commerce company will survive not only based on its product, but by having a competent management team, good post-sales services, well-organized business structure, network infrastructure and a secured, well-designed website. A company that wants to succeed will have to perform two things: Technical and organizational aspects and customer-oriented. Following factors will make business of companies succeed in e-commerce:

Technical and organizational aspects

1. Sufficient work done in market research and analysis. E-commerce is not exempt from good business planning and the fundamental laws of supply and demand. Business failure is as much a reality in e-commerce as in any other form of business.
2. A good management team armed with information technology strategy. A company's IT strategy should be a part of the business re-design process.
3. Providing an easy and secured way for customers to effect transactions. Credit cards are the most popular means of sending payments on the internet, accounting for 90% of online purchases. In the past, card numbers were transferred securely between the customer and merchant through independent payment gateways. Such independent payment gateways are still used by most small and home businesses. Most merchants today process credit card transactions on site through arrangements made with commercial banks or credit cards companies.
4. Providing reliability and security. Parallel servers, hardware redundancy, fail-safe technology, information encryption, and firewalls can enhance this requirement.
5. Providing a 360-degree view of the customer relationship, defined as ensuring that all employees, suppliers, and partners have a complete view, and the same view, of the customer. However, customers may not appreciate the big brother experience.
6. Constructing a commercially sound business model.
7. Engineering an electronic value chain in which one focuses on a "limited" number of core competencies -- the opposite of a one-stop shop. (Electronic stores can appear as either specialist or generalist if properly programmed.)
8. Operating on or near the cutting edge of technology and staying there as technology changes (but remembering that the fundamentals of commerce remain indifferent to technology).
9. Setting up an organization of sufficient alertness and agility to respond quickly to any changes in the economic, social and physical environment.
10. Providing an attractive website. The tasteful use of colour, graphics, animation, photographs, fonts, and white-space percentage may aid success in this respect.
11. Streamlining business processes, possibly through re-engineering and information technologies.
12. Providing complete understanding of the products or services offered, which not only includes complete product information, but also sound advisers and selectors.

Naturally, the e-commerce vendor must also perform such mundane tasks as being truthful about its product and its availability, shipping reliably, and handling complaints promptly and effectively. A unique property of the Internet environment is that individual customers have access to far more information about the seller than they would find in a brick-and-mortar situation. (Of course, customers can, and occasionally do, research a brick-and-mortar store online before visiting it, so this distinction does not hold water in every case.)

Customer experience

A successful e-commerce organization must also provide an enjoyable and rewarding experience to its customers. Many factors go into making this possible. Such factors include:

1. Providing value to customers. Vendors can achieve this by offering a product or product-line that attracts potential customers at a competitive price, as in non-electronic commerce.
2. Providing service and performance. Offering a responsive, user-friendly purchasing experience, just like a flesh-and-blood retailer, may go some way to achieving these goals.
3. Providing an incentive for customers to buy and to return. Sales promotions to this end can involve coupons, special offers, and discounts. Cross-linked websites and advertising affiliate programs can also help.
4. Providing personal attention. Personalized web sites, purchase suggestions, and personalized special offers may go some of the way to substituting for the face-to-face human interaction found at a traditional point of sale.
5. Providing a sense of community. Chat rooms, discussion boards, soliciting customer input and loyalty programs (sometimes called affinity programs) can help in this respect.
6. Owning the customer's total experience. E-tailers foster this by treating any contacts with a customer as part of a total experience, an experience that becomes synonymous with the brand.
7. Letting customers help themselves. Provision of a self-serve site, easy to use without assistance, can help in this respect. This implies that all product information is available, cross-sell information, advise for product alternatives, and supplies & accessory selectors.
8. Helping customers do their job of consuming. E-tailers and online shopping directories can provide such help through ample comparative information and good search facilities. Provision of component information and safety-and-health comments may assist e-tailers to define the customers' job.

Problems

1.The customer cannot see the actual product he/she is buying.
2. Some companies charge a restocking fee for returned products.
3. The selling company needs to have a good customer support team.

Product suitability

Certain products or services appear more suitable for online sales; others remain more suitable for offline sales. While credit cards are currently the most popular means of paying for online goods and services, alternative online payments will account for 26% of e-commerce volume by 2009 according to Celent.

Many successful purely virtual companies deal with digital products, (including information storage, retrieval, and modification), music, movies, office supplies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Google, eBay and Paypal. Other successful marketers use Drop shipping or Affiliate marketing techniques to facilitate transactions of tangible goods without maintaining real inventory. Examples include numerous sellers on eBay.

Virtual marketers can sell some non-digital products and services successfully. Such products generally have a high value-to-weight ratio, they may involve embarrassing purchases, they may typically go to people in remote locations, and they may have shut-ins as their typical purchasers. Items which can fit through a standard letterbox — such as music CDs, DVDs and books — are particularly suitable for a virtual marketer, and indeed Amazon.com, one of the few enduring dot-com companies, has historically concentrated on this field.

Products such as spare parts, both for consumer items like washing machines and for industrial equipment like centrifugal pumps, also seem good candidates for selling online. Retailers often need to order spare parts specially, since they typically do not stock them at consumer outlets -- in such cases, e-commerce solutions in spares do not compete with retail stores, only with other ordering systems. A factor for success in this niche can consist of providing customers with exact, reliable information about which part number their particular version of a product needs, for example by providing parts lists keyed by serial number.

Purchases of pornography and of other sex-related products and services fulfill the requirements of both virtuality (or if non-virtual, generally high-value) and potential embarrassment; unsurprisingly, provision of such services has become the most profitable segment of e-commerce.

There are also many disadvantages of e-commerce, one of the main ones is fraud. This is where your details (name, bank card number, age, national insurance number) are entered into what look to be a safe site but really it is not. These details can then be used to steal money from you and can be used to buy things on line that you are completely unaware of until it is too late. If this information is leaked into the wrong hands, people are able to steal your identity, and commit more fraud crimes under your name.

Products less suitable for e-commerce include products that have a low value-to-weight ratio, products that have a smell, taste, or touch component, products that need trial fittings — most notably clothing — and products where colour integrity appears important. Nonetheless, Tesco.com has had success delivering groceries in the UK, albeit that many of its goods are of a generic quality, and clothing sold through the internet is big business in the U.S. Also, the recycling program Cheapcycle sells goods over the internet, but avoids the low value-to-weight ratio problem by creating different groups for various regions, so that shipping costs remain low.

Acceptance

Consumers have accepted the e-commerce business model less readily than its proponents originally expected. Even in product categories suitable for e-commerce, electronic shopping has developed only slowly. Several reasons might account for the slow uptake, including:

• Concerns about security. Many people will not use credit cards over the Internet due to concerns about theft and credit card fraud.
• Lack of instant gratification with most e-purchases (non-digital purchases). Much of a consumer's reward for purchasing a product lies in the instant gratification of using and displaying that product. This reward does not exist when one's purchase does not arrive for days or weeks.
• The problem of access to web commerce, mainly for poor households and for developing countries. Low penetration rates of Internet access in some sectors greatly reduces the potential for e-commerce.
• The social aspect of shopping. Some people enjoy talking to sales staff, to other shoppers, or to their cohorts: this social reward side of retail therapy does not exist to the same extent in online shopping.
• Poorly designed, bug-infested e-Commerce web sites that frustrate online shoppers and drive them away.
• Inconsistent return policies among e-tailers or difficulties in exchange/return

Internet marketing

Internet marketing, also referred to as online marketing or E-marketing, is marketing that uses the Internet. The Internet has brought many unique benefits to marketing including low costs in distributing information and media to a global audience. The interactive nature of Internet media, both in terms of instant response, and in eliciting response at all, are both unique qualities of Internet marketing.

Internet marketing ties together creative and technical aspects of the internet, including design, development, advertising and sales. Internet marketing methods include search engine marketing, display advertising, e-mail marketing, affiliate marketing, interactive advertising, blog marketing, and viral marketing.

Internet marketing is the process of growing and promoting an organization using online media. Internet marketing does not simply mean 'building a website' or 'promoting a website'. Somewhere behind that website is a real organization with real goals.

Internet marketing strategy includes all aspects of online advertising products, services, and websites, including market research, email marketing, and direct sales.

Business models

Internet marketing is associated with several business models. The model is typically defined by the goal. These include e-commerce, where you sell goods directly to consumers or businesses; publishing, where you sell advertising; and lead-based sites, where an organization generates value by getting sales leads from their site. There are many other models (nearly infinite, actually) based on the specific needs of each person or business that launches an internet marketing campaign.

Advantages

Some of the benefits associated with Internet marketing include the availability of information. Consumers can access the Internet and learn about products, as well as purchase them, at any hour, any day. Companies that use Internet marketing can also save money because of a reduced need for a sales force. Overall, Internet marketing can help expand from a local market to both national and international market places. Compared to traditional media, such as print, radio and TV, Internet marketing can have a relatively low cost of entry.

Since exposure, response and overall efficiency of Internet media is easy to track, through the use of web analytics for instance, compared to traditional "offline" media, Internet marketing can offer a greater sense of accountability for advertisers. Internet marketing, as of 2007 is growing faster than other types of media.

Limitations

Since Internet marketing requires customers to use newer technologies than traditional media, not all people may get the message. Low speed Internet connections can cause difficulties. If companies build overly large or complicated web pages, Internet users may struggle to download the information on dial up connections or mobile devices.

Internet marketing does not allow shoppers to touch, smell, taste or try-on tangible goods before making an online purchase. Some e-commerce vendors have implemented liberal return policies and in store pick up services to reassure customers.

Security concerns

For both companies and consumers that participate in online business, security concerns are very important. Many consumers are hesitant to buy items over the Internet because they do not trust that their personal information will remain private. Recently, some companies that do business online have been caught giving away or selling information about their customers. Several of these companies have guarantees on their websites, claiming customer information will be private. By selling customer information, these companies are breaking their own, publicized policy. Some companies that buy customer information offer the option for individuals to have their information removed from the database (known as opting out). However, many customers are unaware that their information is being shared and are unable to stop the transfer of their information between companies.

Security concerns are of great importance and online companies have been working hard to create solutions. Encryption is one of the main methods for dealing with privacy and security concerns on the Internet. Encryption is defined as the conversion of data into a form called a cipher. This cipher cannot be easily intercepted unless an individual is authorized by the program or company that completed the encryption. In general, the stronger the cipher, the better protected the data is. However, the stronger the cipher, the more expensive encryption becomes.

Effects on industries

Internet marketing has had a large impact on several industries including music, banking, and flea markets - not to mention the advertising industry itself.

In the music industry, many consumers have begun buying and downloading music files over the Internet instead of simply buying CDs.

More and more banks are offering the ability to perform banking tasks online. Online banking is believed to appeal to customers because it is more convenient than visiting bank branches. Currently, over 150 million U.S. adults now bank online. Online banking is now the fastest-growing Internet activity. The increasing speed of Internet connections is the main reason for the fast-growth. Of those individuals who use the Internet, 44% now perform banking activities over the Internet.

Internet auctions have gained popularity. Unique items that could previously be found at flea markets are being sold on eBay instead. eBay has also affected the prices in the industry. Buyers and sellers often look at prices on the website before going to flea markets and the eBay price often becomes what the item is sold for. More and more flea market sellers are putting their items up for sale online and running their business out of their homes.

The effect on the ad industry itself has been profound. In just a few years, online advertising has grown to be worth tens of billions of dollars annually. PricewaterhouseCoopers reported US Internet marketing spend totalled $16.9 billion in 2006.

As Advertisers increase and shift more of their budgets online, it is now overtaking radio in terms of market share.

The cost to acquire a customer is lower with internet marketing than with traditional marketing however cost are rising as more companies take traditional budgets and push it to internet marketing avenues. Search engine marketing for example, which is part of internet marketing continues to grow at tremendous rates. Email marketing also grows. Web analytics is a growing aspect of internet marketing, as there is more accountability than in the history of advertising.

Financial risk management

Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. Other types include Foreign exchange, Market, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.

In the banking sector worldwide, Basel Accord are generally adopted by internationally active banks to tracking, reporting and exposing operational, credit and market risks.

When to use financial risk management

Finance theory prescribes that a firm should take on a project when it increases shareholder value. Finance theory also shows that firm managers cannot create value for shareholders, also called its investors, by taking on project that shareholders could do for themselves at the same cost. When applied to financial risk management, this implies that firm managers should not hedge risks that investors can hedge for themselves at the same cost. This notion is captured by the hedging irrelevance proposition: In a perfect market, the firm cannot create value by hedging a risk when the price of bearing that risk within the firm is the same as the price
of bearing it outside of the firm. In practice, financial markets are not likely to be perfect markets. This suggests that firm managers likely have many opportunities to create value for shareholders using financial risk management. The trick is to determine which risks are cheaper for the firm to manage than the shareholders. A general rule of thumb, however, is that market risks that result in unique risks for the firm are the best candidates for financial risk management.

How to Sell a Price Increase to Your Customers

Part 1: Steps to Soften the Price Increase Blow

Even the most sales savvy among us have had to fight back the nerves that materialize whenever we are faced with telling a customer about a price increase. Talking about it never makes for an easy conversation.

When discussing a price increase in a business-to-business environment, it is important to remember that our customers have probably had to have the same discussion with their own customers. A company exists only as long as it earns a profit and it can only do that if it delivers a quality product or service at the right price. This means that the key to any conversation about raising the price is to emphasize that such an increase will ensure product quality.

As you begin to prepare your strategy for communicating a price increase, ask yourself the following questions:

1. Does the customer take your product/service and add a standard percentage increase in price when selling to their customers?

If this is the case, you can point out that your customer will make more money by taking a standard percentage of a higher amount.

2. What percentage of the customer’s business is your product/service?

If the percentage is small, tell them that the amount of increase is only a small percentage of their total business. If the percentage is great, then you can emphasize that the price increase is necessary to maintain the level of product quality necessary for them to serve their customers.

3. Has the customer faced any other price increases from other vendors?

If so, try to identify what some percentages of the other increases have been. If yours falls into the low end, then you can point out how your increase is comparatively smaller than that of many others. If your increase is at the high end, you can either explain how yours is the only one you expect to take or that you wouldn't be surprised to see others coming back to take another round of price increases.

4. How does the customer view you and the products/services you sell?

If you have a quality reputation and record, then you can emphasize that the increase has been carefully thought through and it is only being taken to ensure continued quality. If you have a spotty record with the customer, then you should stress how the price increase will allow you to begin addressing some of the issues in question by allowing you to improve the overall quality of service they have been receiving. Naturally, it is important to make sure all comments are backed with a commitment to follow-through.

5. Will the customer raise an issue with the price increase?

Be prepared to show documentation of how your costs have escalated and how other companies are experiencing the same increases. (An example is the increasing cost of oil, which has forced any company that uses petroleum in the manufacturing or transportation of goods to most likely increase prices.)

When having this discussion, be sure to show empathy for the customer, but remain firm in what you're saying. If the customer senses any hesitation on your part, they will likely try to exploit it in the form of a price concession from you.

Also, be prepared to share steps that your company has taken in an attempt to avoid a price increase. This can include ways you've already cut costs or how the price increase is the only way to maintain the quality and service the customer expects. A final point to emphasize is the time lag between this price increase and the previous increase. Having information available concerning the rate of inflation during that specific time period may also help diffuse the issue.

6. Why does the customer buy from you anyway?

Knowing this will allow you to reinforce these points when talking about the price increase. You should also have ready at least two key needs of the customer that your product or service satisfies. Be sure all of your strategic information about the customer is up-to-date before a price increase is announced.

7. How much business is at risk from the customer?

We can sometimes get carried away thinking that if we raise prices, we'll lose the customer, even though this is rarely the case. Think through what steps the customer would have to take to move to another vendor. Many times the work involved in moving is not worth the effort, and thus the business is less at risk than thought.

Now that you have a price increase strategy mapped out, let's have a look at actually presenting the price increase to your customers. On the next page, Mark Hunter presents tips for presenting a price increase.

Part 2: Tips for Presenting a Price Increase

The following Sales Presentation tips are the best practices to employ when executing a price increase:

1. Give the customer lead-time.

Provide the customer with enough notice to allow them to make adjustments in their information systems and to exercise at least one more order at the existing price.

2. Avoid showing favorites.

Pricing integrity is always essential, but especially so during a price change. Do not treat particular customers more favorably than others in pricing during an increase. Different pricing levels are fine as long as they can be logically defended so that a customer who is not receiving the price break can understand and accept the price change.

3. Do not allow your customer to find out about a price increase from your invoice.

Any changes in pricing must come from the account executive or a person of high position within the company.

After every person involved has been personally notified. (Sufficient time should occur in the price increase timeline to allow at least one invoice to contain a note of the pending increase in price.)

4. Make sure each customer service representative and anyone else who comes in contact with the customer is fully aware of when the price increase is going to be communicated.

One of the most significant possibilities for confusion is when the customer hears conflicting information from different departments. Everyone in customer service needs to be fully aware of the price increase, the reasoning behind it, and the logistics for implementation. They should also be provided with a FAQ guide to ensure that when customers do ask them about elements of the pricing increase, they are able to share accurate information.

5. Believe in the price increase.

In order to be paid what you are worth, you must charge what you are worth. Although this is not something that can be explicitly communicated to the customer, this general sense is what sets apart the best practice companies and high-performing sales professionals.

6. Instill an open-phone/open-door policy.

Any time a price increase takes place, it is important for all senior executives to be willing to answer a phone call from a customer or to make phone calls to key customers. For successful consultative selling, nothing sends a stronger signal to a sales organization than seeing their senior executives on the front-line when dealing with a price increase.

7. Before and after the price increase, monitor the sales patterns of your individual customers.

It is important to quickly catch any changes that occur as a result of the price increase.

During the 1970's and 1980's, price increases were common and expected. In the past 10 years, however, we've all grown used to lower inflation and the overwhelming impact of Wal-Mart's philosophy on pricing. Today, price increases are again growing more common and acceptable as long as they are well thought through and not seen as a way to merely increase profits. Because they are an inevitable part of business today, we can't let ourselves avoid dealing with price increases. Instead, we should seek to use them strategically to increase our selling potential.

Marketing Research

Managers need information in order to introduce products and services that create value in the mind of the customer. But the perception of value is a subjective one, and what customers value this year may be quite different from what they value next year. As such, the attributes that create value cannot simply be deduced from common knowledge. Rather, data must be collected and analyzed. The goal of marketing research is to provide the facts and direction that managers need to make their more important marketing decisions.

To maximize the benefit of marketing research, those who use it need to understand the research process and its limitations.

Marketing Research vs. Market Research

These terms often are used interchangeably, but technically there is a difference.

Market research deals specifically with the gathering of information about a market's size and trends. Marketing research covers a wider range of activities. While it may involve market research, marketing research is a more general systematic process that can be applied to a variety of marketing problems.

The Value of Information

Information can be useful, but what determines its real value to the organization? In general, the value of information is determined by:

• The ability and willingness to act on the information.
  
• The accuracy of the information.
  
• The level of indecisiveness that would exist without the information.
  
• The amount of variation in the possible results.
  
• The level of risk aversion.
  
• The reaction of competitors to any decision improved by the information.
  
• The cost of the information in terms of time and money.
  

The Marketing Research Process

Once the need for marketing research has been established, most marketing research projects involve these steps:

1. Define the problem
2. Determine research design
3. Identify data types and sources
4. Design data collection forms and questionnaires
5. Determine sample plan and size
6. Collect the data
7. Analyze and interpret the data
8. Prepare the research report

Problem Definition

The decision problem faced by management must be translated into a market research problem in the form of questions that define the information that is required to make the decision and how this information can be obtained. Thus, the decision problem is translated into a research problem. For example, a decision problem may be whether to launch a new product. The corresponding research problem might be to assess whether the market would accept the new product.

The objective of the research should be defined clearly. To ensure that the true decision problem is addressed, it is useful for the researcher to outline possible scenarios of the research results and then for the decision maker to formulate plans of action under each scenario. The use of such scenarios can ensure that the purpose of the research is agreed upon before it commences.


Research Design

Marketing research can classified in one of three categories:

• Exploratory research
• Descriptive research
• Causal research

These classifications are made according to the objective of the research. In some cases the research will fall into one of these categories, but in other cases different phases of the same research project will fall into different categories.

• Exploratory research has the goal of formulating problems more precisely, clarifying concepts, gathering explanations, gaining insight, eliminating impractical ideas, and forming hypotheses. Exploratory research can be performed using a literature search, surveying certain people about their experiences, focus groups, and case studies. When surveying people, exploratory research studies would not try to acquire a representative sample, but rather, seek to interview those who are knowledgeable and who might be able to provide insight concerning the relationship among variables. Case studies can include contrasting situations or benchmarking against an organization known for its excellence. Exploratory research may develop hypotheses, but it does not seek to test them. Exploratory research is characterized by its flexibility.

• Descriptive research is more rigid than exploratory research and seeks to describe users of a product, determine the proportion of the population that uses a product, or predict future demand for a product. As opposed to exploratory research, descriptive research should define questions, people surveyed, and the method of analysis prior to beginning data collection. In other words, the who, what, where, when, why, and how aspects of the research should be defined. Such preparation allows one the opportunity to make any required changes before the costly process of data collection has begun.

  There are two basic types of descriptive research: longitudinal studies and cross-sectional studies. Longitudinal studies are time series analyses that make repeated measurements of the same individuals, thus allowing one to monitor behavior such as brand-switching. However, longitudinal studies are not necessarily representative since many people may refuse to participate because of the commitment required. Cross-sectional studies sample the population to make measurements at a specific point in time. A special type of cross-sectional analysis is a cohort analysis, which tracks an aggregate of individuals who experience the same event within the same time interval over time. Cohort analyses are useful for long-term forecasting of product demand.

• Causal research seeks to find cause and effect relationships between variables. It accomplishes this goal through laboratory and field experiments.

Data Types and Sources

Secondary Data
Before going through the time and expense of collecting primary data, one should check for secondary data that previously may have been collected for other purposes but that can be used in the immediate study. Secondary data may be internal to the firm, such as sales invoices and warranty cards, or may be external to the firm such as published data or commercially available data. The government census is a valuable source of secondary data.

Secondary data has the advantage of saving time and reducing data gathering costs. The disadvantages are that the data may not fit the problem perfectly and that the accuracy may be more difficult to verify for secondary data than for primary data.

Some secondary data is republished by organizations other than the original source. Because errors can occur and important explanations may be missing in republished data, one should obtain secondary data directly from its source. One also should consider who the source is and whether the results may be biased.

There are several criteria that one should use to evaluate secondary data.

• Whether the data is useful in the research study.

• How current the data is and whether it applies to time period of interest.

• Errors and accuracy - whether the data is dependable and can be verified.

• Presence of bias in the data.

• Specifications and methodologies used, including data collection method, response rate, quality and analysis of the data, sample size and sampling technique, and questionnaire design.

• Objective of the original data collection.

• Nature of the data, including definition of variables, units of measure, categories used, and relationships examined.

Primary Data
Often, secondary data must be supplemented by primary data originated specifically for the study at hand. Some common types of primary data are:

• demographic and socioeconomic characteristics

• psychological and lifestyle characteristics

• attitudes and opinions

• awareness and knowledge - for example, brand awareness

• intentions - for example, purchase intentions. While useful, intentions are not a reliable indication of actual future behavior.

• motivation - a person's motives are more stable than his/her behavior, so motive is a better predictor of future behavior than is past behavior.

• behavior

Primary data can be obtained by communication or by observation. Communication involves questioning respondents either verbally or in writing. This method is versatile, since one needs only to ask for the information; however, the response may not be accurate. Communication usually is quicker and cheaper than observation. Observation involves the recording of actions and is performed by either a person or some mechanical or electronic device. Observation is less versatile than communication since some attributes of a person may not be readily observable, such as attitudes, awareness, knowledge, intentions, and motivation. Observation also might take longer since observers may have to wait for appropriate events to occur, though observation using scanner data might be quicker and more cost effective. Observation typically is more accurate than communication.

Personal interviews have an interviewer bias that mail-in questionnaires do not have. For example, in a personal interview the respondent's perception of the interviewer may affect the responses.

Questionnaire Design

The questionnaire is an important tool for gathering primary data. Poorly constructed questions can result in large errors and invalidate the research data, so significant effort should be put into the questionnarie design. The questionnaire should be tested thoroughly prior to conducting the survey.

Measurement Scales

Attributes can be measured on nominal, ordinal, interval, and ratio scales:

• Nominal numbers are simply identifiers, with the only permissible mathematical use being for counting. Example: social security numbers.

• Ordinal scales are used for ranking. The interval between the numbers conveys no meaning. Median and mode calculations can be performed on ordinal numbers. Example: class ranking

• Interval scales maintain an equal interval between numbers. These scales can be used for ranking and for measuring the interval between two numbers. Since the zero point is arbitrary, ratios cannot be taken between numbers on an interval scale; however, mean, median, and mode are all valid. Example: temperature scale

• Ratio scales are referenced to an absolute zero values, so ratios between numbers on the scale are meaningful. In addition to mean, median, and mode, geometric averages also are valid. Example: weight

Validity and Reliability

The validity of a test is the extent to which differences in scores reflect differences in the measured characteristic. Predictive validity is a measure of the usefulness of a measuring instrument as a predictor. Proof of predictive validity is determined by the correlation between results and actual behavior. Construct validity is the extent to which a measuring instrument measures what it intends to measure.

Reliability is the extent to which a measurement is repeatable with the same results. A measurement may be reliable and not valid. However, if a measurement is valid, then it also is reliable and if it is not reliable, then it cannot be valid. One way to show reliability is to show stability by repeating the test with the same results.

Attitude Measurement

Many of the questions in a marketing research survey are designed to measure attitudes. Attitudes are a person's general evaluation of something. Customer attitude is an important factor for the following reasons:

• Attitude helps to explain how ready one is to do something.
• Attitudes do not change much over time.
• Attitudes produce consistency in behavior.
• Attitudes can be related to preferences.

Attitudes can be measured using the following procedures:

• Self-reporting - subjects are asked directly about their attitudes. Self-reporting is the most common technique used to measure attitude.

• Observation of behavior - assuming that one's behavior is a result of one's attitudes, attitudes can be inferred by observing behavior. For example, one's attitude about an issue can be inferred by whether he/she signs a petition related to it.

• Indirect techniques - use unstructured stimuli such as word association tests.

• Performance of objective tasks - assumes that one's performance depends on attitude. For example, the subject can be asked to memorize the arguments of both sides of an issue. He/she is more likely to do a better job on the arguments that favor his/her stance.

• Physiological reactions - subject's response to a stimuli is measured using electronic or mechanical means. While the intensity can be measured, it is difficult to know if the attitude is positive or negative.

• Multiple measures - a mixture of techniques can be used to validate the findings, especially worthwhile when self-reporting is used.

There are several types of attitude rating scales:

• Equal-appearing interval scaling - a set of statements are assembled. These statements are selected according to their position on an interval scale of favorableness. Statements are chosen that has a small degree of dispersion. Respondents then are asked to indicate with which statements they agree.

• Likert method of summated ratings - a statement is made and the respondents indicate their degree of agreement or disagreement on a five point scale (Strongly Disagree, Disagree, Neither Agree Nor Disagree, Agree, Strongly Agree).

• Semantic differential scale - a scale is constructed using phrases describing attributes of the product to anchor each end. For example, the left end may state, "Hours are inconvenient" and the right end may state, "Hours are convenient". The respondent then marks one of the seven blanks between the statements to indicate his/her opinion about the attribute.

• Stapel Scale - similar to the semantic differential scale except that 1) points on the scale are identified by numbers, 2) only one statement is used and if the respondent disagrees a negative number should marked, and 3) there are 10 positions instead of seven. This scale does not require that bipolar adjectives be developed and it can be administered by telephone.

• Q-sort technique - the respondent if forced to construct a normal distribution by placing a specified number of cards in one of 11 stacks according to how desirable he/she finds the characteristics written on the cards.

Sampling Plan

The sampling frame is the pool from which the interviewees are chosen. The telephone book often is used as a sampling frame, but have some shortcomings. Telephone books exclude those households that do not have telephones and those households with unlisted numbers. Since a certain percentage of the numbers listed in a phone book are out of service, there are many people who have just moved who are not sampled. Such sampling biases can be overcome by using random digit dialing. Mall intercepts represent another sampling frame, though there are many people who do not shop at malls and those who shop more often will be over-represented unless their answers are weighted in inverse proportion to their frequency of mall shopping.

In designing the research study, one should consider the potential errors. Two sources of errors are random sampling error and non-sampling error. Sampling errors are those due to the fact that there is a non-zero confidence interval of the results because of the sample size being less than the population being studied. Non-sampling errors are those caused by faulty coding, untruthful responses, respondent fatigue, etc.

There is a tradeoff between sample size and cost. The larger the sample size, the smaller the sampling error but the higher the cost. After a certain point the smaller sampling error cannot be justified by the additional cost.

While a larger sample size may reduce sampling error, it actually may increase the total error. There are two reasons for this effect. First, a larger sample size may reduce the ability to follow up on non-responses. Second, even if there is a sufficient number of interviewers for follow-ups, a larger number of interviewers may result in a less uniform interview process.

Data Collection

In addition to the intrinsic sampling error, the actual data collection process will introduce additional errors. These errors are called non-sampling errors. Some non-sampling errors may be intentional on the part of the interviewer, who may introduce a bias by leading the respondent to provide a certain response. The interviewer also may introduce unintentional errors, for example, due to not having a clear understanding of the interview process or due to fatigue.

Respondents also may introduce errors. A respondent may introduce intentional errors by lying or simply by not responding to a question. A respondent may introduce unintentional errors by not understanding the question, guessing, not paying close attention, and being fatigued or distracted.

Such non-sampling errors can be reduced through quality control techniques.


Data Analysis - Preliminary Steps

Before analysis can be performed, raw data must be transformed into the right format. First, it must be edited so that errors can be corrected or omitted. The data must then be coded; this procedure converts the edited raw data into numbers or symbols. A codebook is created to document how the data was coded. Finally, the data is tabulated to count the number of samples falling into various categories. Simple tabulations count the occurrences of each variable independently of the other variables. Cross tabulations, also known as contingency tables or cross tabs, treats two or more variables simultaneously. However, since the variables are in a two-dimensional table, cross tabbing more than two variables is difficult to visualize since more than two dimensions would be required. Cross tabulation can be performed for nominal and ordinal variables.

Cross tabulation is the most commonly utilized data analysis method in marketing research. Many studies take the analysis no further than cross tabulation. This technique divides the sample into sub-groups to show how the dependent variable varies from one subgroup to another. A third variable can be introduced to uncover a relationship that initially was not evident.


Conjoint Analysis

The conjoint analysis is a powerful technique for determining consumer preferences for product attributes.


Hypothesis Testing

A basic fact about testing hypotheses is that a hypothesis may be rejected but that the hypothesis never can be unconditionally accepted until all possible evidence is evaluated. In the case of sampled data, the information set cannot be complete. So if a test using such data does not reject a hypothesis, the conclusion is not necessarily that the hypothesis should be accepted.

The null hypothesis in an experiment is the hypothesis that the independent variable has no effect on the dependent variable. The null hypothesis is expressed as H0. This hypothesis is assumed to be true unless proven otherwise. The alternative to the null hypothesis is the hypothesis that the independent variable does have an effect on the dependent variable. This hypothesis is known as the alternative, research, or experimental hypothesis and is expressed as H1. This alternative hypothesis states that the relationship observed between the variables cannot be explained by chance alone.

There are two types of errors in evaluating a hypotheses:

• Type I error: occurs when one rejects the null hypothesis and accepts the alternative, when in fact the null hypothesis is true.
• Type II error: occurs when one accepts the null hypothesis when in fact the null hypothesis is false.

Because their names are not very descriptive, these types of errors sometimes are confused. Some people jokingly define a Type III error to occur when one confuses Type I and Type II. To illustrate the difference, it is useful to consider a trial by jury in which the null hypothesis is that the defendant is innocent. If the jury convicts a truly innocent defendant, a Type I error has occurred. If, on the other hand, the jury declares a truly guilty defendant to be innocent, a Type II error has occurred.

Hypothesis testing involves the following steps:

• Formulate the null and alternative hypotheses.
  
• Choose the appropriate test.
  
• Choose a level of significance (alpha) - determine the rejection region.
  
• Gather the data and calculate the test statistic.
  
• Determine the probability of the observed value of the test statistic under the null hypothesis given the sampling distribution that applies to the chosen test.
  
• Compare the value of the test statistic to the rejection threshold.
  
• Based on the comparison, reject or do not reject the null hypothesis.
  
• Make the marketing research conclusion.
  

In order to analyze whether research results are statistically significant or simply by chance, a test of statistical significance can be run.


Tests of Statistical Significance

The chi-square ( c² ) goodness-of-fit test is used to determine whether a set of proportions have specified numerical values. It often is used to analyze bivariate cross-tabulated data. Some examples of situations that are well-suited for this test are:

• A manufacturer of packaged products test markets a new product and wants to know if sales of the new product will be in the same relative proportion of package sizes as sales of existing products.
• A company's sales revenue comes from Product A (50%), Product B (30%), and Product C (20%). The firm wants to know whether recent fluctuations in these proportions are random or whether they represent a real shift in sales.
  

The chi-square test is performed by defining k categories and observing the number of cases falling into each category. Knowing the expected number of cases falling in each category, one can define chi-squared as:

c² = å ( O_i - E_i )² / E_i

where

O_i = the number of observed cases in category i,
E_i = the number of expected cases in category i,
k = the number of categories,
the summation runs from i = 1 to i = k.

Before calculating the chi-square value, one needs to determine the expected frequency for each cell. This is done by dividing the number of samples by the number of cells in the table.

To use the output of the chi-square function, one uses a chi-square table. To do so, one needs to know the number of degrees of freedom (df). For chi-square applied to cross-tabulated data, the number of degrees of freedom is equal to

( number of columns - 1 ) ( number of rows - 1 )

This is equal to the number of categories minus one. The conventional critical level of 0.05 normally is used. If the calculated output value from the function is greater than the chi-square look-up table value, the null hypothesis is rejected.

ANOVA
Another test of significance is the Analysis of Variance (ANOVA) test. The primary purpose of ANOVA is to test for differences between multiple means. Whereas the t-test can be used to compare two means, ANOVA is needed to compare three or more means. If multiple t-tests were applied, the probability of a TYPE I error (rejecting a true null hypothesis) increases as the number of comparisons increases.

One-way ANOVA examines whether multiple means differ. The test is called an F-test. ANOVA calculates the ratio of the variation between groups to the variation within groups (the F ratio). While ANOVA was designed for comparing several means, it also can be used to compare two means. Two-way ANOVA allows for a second independent variable and addresses interaction.

To run a one-way ANOVA, use the following steps:

1. Identify the independent and dependent variables.
2. Describe the variation by breaking it into three parts - the total variation, the portion that is within groups, and the portion that is between groups (or among groups for more than two groups). The total variation (SS_total) is the sum of the squares of the differences between each value and the grand mean of all the values in all the groups. The in-group variation (SS_within) is the sum of the squares of the differences in each element's value and the group mean. The variation between group means (SS_between) is the total variation minus the in-group variation (SS_total - SS_within).
3. Measure the difference between each group's mean and the grand mean.
4. Perform a significance test on the differences.
5. Interpret the results.

This F-test assumes that the group variances are approximately equal and that the observations are independent. It also assumes normally distributed data; however, since this is a test on means the Central Limit Theorem holds as long as the sample size is not too small.

ANOVA is efficient for analyzing data using relatively few observations and can be used with categorical variables. Note that regression can perform a similar analysis to that of ANOVA.


Discriminant Analysis

Analysis of the difference in means between groups provides information about individual variables, it is not useful for determine their individual impacts when the variables are used in combination. Since some variables will not be independent from one another, one needs a test that can consider them simultaneously in order to take into account their interrelationship. One such test is to construct a linear combination, essentially a weighted sum of the variables. To determine which variables discriminate between two or more naturally occurring groups, discriminant analysis is used. Discriminant analysis can determine which variables are the best predictors of group membership. It determines which groups differ with respect to the mean of a variable, and then uses that variable to predict new cases of group membership. Essentially, the discriminant function problem is a one-way ANOVA problem in that one can determine whether multiple groups are significantly different from one another with respect to the mean of a particular variable.

A discriminant analysis consists of the following steps:

1. Formulate the problem.
2. Determine the discriminant function coefficients that result in the highest ratio of between-group variation to within-group variation.
3. Test the significance of the discriminant function.
4. Interpret the results.
5. Determine the validity of the analysis.

Discriminant analysis analyzes the dependency relationship, whereas factor analysis and cluster analysis address the interdependency among variables.


Factor Analysis

Factor analysis is a very popular technique to analyze interdependence. Factor analysis studies the entire set of interrelationships without defining variables to be dependent or independent. Factor analysis combines variables to create a smaller set of factors. Mathematically, a factor is a linear combination of variables. A factor is not directly observable; it is inferred from the variables. The technique identifies underlying structure among the variables, reducing the number of variables to a more manageable set. Factor analysis groups variables according to their correlation.

The factor loading can be defined as the correlations between the factors and their underlying variables. A factor loading matrix is a key output of the factor analysis. An example matrix is shown below.

	Factor 1	Factor 2	Factor 3
Variable 1
Variable 2
Variable 3
Column's Sum of Squares:

Each cell in the matrix represents correlation between the variable and the factor associated with that cell. The square of this correlation represents the proportion of the variation in the variable explained by the factor. The sum of the squares of the factor loadings in each column is called an eigenvalue. An eigenvalue represents the amount of variance in the original variables that is associated with that factor. The communality is the amount of the variable variance explained by common factors.

A rule of thumb for deciding on the number of factors is that each included factor must explain at least as much variance as does an average variable. In other words, only factors for which the eigenvalue is greater than one are used. Other criteria for determining the number of factors include the Scree plot criteria and the percentage of variance criteria.

To facilitate interpretation, the axis can be rotated. Rotation of the axis is equivalent to forming linear combinations of the factors. A commonly used rotation strategy is the varimax rotation. Varimax attempts to force the column entries to be either close to zero or one.


Cluster Analysis

Market segmentation usually is based not on one factor but on multiple factors. Initially, each variable represents its own cluster. The challenge is to find a way to combine variables so that relatively homogenous clusters can be formed. Such clusters should be internally homogenous and externally heterogeneous. Cluster analysis is one way to accomplish this goal. Rather than being a statistical test, it is more of a collection of algorithms for grouping objects, or in the case of marketing research, grouping people. Cluster analysis is useful in the exploratory phase of research when there are no a-priori hypotheses.

Cluster analysis steps:

1. Formulate the problem, collecting data and choosing the variables to analyze.

2. Choose a distance measure. The most common is the Euclidean distance. Other possibilities include the squared Euclidean distance, city-block (Manhattan) distance, Chebychev distance, power distance, and percent disagreement.

3. Choose a clustering procedure (linkage, nodal, or factor procedures).

4. Determine the number of clusters. They should be well separated and ideally they should be distinct enough to give them descriptive names such as professionals, buffs, etc.

5. Profile the clusters.

6. Assess the validity of the clustering.

Marketing Research Report

The format of the marketing research report varies with the needs of the organization. The report often contains the following sections:

• Authorization letter for the research
• Table of Contents
• List of illustrations
• Executive summary
• Research objectives
• Methodology
• Results
• Limitations
• Conclusions and recommendations
• Appendices containing copies of the questionnaires, etc.

Concluding Thoughts

Marketing research by itself does not arrive at marketing decisions, nor does it guarantee that the organization will be successful in marketing its products. However, when conducted in a systematic, analytical, and objective manner, marketing research can reduce the uncertainty in the decision-making process and increase the probability and magnitude of success.

Internet Marketing and Promotion: Website Optimization.

Build your traffic.

Content is king. Write good quality content that visitors value and that keeps them coming back. This is a golden rule. Try to make sure that you have substantial content before putting your site online. No site is better than one that is poorly prepared. Make the content easy to read and digest. Keep it focused upon keywords, and keep content up-to-date. Remember, your site is not an online brochure or gimmicky sales promotion.

Your domain name should be innovative and does not necessarily have to say what your site does. For example British Airways has an online ticket websites called Opodo.com.

When building the site, keep the design simple. Flash, Java and Javascript look great but have been known to confuse spiders. Keep It Short and Simple (KISS). Remember that not all visitors will have fast Internet connections - much of The World still uses 56k modems.

Search Engine Optimisation (SEO) is important. This will help search engines to read your pages. There are many ways to do this - try to include keywords in your title, in your description tag, in your heading tag, in your URL (if possible), and some would also say try to represent your keyword in content - in bold, in italics, and high in the page.

Word density - your keyword should not represent more than 20% of your total wordage.

Try to link between your pages. This is call 'cross linking.' So if one of your pages attracts high numbers of visitors through search engine, then link to less exposed pages around your site. Then add links to the top pages of your site a.k.a. 'root' pages. Try not to be more than two clicks away from root pages. This makes it easier for visitors to stick around.

Submit to search engines where you can. However this is becoming more difficult. Today it is more likely that the search engines will find you - when you obtain in links, spiders and bots will come through your site as they follow outbound links form other sites. You could also try to get listed in directories such as DMOZ.

Once your site is online monitor its progress. This is how you control your online presence. You need a stats package that monitors every detail of your site's logs including inbound links, keyword searches, page views, visitor number (rather than hits), and page popularity - data needs to be available for every day of the year.

Links To your site - especially form higher-ranking sites - are very important. Links need to be from sites that have similar keywords to those of your pages. This is time consuming and you need to build slowly. Contact sites and offer to exchange links. Links in text are better that stand alone URL's, so put links from your site in paragraphs of text that allow visitors to click on them as they read you content. However, try not to offer too many outbound links because visitors need to be kept on your site as long as possible.

Alternative strategies could include:

• Encourage other sites to reprint your content (with credit given to you, and links back to your main site).
• Post information about your site in communities, forums and chat groups.
• Set up your own affiliate programme, and pay commission.
• Encourage visitors to bookmark your site.
• Create a mailing list, and send newsletters. Betters still, create a dynamic site that encompasses a CRM strategy.
• Hire professionals to code your site, and to manage Search Engine Optimisation (SEO).

PEST Analysis.

It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up of:

1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.

2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.

3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as PEST factors.

Political Factors.

The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:

1.How stable is the political environment?

2.Will government policy influence laws that regulate or tax your business?

3.What is the government's position on marketing ethics?

4. What is the government's policy on the economy?

5. Does the government have a view on culture and religion?

6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

Economic Factors.

Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at:

1. Interest rates.

2. The level of inflation Employment level per capita.

3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.

Sociocultural Factors.

The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include:

1.What is the dominant religion?

2.What are attitudes to foreign products and services?

3.Does language impact upon the diffusion of products onto markets?

4.How much time do consumers have for leisure?

5.What are the roles of men and women within society?

6.How long are the population living? Are the older generations wealthy?

7.Do the population have a strong/weak opinion on green issues?

Technological Factors.

Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:

1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?

2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?

3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?

4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?

SWOT analysis

SWOT Analysis, is a strategic planing tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The technique is credited to Albert Humphrey , who led a research project at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.

Strategic and Creative Use of S.W.O.T Analysis

Strategic Use: Orienting SWOT's to An Objective

Illustrative diagram of SWOT analysis

If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless. A SWOT analysis may be incorporated into the strategic planing model. An example of a strategic planning technique that incorporates an objective-driven SWOT analysis is SCAN analysis. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.

If a clear objective has been identified, SWOT analysis can be used to help in the pursuit of that objective. In this case, SWOT's are:

• Strengths: attributes of the organization that are helpful to achieving the objective.
• Weaknesses: attributes of the organization that are harmful to achieving the objective.
• Opportunities: external conditions that are helpful to achieving the objective.
• Threats: external conditions that are harmful to achieving the objective.

Identification of SWOT's is essential because subsequent steps in the process of planning for achievement of the selected objective are to be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the SWOT's. If the objective is NOT attainable a different objective must be selected and the process repeated.

Creative Use of SWOT's: Generating Strategies

If, on the other hand, the objective seems attainable, the SWOT's are used as inputs to the creative generation of possible strategies, by asking and answering each of the following four questions, many times:

1. How can we Use each Strength?
2. How can we Stop each Weakness?
3. How can we Exploit each Opportunity?
4. How can we Defend against each Threat?

Ideally a cross-functional team or a task force that represents a broad range of perspectives should carry out the SWOT analysis. For example, a SWOT team may include an accountant, a salesperson, an executive manager, an engineer, and an ombudsman .

Evidence on the Use of SWOT

SWOT analysis may limit the strategies considered in the evaluation. "In addition, people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate strategies." Findings from Menon et al. (1999) and Hill and Westbrook (1997) have shown that SWOT may harm performance. As an alternative to SWOT, J. Scott Armstrong describes a 5-step approach alternative that leads to better corporate performance.

These criticisms are addressed to an old version of SWOT analysis that precedes the SWOT analysis described above under the heading "Strategic and Creative Use of S.W.O.T. Analysis." This old version did not require that SWOTs be derived from an agreed upon objective. Examples of SWOT analyses that do not state an objective are provided below under "Human Resources" and "Marketing."

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. SWOT analysis groups key pieces of information into two main categories:

• Internal factors – The strengths and weaknesses internal to the organization.
• External factors – The opportunities and threats presented by the external environment.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.

Avoiding Errors

1. Conducting a SWOT analysis before defining and agreeing upon an objective (a desired end state). SWOTs should not exist in the abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participants may have different end states in mind and the results will be ineffective.
2. Opportunities external to the company are often confused with strengths internal to the company. They should be kept separate.
3. SWOTs are sometimes confused with possible strategies. SWOTs are descriptions of conditions, while possible strategies define actions. This error is made especially with reference to opportunity analysis. To avoid this error, it may be useful to think of opportunities as "auspicious conditions".

Examples of SWOTs

Strengths and weaknesses Resources: financial, intellectual, location Cost advantages from proprietary know-how and/or location Creativity (ability to develop new products) Valuable intangible assets: intellectual capital Competitive capabilities Effective recruitment of talented individuals Opportunities and threats Expansion or down-sizing of competitors Market trends Economic conditions Expectations of stakeholders Technology Public expectations All other activities or inactivities by competitors Criticisms by outsiders Changes in markets All other environmental conditions

Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has been defined. Examples include: non-profit organization , governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis managment .

Corporate planning

As part of the development of strategies and plans to enable the organization to achieve its objectives, then that organization will use a systematic/rigorous process known as corporate planing . SWOT alongside PEST/PESTLE can be used as a basis for the analysis of business and environmental factors.

• Set objectives – defining what the organisation is intending to do
• Environmental scanning
  • Internal appraisals of the organisations SWOT, this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle
• Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors
• Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organization
• Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change
• Establish critcal success factors – the achievement of objectives and strategy implementation
• Preparation of operational, resource, projects plans for strategy implementation
• Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.

Human resources

A SWOT carried out on a Human Resource Department may look like this:

Strengths	Weaknesses	Opportunities	Threats
Developed techniques for dealing with major areas of HR, job evaluation, psychometric testing and basic training	Reactive rather than pro-active; needs to be asked rather than developing unsolicited ideas	New management team, wanting to improve overall organizational effectiveness through organizational development and cultural management programmes	HR contribution not recognised by top management who by-pass it by employing external consultants

A SWOT carried by an individual manager could look like this:

Strengths	Weaknesses	Opportunities	Threats
Enthusiasm, energy, imagination, expertise in subject area, excellent track record in specialized area	Not good at achieving results through undirected use of personal energies, trouble at expressing themselves orally and on paper – may have ideas but these come over as incoherent, management experience and expertise limited	More general management opportunities requiring development of new managers	De-centralisation having the effect of removing departments where the individual is employed and eliminating middle management layers to form flatter structure of organization

Marketing

Main article: Marketing managment

In competitor analysis, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor's cost structure, sources of profits, resources and competencies, competitive positioning and product differentiation, degree of vertical integration, historical responses to industry developments, and other factors.

Marketing management often finds it necessary to invest in research to collect the data required to perform accurate marketing analysis. As such, they often conduct market research (alternately marketing research) to obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more common include:

• Qualitative marketing research, such as focus groups
• Quantitative marketing research, such as statistical surveys
• Experimental techniques such as test markets
• Observational techniques such as ethnographic (on-site) observation
• Marketing managers may also design and oversee various environmental scanning and competitive intelligence processes to help identify trends and inform the company's marketing analysis.

Using SWOT to analyse the market position of a small management consultancy with specialism in HRM.

Strengths	Weaknesses	Opportunities	Threats
Reputation in marketplace	Shortage of consultants at operating level rather than partner level	Well established position with a well defined market niche.	Large consultancies operating at a minor level
Expertise at partner level in HRM consultancy	Unable to deal with multi-disciplinary assignments because of size or lack of ability	Identified market for consultancy in areas other than HRM	Other small consultancies looking to invade the marketplace
Track record – successful assignments

strength- market related , finance related , operational related , research and development related, hr related

market related- product quality, packaging , advertisement, service, distribution channel finance related- optimum debt/equity ratio, number of share holders, inventory size , optimum use of the financial resources, low cost of borrowings proper investment of the financial products

operational related- low cost , higher productivity , excellent quality , modernized technology.

The consumer buying binge is over

It's been said many times, but now consumers are truly tapped out, says Fortune's Geoff Colvin.

(Fortune Magazine) -- Here I go. I am about to walk into one of the biggest sucker's games in the whole world of economics: declaring that the U.S. consumer is tapped out, so desperately in hock and troubled about the future that he finally just can't spend like it's 1999 anymore. And to be clear, that is what I'm declaring. Unless I can talk myself out of it by the end of the column.

I must be nuts. One of the most reliable ways to look like a business dope over the past several years has been to announce that the consumer spending party is finally over. Every year, usually in the fourth quarter, assorted boffins prove beyond doubt that U.S. consumers cannot possibly keep spending as they have been. Consumers then ignore those reports and keep right on spending anyway.

The question of consumer behavior is enormously important because more than 70% of U.S. economic activity is consumer spending. Most companies thus depend on our buying, which means that most of the valuation of the U.S. stock market depends on it also.

And because we buy so many imports - almost $2 trillion worth last year - plenty of foreign economies depend on us as well. So it's easy to see why everybody wonders what U.S. consumers will do next.

It's also easy to see why all kinds of analysts figured we simply had to stop spending big a long time ago. A year or two back you could observe that interest rates were rising as the Fed kept ratcheting up, cash-out mortgage refinancings were declining, the housing boom was looking like a bubble, real total pay was flat, credit card debt was ballooning, and the personal savings rate had gone negative for the first time since the Depression.

Sounds alarming, doesn't it? No way could you expect people to maintain a high level of spending under those conditions.

So why did they? A few factors seem significant. Perhaps most important, people still had jobs. Even if total pay wasn't rising much, employment was growing decently, and the unemployment rate stayed low. As long as consumers had paychecks coming in, they remained eager to do their duty at the mall.

In addition, it was still possible to believe in the housing boom, that your home - unless it was a condo in Miami or San Diego - was making you richer by the day. When consumers feel wealthier, they feel like spending. It didn't hurt that lenders on every street corner were throwing bargain-rate loans at anyone with a checking account; even if you didn't borrow, it was comforting to know that you could.

What's new - what gives me the confidence to make my insane prediction - is that all those factors have gone into reverse. The employment picture is deteriorating. Jobless claims rose more than expected in September's final week, and the unemployment rate for the month rose slightly. The only reason it didn't rise in August as well, says New York University professor Nouriel Roubini, is that "500,000 discouraged workers left the labor force and did not show up as unemployed." That explains in part why Roubini, a former economic advisor in the Clinton administration, is now deeply bearish.

Perhaps more ominous than the job situation is the free-falling real estate market. Existing-home sales continue to decline. Home prices, which started sliding a little over a year ago, are now dropping faster, as measured by the S&P/Case-Shiller home price index. As millions of Americans see their largest asset becoming less valuable rather than more valuable, the wealth effect goes backward.

And while consumers used to know they could always borrow more money, however appalling their finances, the credit markets faced reality in August and began pricing risk properly. Easy money and the comfortable feeling it supports are gone. Now add one other factor: $80-a-barrel oil as winter comes on. Put it all together, and it's no surprise that the Conference Board's consumer confidence index has fallen sharply for the past two months.

A consumer retrenchment may have even already started. Same-store sales at retail chains have dropped in recent weeks; overall retail sales have declined in real terms. Wal-Mart, Charts, Fortune 500) cut its profit forecast in August; in September, forecast weaker sales.

So I haven't talked myself out of my prediction. I've talked myself further into it. Note that I'm not predicting a recession, though one wouldn't surprise me. But I believe the evidence is powerful that, as incredible as it may seem, U.S. consumers are going to start living within their means again. Brace yourself.

Three from U.S. awarded a Nobel in economic sciences

STOKHOLM: Leonid Hurwicz, Eric Maskin and Roger Myerson, all from the United States, were awarded the Nobel Prize in economic sciences on Monday for laying the foundations for mechanism design theory.

"The theory allows us to distinguish situations in which markets work well from those in which they do not," the Royal Swedish Academy of Sciences said in Stockholm. "It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures."

Hurwicz, 90, a U.S. citizen born in Moscow, is an emeritus professor at the University of Minnesota in Minneapolis. Maskin, 56, is a professor at the Institute for Advanced Study in Princeton, New Jersey. Myerson, 56, is a professor at the University of Chicago.

The three will share a prize of 10 million kronor, or $1.56 million, officially known as The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

The award has been given out since 1969 by Sweden's central bank. Past winners include Milton Friedman, Amartya Sen and Friedrich August von Hayek.

Edmund Phelps of Columbia University won last year for his theories on inflation expectations and unemployment.

The economics prize is the last of this year's Nobel awards, after last week's physics, chemistry, medicine, peace and literature announcements. The prizes have been given out since 1901 after being established in the will of Alfred Nobel, the Swedish inventor of dynamite, who died in 1896.

Before this year's prizes, 37 U.S. economists, eight British economists, three Norwegians and two Swedes have received the economics prize. Two with joint Israeli-U.S. citizenships have also won, while economists from Canada, Germany, France, the Netherlands, India and the former Soviet Union each won once.

Given the churning turmoil of global markets sparked by the U.S. subprime crisis, soaring oil prices and a renewed strength by foreign currencies, it might have seemed appropriate that any of those issues could figure in determining the winner of this year's Nobel economics prize.

But watchers of the secretive prize had said that it was too tough a call to make given that the people who ultimately decide the winner - or, in years past, winners - tend to favor economic theories that have had time to take root, grow and prove resilient.

Speculation on this year's prize included economists who dealt with international trade, macroeconomics and the labor market, among others.

Hubert Fromlet, the chief economist of Swedbank in Stockholm, said Jagdish Bhagwati, a noted proponent of free trade and critic of opponents of globalization, was one of his favorites.

"International trade is probably worth a prize," he said, noting that the Indian-born Columbia University economics professor was an external adviser to the World Trade Organization and served as a special policy adviser on globalization to the United Nations.

Other potential candidates included the macroeconomists Robert Barro and Paul Romer, the arbitrage pricing researcher Stephen Ross, as well as Jean Tirole of France and Assar Lindbeck of Sweden, Fromlet said.

Previous winners of the prize have recognized research ranging from how the control of information affects markets to welfare economics used to explain the mechanisms behind famine and poverty.

Thomson Scientific, which tries to predict winners partly by analyzing citations in academic journals, said Tirole's work on industrial organization, game theory, banking and finance had increased speculation he could win.

Business marketing

Business marketing is the practice of organizations , including commercial businesses, governments and institutions, facilitating the sale of their products or services to other companies or organizations that in turn resell them, use them as components in products or services they offer, or use them to support their operations. Also known as industrial marketing, business marketing is also called business-to-business marketing, or b-to-b marketing, for short.

Origins of business marketing

In the broadest sense, the practice of one purveyor of goods doing trade with another is as old as commerce itself. As a niche in the field of marketing as we know it today, however, its history is more recent. In his introduction to Fundamentals of Business Marketing Research, J. David Lichtenthal, professor of marketing at the City University of New York’s Zicklin School of Business, notes that industrial marketing has been around since the mid-19th century, although the bulk of research on the discipline of business marketing has come about in the last 25 years. According to a study by SVM E-Business Solutions 45 percent of industrial manufacturers are using the Internet in their marketing.

Morris, Pitt and Honeycutt, 2001, point out that for many years business marketing took a back seat to consumer marketing, which entailed providers of goods or services selling directly to households through mass media and retail channels. This began to change in middle to late1970s. A variety of academic periodicals, such as the Journal of Business-to-Business Marketing and the Journal of Business & Industrial Marketing, now publish studies on the subject regularly, and professional conferences on business-to-business marketing are held every year. What’s more, business marketing courses are commonplace at many universities today. In fact, Dwyer and Tanner (2006) point out that more marketing majors begin their careers in business marketing today than in consumer marketing.

Business marketing vs. consumer marketing

Although on the surface the differences between business and consumer marketing may seem obvious, there are more subtle distinctions between the two with substantial ramifications. Dwyer and Tanner (2006) note that business marketing generally entails shorter and more direct channels of distribution.

While consumer marketing is aimed at large demographic groups through mass media and retailers, the negotiation process between the buyer and seller is more personal in business marketing. According to Hutt and Speh (2001), most business marketers commit only a small part of their promotional budgets to advertising, and that is usually through direct mail efforts and trade journals. While that advertising is limited, it often helps the business marketer set up successful sales calls.

Who is the business marketing customer?

While “other businesses” might seem like the simple answer, Dwyer and Tanner (2006) say business customers fall into four broad categories: companies that consume products or services, government agencies, institutions and resellers.

The first category includes original equipment manufacturers, such as automakers, who buy gauges to put in their cars, and users, which are companies that purchase products for their own consumption. The second category, government agencies, is the biggest. In fact, the U.S. government is the biggest single purchaser of products and services in the country, spending more than $300 billion annually. But this category also includes state and local governments. The third category, institutions, includes schools, hospitals and nursing homes, churches and charities. Finally, resellers consist of wholesalers, brokers and industrial distributors.

How big is business marketing?

Hutt and Speh (2001) note that “business marketers serve the largest market of all; the dollar volume of transactions in the industrial or business market significantly exceeds that of the ultimate consumer market.” For example, they note that companies such as GE, DuPont and IBM spend more than $60 million a day on purchases to support their operations.

Dwyer and Tanner (2006) say the purchases made by companies, government agencies and institutions “account for more than half of the economic activity in industrialized countries such as the United States, Canada and France.”

A 2003 study sponsored by the Business Marketing Assosiation estimated that business-to-business marketers in the United States spend about $85 billion a year to promote their goods and services. The BMA study breaks that spending out as follows (figures are in billions of dollars):

• Trade Shows/Events — $17.3
• Internet/Electronic Media — $12.5
• Promotion/Market Support — $10.9
• Magazine Advertising — $10.8
• Publicity/Public Relations — $10.5
• Direct Mail — $9.4
• Dealer/Distributor Materials — $5.2
• Market Research — $3.8
• Telemarketing — $2.4
• Directories — $1.4
• Other — $5.1

The fact that there is such a thing as the Business Marketing Association speaks to the size and credibility of the industry. BMA traces its origins to 1922 with the formation of the National Industrial Advertising Association. Today, BMA, headquartered in Chicago, has more than 2,000 members in 19 chapters across the country. Among its members are marketing communications agencies that are largely or exclusively business-to-business-oriented.

What’s driving growth in b-to-b

The tremendous growth and change that business marketing is experiencing is due in large part to three “revolutions” occurring around the world today, according to Morris, Pitt and Honeycutt (2001).

First is the technological revolution. Technology is changing at an unprecedented pace, and these changes are speeding up the pace of new product and service development. A large part of that has to do with the Internet, which is discussed in more detail below.

Technology and business strategy go hand in hand. Both are corelated .While technology supports forming organization strategy, the business strategy is also helpful in technology development. Both play a great role in business marketing.

Second is the entrepreneurial revolution. To stay competitive, many companies have downsized and reinvented themselves. Adaptability, flexibility, speed, aggressiveness and innovativeness are the keys to remaining competitive today. Marketing is taking the entrepreneurial lead by finding market segments, untapped needs and new uses for existing products, and by creating new processes for sales, distribution and customer service.

The third revolution is one occurring within marketing itself. Companies are looking beyond traditional assumptions and adopting new frameworks, theories, models and concepts. They’re also moving away from the mass market and the preoccupation with the transaction. Relationships, partnerships and alliances are what define marketing today. The cookie-cutter approach is out. Companies are customizing marketing programs to individual accounts.

The impact of the Internet

The Internet has become an integral component of the customer relationship management strategy for business marketers. Dwyer and Tanner (2006) note that business marketers not only use the Internet to improve customer service but also to improve opportunities with distributors.

According to Anderson and Narus (2004), two new types of resellers have emerged as by-products of the Internet: infomediaries and metamediaries. Infomediaries, such as Google and Yahoo , are search engine companies that also function as brokers, or middlemen, in the business marketing world. They charge companies fees to find information on the Web as well as for banner and pop-up ads and search engine optimization services. Metamediaries are companies with robust Internet sites that furnish customers with multiproduct, multivendor and multiservice marketspace in return for commissions on sales.

With the advent of b-to-b exchanges, the Internet ushered in an enthusiasm for collaboration that never existed before–and in fact might have even seemed ludicrous 10 years ago. For example, a decade ago who would have imagined Ford, General Motors and DaimlerChrysler entering into a joint venture? That’s exactly what happened after all three of the Big Three began moving their purchases online in the late 1990s. All three companies were pursuing their own initiatives when they realized the economies of scale they could achieve by pooling their efforts. Thus was born what then was the world’s largest Internet business when Ford’s Auto-Xchange and GM’s TradeXchange merged, with DaimlerChrysler representing the third partner.

While this exchange did not stand the test of time, others have, including Agentrics , which was formed last year with the merger of WorldWide Retail Exchange and GlobalNetXchange, or GNX. Agentrics serves more 50 retailers around the world and more than 300 customers, and its members have combined sales of about $1 trillion. Hutt and Speh (2001) note that such virtual marketplaces enable companies and their suppliers to conduct business in real time as well as simplify purchase processes and cut costs.

Notes on Setting and Raising Prices

Lifestyle and Marketing

If you think you need to live large to attract business, think again. What attracts business is a valuable offer delivered to the right prospect with confidence, integrity, and consistency. On the other hand, it is almost impossible to attract business when you are desperate for work.

Your lifestyle choices can underscore your commitment to an authentic and connected life, one lived in awareness and respect of the well-being of others and of the planet. Living these choices and letting them inform how you show up in the world can be a compelling aspect of your personal marketing formula. They can distinguish the offer you are in your chosen niche.

Insurance, Taxes, Retirement, and More

Other considerations for the self-employed are medical, dental, life, and disability insurance. In addition, you may need professional liability insurance, insurance on your equipment and records, and insurance to protect you in the event of accidents on your premises.

Self-employment taxes can take the unwary by surprise. Check with your accountant (you do have one, don’t you?) and find out what your tax liabilities are likely to be.

How do you plan to fund your retirement? There may be tax-advantaged plans available to you as a small business owner. Again, check with your accountant. (Have you noticed that one of the expenses you will need to plan for is accounting?)

It is easy to overlook hidden costs such as depreciation. Think about the furnishings and equipment you use and how often you will need to repair or replace them. Where will you get the money for these expenses? How will you pay for software upgrades or for a technician to debug your computer?

* * *

The following outline from a talk I gave on Setting and Getting the Right Fees for the Right Work can help you understand how to set your own rates and why there is no “one size fits all” formula.

How Much Do You Want to Take Home?
Net Income Versus Gross Income

Here’s a partial list of expenses you may incur in your business.

• Taxes
• Benefits
• Medical insurance
• Disability insurance
• Dental insurance
• Retirement
• Overhead
• Depreciation (it’s not theoretical!)
• Replacing furnishings
• Replacing equipment
• Upgrading software
• Administrative overhead
• Clerical help
• Bookkeeping
• 25-50% of your time to manage and market your business
• Vacation, Holiday, and Sick Pay

Where Does the Time Go?

Hint: Keep a running list of everything you do for thirty days. Not a “to do” list, but an “I did” list. This will help you to understand where your time goes.

• Sales and marketing
• Service (email, phone, troubleshooting)
• Email
• Proposals, Prospects
• Phone Calls
• Meetings
• Administration (bookkeeping, correspondence, contracts, reports)
• Training

Variables Affecting Prices

• Geography
• Demography
• Niche
• Experience
• Perceived value
• Skills
• Client capacity to pay/realize value from your work
• Cost of delivering services
• Competitors’ fees

Is It Time to Raise Your Fees?

• Full calendar
• Reputation as leader or expert
• Turning away work
• Recognized author or speaker
• Prestigious affiliations or awards
• Advanced training/certification
• Improved services
• Increased costs

Strategies for Raising Prices

• Annual incremental increases
• Business cycle increases
• “Going rate” increases
• Be sure the going rate is set by going concerns!
• Do going rates reflect your costs and services?
• More work to justify rate increases of more than 10%
• Keep clients informed of how great you are
• Training and skill development
• Concern for their well-being
• Improvements in service and capacity
• How you saved them time or money
• How you made them money
• How you solved problems for them or for others
• How much you are in demand
• Create a mood that supports your declaration of value
• The body of confidence

What Clients Want to Know When You Raise Prices

• What are the new rates?
• When do they go into effect?
• Give reasonable notice
• Consider giving current clients a grace period to adjust
• Why are they going up?
• What value will the client receive for the higher fees?

Adjust Prices to Manage Work Type and Work Flow

• Projects you don’t really want
• Rush work
• Difficult clients
• Profit is commensurate with risk (and distaste!)

DISTRIBUTION - Firm, Brand, and Product Line Objectives

Firm level objectives: It is not enough to simply state a firm’s goal as maximizing the present value of total profit since this does not differentiate it from other firms and says nothing about how this objective is to be achieved. Instead, a business and marketing plan should suggest how the firm can best put its unique resources to use to maximize stockholder value. A number of resources come into play—e.g.,

• Distinctive competencies—knowledge of how to manufacture, design, or market certain products or services effectively;

• Financial—possession of cash or the ability to raise it;

• Ability and willingness to take risk;

• The image of the firm’s brand;

• People who can develop new products, services, or other offerings and run the needed supports;

• Running facilities (no amount of money is going to get a new microchip manufacturing plant started tomorrow); and

• Contacts with suppliers and distributors and others who influence the success of the firm.

Market balance: It is essential that different firms in the same business not attempt to compete on exactly the same variables. If they do, competition will invariably degenerate into price—there is nothing else that would differentiate the firms. Thus, for example, in the retail food market, there are low price supermarkets such as Food 4 Less that provide few if any services, intermediate level markets like Ralph’s, and high-end markets such as Vons’ Pavillion that charge high prices and claim to carry superior merchandise and offer exceptional service

Risk: In general, firms that attempt riskier ventures—and their stockholders—expect a higher rate of return. Risks can come in many forms, including immediate loss of profit due to lower sales and long term damage to the brand because of a poor product being released or because of distribution through a channel perceived to carry low quality merchandise.

Brand level objectives: Ultimately, brand level profit centers are expected to contribute to the overall maximization of the firm’s profits. However, when a firm holds several different brands, different marketing and distribution plans may be required for each. Several variables come into play in maximizing value. Profits can be maximized in the short run, or an investment can be made into future earnings. Product profit can be measured in several ways. If you sell a computer that cost $950 to make for $1,000, you are making only a 5% gross profit. However, selling a product that cost $5 to make for $10 will result in a much higher percentage profit, but a much lower absolute margin. A decision that is essential at the brand level is positioning. Options here may range from a high quality, premium product to a lower priced value product. Note here that the same answer will not be appropriate for all firms in the same market since this will result in market imbalance—there should be some firms perceiving each strategy, with others being intermediate.

Distribution issues come into play heavily in deciding brand level strategy. In order to secure a more exclusive brand label, for example, it is usually necessary to sacrifice volume—it would do no good, for Mercedes-Benz to create a large number of low priced automobiles. Some firms can be very profitable going for quantity where economies of scale come into play and smaller margins on a large number of units add up—e.g., McDonald’s survives on much smaller margins than upscale restaurants, but may make larger profits because of volume. Some firms choose to engage in a niching strategy where they forsake most customers to focus on a small segment where less competition exists (e.g., clothing for very tall people).

In order to maintain one’s brand image, it may be essential that retailers and other channel members provide certain services, such as warranty repairs, providing information to customers, and carrying a large assortment of accessories. Since not all retailers are willing to provide these services, insisting on them will likely reduce the intensity of distribution given to the product.

Product line objectives: Firms make money on the totality of products and services that they sell, and sometimes, profit can be maximized by settling for small margins on some, making up on others. For example, both manufacturers and retailers currently tend to sell inkjet printers at low prices, hoping to make up by selling high margin replacement cartridges. Here again, it may be important for the manufacturer that the retailer carry as much of the product line as possible.

Distribution Objectives

Interrelated objectives: A firm’s distribution objectives will ultimately be highly related—some will enhance each other while others will compete. For example, as we have discussed, more exclusive and higher service distribution will generally entail less intensity and lesser reach. Cost has to be traded off against speed of delivery and intensity (it is much more expensive to have a product available in convenience stores than in supermarkets, for example).

Narrow vs. wide reach: The extent to which a firm should seek narrow (exclusive) vs. wide (intense) distribution depends on a number of factors. One issue is the consumer’s likelihood of switching and willingness to search. For example, most consumers will switch soft drink brands rather than walking from a vending machine to a convenience store several blocks away, so intensity of distribution is essential here. However, for sewing machines, consumers will expect to travel at least to a department or discount store, and premium brands may have more credibility if they are carried only in full service specialty stores.

Retailers involved in a more exclusive distribution arrangement are likely to be more “loyal”—i.e., they will tend to

• Recommend the product to the customer and thus sell large quantities;

• Carry larger inventories and selections;

• Provide more services

Thus, for example, Compaq in its early history instituted a policy that all computers must be purchased through a dealer. On the surface, Compaq passed up the opportunity to sell large numbers of computers directly to large firms without sharing the profits with dealers. On the other hand, dealers were more likely to recommend Compaq since they knew that consumers would be buying these from dealers. When customers came in asking for IBMs, the dealers were more likely to indicate that if they really wanted those, they could have them—“But first, let’s show you how you will get much better value with a Compaq.”

Distribution opportunities: Distribution provides a number of opportunities for the marketer that may normally be associated with other elements of the marketing mix. For example, for a cost, the firm can promote its objective by such activities as in-store demonstrations/samples and special placement (for which the retailer is often paid). Placement is also an opportunity for promotion—e.g., airlines know that they, as “prestige accounts,” can get very good deals from soft drink makers who are eager to have their products offered on the airlines. Similarly, it may be useful to give away, or sell at low prices, certain premiums (e.g., T-shirts or cups with the corporate logo.) It may even be possible to have advertisements printed on the retailer’s bags (e.g., “Got milk?”)

Other opportunities involve “parallel” distribution (e.g., having products sold both through conventional channels and through the Internet or factory outlet stores). Partnerships and joint promotions may involve distribution (e.g., Burger King sells clearly branded Hershey pies).

Deciding on a strategy. In view of the need for markets to be balanced, the same distribution strategy is unlikely to be successful for each firm. The question, then, is exactly which strategy should one use? It may not be obvious whether higher margins in a selective distribution setting will compensate for smaller unit sales. Here, various research tools are useful. In focus groups, it is possible to assess what consumers are looking for an which attributes are more important. Scanner data, indicating how frequently various products are purchased and items whose sales correlate with each other may suggest the best placement strategies. It may also, to the extent ethically possible, be useful to observe consumers in the field using products and making purchase decisions. Here, one can observe factors such as (1) how much time is devoted to selecting a product in a given category, (2) how many products are compared, (3) what different kinds of products are compared or are substitutes (e.g., frozen yogurt vs. cookies in a mall), (4) what are “complementing” products that may cue the purchase of others if placed nearby. Channel members—both wholesalers and retailers—may have valuable information, but their comments should be viewed with suspicion as they have their own agendas and may distort information.

Direct Marketing

We consider direct marketing early in the term as a “contrast” situation against which later channels can be compared. In general, you cannot save money by “eliminating the middleman” because intermediaries specialize in performing certain tasks that they can perform more cheaply than the manufacturer. Most grocery products are most efficiently sold to the consumer through retail stores that take a modest mark-up—it would not make sense for manufacturers to ship their grocery products in small quantities directly to consumers.

Intermediaries perform tasks such as

• moving the goods efficiently (e.g., large quantities are moved from factories or warehouses to retail stores);

• breaking bulk (manufacturers sell to a modest number of wholesalers in large quantities—quantities are then gradually broken down as they make their way toward the consumer);

• consolidating goods (retail stores carry a wide assortment of goods from different manufacturers—e.g., supermarkets span from toilet paper to catsup); and

• adding services (e.g., demonstrations and repairs).

Direct marketers come in a variety of forms, but their categorization is somewhat arbitrary. The main thing to consider here is each firm’s functions and intentions. Some firms sell directly to consumers with the express purpose of eliminating retailers that supposedly add cost (e.g., Dell Computer). Others are in the business not so much to save on costs, but rather to reach groups of consumes that are not easily reached through the stores. Others—e.g., online travel agents or check printers—provide heavily customized services where the user can perform much of the services. Telemarketers operate by making the promotion in integral part of the process—you are explained the benefits of the program in an advertisement or infomercial and you then order directly in response to the promotion. Finally, some firms combine these roles—e.g., Geico is a customizer, but also claims, in principle, to cut out intermediaries.

There are certain circumstances when direct marketing may be more useful—e.g., when absolute margins are very large (e.g., computers) or when a large inventory may be needed (e.g., computer CDs) or when the customer base is widely dispersed (e.g., bee keepers).

Direct marketing offers exceptional opportunities for segmentation because marketers can buy lists of consumer names, addresses, and phone-numbers that indicate their specific interests. For example, if we want to target auto enthusiasts, we can buy lists of subscribers to auto magazines and people who have bought auto supplies through the mail. We can also buy lists of people who have particular auto makes registered.

No one list will contain all the consumers we want, and in recent years technology has made it possible, through the “merge-purge” process, to combine lists. For example, to reach the above-mentioned auto-enthusiasts, we buy lists of subscribers to several different car magazines, lists of buyers from the Hot Wheels and Wiring catalog, and registrations of Porsche automobiles in several states. We then combine these lists (the merge part). However, there will obviously be some overlap between the different lists—some people subscribe to more than one magazine, for example. The purge process, in turn, identifies and takes out as many duplicates as possible. This is not as simple task as it may sound up front. For example, the address “123 Main Street, Apartment 45” can be written several ways—e.g., 123 Main St., #123, or 123-45 Main Str. Similarly, John J. Jones could also be written as J. J. Jones, or it could be misspelled Jon J. Jonnes. Software thus “standardizes” addresses (e.g., all street addresses would be converted into the format “123 Main St #45” and even uses phonetic analysis to identify a likely alternative spelling of the same name.

Response rates for “good” lists—lists that represent a logical reason why consumer would be interested in a product—are typically quite low, hovering around 2-3%. Simply picking a consumer out of the phone-book would yield even lower responses—much less than one percent. Keep in mind that a relevant comparison here is to conventional advertising. The response rate to an ad placed in the newspaper or on television is usually well below one percent (frequently more like one-tenth of one percent). (More than one percent of people who see an ad for Coca Cola on TV will buy the product, but most of these people would have bought Coke anyway, so the marginal response is low).

Electronic Commerce

Online marketing can serve several purposes:

• Actual sales of products—e.g., Amazon.com.

• Promotion/advertising: Customers can be quite effectively target in many situations because of the context that they, themselves, have sought out. For example, when a consumer searches for a specific term in a search engine, a “banner” or link to a firm selling products in that area can be displayed. Print and television advertisements can also feature the firm’s web address, thus inexpensively drawing in those who would like additional information.

• Customer service: The site may contain information for those who no longer have their manuals handy and, for electronic products, provide updated drivers and software patches.

• Market research: Data can be collected relatively inexpensively on the Net. However, the response rates are likely to be very unrepresentative and recent research shows that it is very difficult to get consumers to read instructions. This is one of the reasons why the quality of data collected online is often suspect.

There are many obstacles to the growth of e-commerce:

• Reach: Although the majority of U.S. households now have computers connected to the Internet, a very large minority does not, and penetration rates are considerably lower in some countries. In foreign countries, even those households that have computers may be reluctant to spend time online due to the per minute charges, which discourage the more leisurely “browsing” American style.

• Concerns about privacy: A number of consumers are concerned about giving up information to marketers that can easily be collected electronically. Naturally, few consumers would like information about their medical status widely collected by firms, but many consumers are even reluctant to have marketers know the ages of their children and past book purchase records. R

• eputational issues: Although not as much as a problem before, firms operating online or through direct mail have often been viewed with suspicion since consumers may question whether they will be around if they do not deliver satisfactorily. Transshipments: Although the Internet should facilitate commerce across boarders, customers paperwork and ambiguities in duty liability make shipments across countries burdensome.

• Costs. During the “boom,” Internet firms were not expected to be efficient and thus developed bad habits. Although shipping and handling charges can help cover costs of shipping and administration, these often take away the attractiveness of Internet shopping. The most successful e-commerce firms turn out to be the ones that have been successful doing other kinds of direct marketing (e.g., catalog sales) before and have developed the discipline and efficiency required there. For products that have relatively high absolute margins—e.g., computers—there is more money to cover administrative costs.

• Language. Since the Internet reaches around the world, it is often difficult to match viewers with their preferred languages. Because U.S. firms and individuals tended to predominate among those first to occupy the Web, most sites are in U.S. English. British speakers of English generally do not perceive American English as American—they tend to perceive spelling such as “color” rather than their “colour” as misspellings. French consumers do not like to have to click to get from an English language to a French language site. It is estimated that by the year 2007, the majority of web surfers will not be comfortable in English and will want sites in their own languages.

• Government regulations: In the U.S., the government has tried to keep its hands off the Net as much as possible to foster its growth as a trade area, and a recently expired moratorium on new sales taxes was even instituted. However, governments in many other countries are more forceful in their regulations. In countries such as China, where sites can be used to spread “subversive” ideas, there is a great deal of government scrutiny and suspicion.

• Cultural obstacles are often severe. The whole purpose of the web is to make information readily available. In countries where information is closely guarded, that is a frightening idea. There is often also a desire for personal interaction, which may be required to establish the trust needed to secure a deal.

• Payment issues. U.S. consumers exposed to credit card fraud have very limited liabilities, but these protections do not exist to the same extent in Europe or Asia. In China, much of the purpose of the Internet is defeated with some 80% of transactions being completed off-line, usually with funding instruments other than credit cards.

There are a number of problems in running and developing web sites. First of all, the desired domain name may not be available—e.g., American Airlines could not get “American.com” and had to settle for “AmericanAir.com.” There is also a question having your site identified to potential users. Research has found that most search engines have a great deal of “false hits” (sites irrelevant that are identified in a search—e.g., information about computer languages when the user searches for foreign language instruction) and “misses” (sites that would have been relevant but are not identified). It is crucial for a firm to have its site indexed favorably in major search engines such as Yahoo, AOLFind, and Google. However, there is often a constant struggle between web site operators and the search engines to outguess each other, with the web promoters trying to “spam” the search engines with repeated usage of terms and “meta tags.” The fact that many computer users employ different web browsers raises questions about compatibility. A major problem is that many of the more recent, fancier web sites rely on “java script” to provide animation and various other impressive features. These animations have proven very unreliable. Sites may “crash” on the user or prove unreliable, and many consumers have found themselves unable to complete their transactions.

Legal issues. There are a number of legal issues associated with the Internet:

• Reach across boarders. Web sites transcend country lines and thus, a firm may be subjected to legal standards of different countries. It may be difficult to create advertising that simultaneously complies with rules for each country.

• Taxation: There is a great deal of ambiguity as to which state and local governments may collect taxes on merchandise sold on the Internet. There is also a question as to who has the responsibility for making the payment—the seller or the buyer?

• Privacy issues. Many foreign governments prohibit the collection of personal information of consumers (as Amazon.com does), which greatly reduces the customization opportunities online.

Web site design: The web designer must make various issues into consideration:

• Speed vs. aesthetics: As we saw, some of the fancier sites have serious problems functioning practically. Consumers may be impressed by a fancy site, or may lack confidence in a firm that offers a simple one. Yet, fancier sites with extensive graphics take time to download—particularly for users dialing in with a modem as opposed to being “hard” wired—and may result in site crashes.

• Keeping users on the site: A large number of “baskets” are abandoned online as consumers fail to complete the “check-out” process for the products they have selected. One problem here is that many consumers are drawn away from a site and then are unlikely to come back. A large number of links may be desirable to consumers, but they tend to draw people away. Taking banner advertisers on your site from other sites may be profitable, but it may result in customers lost.

• Information collection: An increasing number of consumers resist collection of information about them, and a number of consumers have set up their browsers to disallow “cookies,” files that contain information about their computers and shopping habits.

Cyber-consumer behavior: In principle, it is fairly easy to search and compare online, and it was feared that this might wipe out all margins online. More recent research suggests that consumers in fact do not tend to search very intently and that large price differences between sites persist. We saw above the problem of keeping consumers from prematurely departing from one’s site.

Legal Issues

Distribution issues raise significant legal questions, many of which relate to antitrust law. The main purpose of antitrust law is to enforce fair competition among firms. There are two different kinds of competition that are relevant here. Interbrand competition refers to different brands that compete against each other—e.g., Nike competes against Reebok. On the other hand, intrabrand competition refers to competition between different channels that sell the same branded goods—e.g., Footlocker competes against other retailers that sell Nike products. Often, it may be necessary to sacrifice the one kind of competition to bolster the other. For example, by introducing exclusive territories given to some retailers who alone are given the right to sell in one geographic area, these retailers may have extra incentive to “push” the product. The theory here, then, is that by reducing the intrabrand competition among retailers all carrying, say, Guess jeans, the retailer will be motivated to put up a strong competition against other retailers who carry Levi’s, thus enhancing interbrand competition.

There are a number of ways in which competition can be threatened:

• Collusion: Retailers and/or manufacturers get together and agree to limit competition—e.g., the three laundromats in a small town all get together and agree that no one will charge less than one dollar per wash. Although blatantly illegal in the United States, this kind of behavior is accepted in certain parts of the world, although European countries are now beginning to be less tolerant.

• Discriminatory pricing: Some full service manufacturers may decide to give better deal to more powerful buyers—e.g., Wal-Mart may negotiate better prices than Joe’s Grocery Store can. Such differences in prices paid by competing firms are generally legal only if they are justified by actual cost savings in selling to the two different firms—obviously, the average overhead per case of Bandaid will be much lower when selling to Wal-Mart, which buys in huge quantities.

• Predatory pricing: Firms may attempt to temporarily sell products below their costs so that competitors are driven out of business, after which the predators will raise their own prices. This is generally illegal in the U.S.

• Territorial restrictions (as discussed above) and customer coverage restrictions (e.g., one firm is designated as the only firm that is allowed to sell to hospitals, while another one may be designed the sole authorized seller to gyms). These may or may not be legal, depending on the courts’ interpretation of their impact on overall market competition.

• Price maintenance. Manufacturers may put pressure on retailers not to sell their products below or above a certain price. While certain manufacturers are concerned that some distributors may take advantage of exclusive distribution deals and set maximum prices, the greatest concern is about minimum prices. Here, manufacturers may be concerned that if price competition is too intense, services will suffer. By trying to ensure that no one sells below a designated floor price, full service retailers are guaranteed certain levels of profitability. Generally, it is explicitly illegal for retailers and manufacturers to agree not to sell below a certain price (in legal terms, that would be a “conspiracy in restraint of trade). However, it frequently is legal for the manufacturer to tell the retailer that if he or she sells below the price, the manufacturer will stop him or her. It would be illegal, however, for the manufacturer to promise another competitor to “cut off” the offending retailer.

• Tying: Here, a customer may be required to buy two products even if he or she only wants one. Firms may want to engage in this activity if they have a monopoly-like situation for one product but face competition for another (e.g., Intel dominates the market for the newest chips but has much more competition for the motherboards and modems that the firm also produces. Thus, the firm might like to buyers of their newest CPUs to also buy motherboards also. Tying is legal under some circumstances when it is deemed to be reasonable (the customer cannot expect to be able to buy a car without tires even if he or she can find cheaper alternatives elsewhere) but can be illegal if it is abusive and serves no legitimate purpose (as in the Intel case).

Antitrust law is often rather murky, and it may be hard to find a straight answer as to whether something is legal or not. In general, courts have classified various kinds of activities in categories of varying certainty of legality or illegality. Per se illegality includes practices that are definitely illegal if it can be proven that they have taken place (e.g., two retailers agreeing not to sell below certain prices). Under the modified rule of reason, certain practices are presumed to be illegal, but the courts will hear exculpatory evidence which may clear a firm (e.g., courts are likely to be suspicious if a supplier drops a discount retailer after receiving complaints from a full service retailer, but if the manufacturer can prove that it did not agree with the full service retailer to stop the supply and that the termination benefits interbrand competition, the practice may be accepted). Under the rule of reason, the totality of circumstances are examined to assess impact on competition, and a decision is made—thus, the law is not as clear (e.g., whether tying—requiring a consumer to buy two products even if he or she wishes to buy only one—is subject to significant review). Finally, certain practices are per se legal—i.e., they are accepted as legal and no legal action can be taken (e.g., since consumers do not compete against each other, it is legal to charge different airline passengers different fares based on advance purchase and Saturday night stayovers).

Service Outputs

As we have discussed earlier, firms have to make tradeoffs between different considerations such as cost of distribution, intensity vs. exclusivity, and service provided. Some of the services ultimately desired by consumers include bulk-breaking (as previously discussed), spatial convenience (being able to buy milk in the supermarket rather than having to drive out to a farmer to get it), timing of availability (having someone—the retailer and other channel members—plan to have toothpaste available in the store when the consumer needs it), and providing a breadth of assortment (the same store will carry different kinds of food and other merchandise from different suppliers.

Segmentation involves identifying groups of consumers who respond relatively similarly to different treatments. In general, we want to find segments that contain people who are as similar as possible to each other while, simultaneously, being as different as possible from members of other segments. Thus, for example, members of what we might term a price sensitive food segment are likely to seek out the lowest priced retailers even if they are not located conveniently, buy larger packages, switch brands depending on what is on sale, and cut coupons. The “fussy” segment, in contrast, may shop either where the best quality is found or at the most convenient location, and may be brand loyal and not cut coupons. Note that not all members of each segment will be completely alike, and there is some tension between precision of description and cutting the segments into too small pieces. The idea, here, then, is for different channels to serve different consumers (e.g., price sensitive individuals are targeted by Food 4 Less while more upscale stores target the price insensitives).

Channel Structure and Membership Issues

Paths to the customer. For most products and situations, it is generally more efficient for a manufacturer to go through a distributor rather than selling directly to the customer. This is especially the case when consumers need to have variety and assortment (e.g., consumer would like to buy not just toothpaste but also other personal hygiene products, and even other grocery products at the same place), when products are bought in small volumes or at low value (e.g., a candy bar sells for less than $1.00), or even intermediaries have skills or resources that the manufacturer does not (a sales force, warehousing, and financing). Nevertheless, there are situations when these conditions are not met—most typically in industrial settings. As an extreme case, most airlines are perfectly happy only being able to buy aircraft and accessories from Boeing and would prefer not to go through a retailer—particularly since the planes are often highly customized. More in the “gray” area, it may or may not be appropriate to sell microcomputers directly to consumers rather than going through a distributor—the costs of providing those costs may be roughly comparable to the margin that a distributor would take.

Potential channel structures. Channel structures can assume a variety of forms. In the extreme case of Boeing aircraft or commercial satellites, the product is made by the manufacturer and sent directly to the customer’s preferred delivery site. The manufacturer, may, however, involve a broker or agent who handles negotiations but does not take physical possession of the property. When deals take on a smaller magnitude, however, it may be appropriate to involve retailer–but no other intermediary. For example, automobiles, small planes, and yachts are frequently sold by the manufacturer to a dealer who then sends directly to the customer. It does not make sense to deliver these bulky products to a wholesaler only to move them again. On the other hand, it would not make sense for a California customer to fly to Detroit, buy a car there, and then drive it home. As the need for variety increases, a wholesaler may then be introduced. For example, an office supply store needs to sell more merchandise than any one manufacturer can produce. Therefore, a wholesaler will buy a very large quantity of binders, file folders, staplers, reams of paper, glue sticks, and similar products and sell this in smaller quantities—say 200 staplers at a time—to the office supply store, which, in turn, may go to another wholesaler who has acquired telephones, typewriters, and photocopiers. Note that more than one wholesaler level may be involved—a local wholesaler serving the Inland Empire may buy from each of the two wholesalers listed above and then sell all, or most, of the products needed by local office supply stores. Finally, even in longer channels, agents or brokers may be involved. This, in particular, will happen when the owner of a small, entrepreneurial company has more experience with technology than with businesses negotiations. Here, the manufacturer can be freed, in return for paying the agent, from such tasks, allowing him or her to focus on what he or she does well.

Criteria in selecting channel members. Typically, the most important consideration whether to include a potential channel member is the cost at which he or she can perform the required functions at the needed level of service. For example, it will be much less expensive for a specialty foods manufacturer to have a wholesaler get its products to the retailer. On the other hand, it would not be cost effective for Procter & Gamble and Wal-Mart to involve a third party to move their merchandise—Wal-Mart has been able to develop, based on its information systems and huge demand volumes, a more efficient distribution system. Note the important caveat that cost alone is not the only consideration—premium furniture must arrive in the store on time in perfect condition, so paying more for a more dependable distributor would be indicated. Further, channels for perishable products are often inefficiently short, but the additional cost is needed in order to ensure that the merchandise moves quickly. Note also that image is important—Wal-Mart could very efficiently carry Rolex watches, but this would destroy value from the brand.

“Piggy-backing.” A special opportunity to gain distribution that a manufacturer would otherwise lack involves “piggy-backing.” Here, a manufacturer enlists another manufacturer that already has a channel to a desired customer base, to pick up products into an existing channel. For example, a manufacturer of rhinoserous and hippopotamus shampoo might be able to reach zoos by approaching a manufacturer of crocodile teeth cleaning supplies that already reaches this target. In the case of reciprocal piggy-backing, the shampoo manufacturer might then, in turn, bring the teeth cleaning supplies through its existing channel to exotic animal veterinarians.

Parallel Distribution. Most manufacturers find it useful to go through at least one wholesaler in order to reach the retailer, and it is simply not efficient for Colgate to sell directly to pathetic little “mom and pop” neighborhood stores. However, large retail chains such as K-Mart and Ralph’s buy toothpaste and other Colgate products in such large volumes that it may be efficient to sell directly to those chains. Thus, we have a “parallel” distribution network whereby some retailers buy through a distributor and others do not. Note that we may also be tempted to add a direct channel—e.g., many clothing manufacturers have factory outlet stores. However, note that the full service retailers will likely object to being “undercut” in this manner and may decide to drop or give less emphasis to the brand. It may be possible to minimize this contract by precautions such as (1) having outlet stores located in vacation areas not within easy access of most people, (2) presenting the merchandise as being slightly irregular, and/or (3) emphasizing discontinued brands and merchandise not sold in regular stores.

Evaluating Channel Performance. The performance of channel members should be periodically monitored—a channel member may have looked attractive earlier but may not, in practice be able to live up to promises. (This can be either because of complacency or because the channel member simply did not realize the skills and resources needed to perform to standards). Thus, performance level (service outputs) and costs should be evaluated. Further, changes in technology or in the market place may make it worthwhile to shift certain functions to another channel member (e.g., a distributor has expanded its coverage into another region or may have gained or lost access to certain retail chains). Finally, the extent to which compensation is awarded in proportion to performance should be reassessed—e.g., a distributor that ends up holding inventory longer or taking on more returns may need additional compensation.

Gap Analysis

Market Deficiencies. “Gap” analysis involves analyzing current market offering to assess the extent to which they meet customer demands. Demand side gaps involve a market situation where consumers are not satisfied buying what is available—usually either because the level of service provided is not adequate or because the offering is too expensive. Supply side gaps, in contrast, involve firms that provide services that are needed, but ones that can be met elsewhere at lower prices.

Demand Side Gaps. Customer satisfaction abounds, and many consumers would like to replace their current suppliers. This can happen either generally—there is a widespread dissatisfaction with banks among consumers, and many would switch if they found one that they thought to provide better service—or the gap can be with one segment that is not being well served. As an example of the latter, consider parents who, if they had not had children, would have been perfectly satisfied with an ordinary Internet service provider but are now worried that their children can be exposed to inappropriate material online. Therefore, the PAX Network, which features family-oriented television programming, stepped in to offer a service that claims to block out most objectionable sites. Further, one auto parts store owned by a woman ran an advertising campaign aimed at women, acknowledging that women were often being asked by their husbands and boyfriends to be “parts runners.” The ad then went on to talk about the cleanliness of the store and non-condescending attitudes of the sales people.

Note that although a gap may exist in the sense that existing firms are not offering what consumers may ideally want, there is a limit to what buyers would be willing to pay for. For example, before starting their ice-cream business, Ben and Jerry considered going into business delivering the New York Times to people’s doors on Sunday mornings along with fresh baked bagels. A problem here, however, could have been the cost of this service. Sometimes, a firm may be able to come in and fill a gap, but may need to compromise on exactly how far to go. There are usually some struggles between what would be nice to have and what customers are wiling to pay for. For example, many computer buyers would like to have someone come and set up the computer, the peripherals, and the Internet connection, but might balk at paying $150 for this service. Many consumers would like to have their dry cleaning picked up and delivered, but when push comes to shove, they would not be willing to pay for the extra service.

In the early 1990s, a firm owning several supermarket chains decided start Tiangues, a chain aimed at Hispanic consumers in Southern California. Employees were screened to be fluent in both Spanish and English, and foods that would appeal especially to different Hispanic groups were emphasized. The chain was very popular when it first opened, but it soon lost market share as it was found that with time, what mattered most to customers was low prices.

Wheel of Retailing. An interesting phenomenon that has been consistently observed in the retail world is the tendency of stores to progressively add to their services. Many stores have started out as discount facilities but have gradually added services that customers have desired. For example, the main purpose of shopping at establishments like Costco and Sam’s Club is to get low prices. These stores have, however, added a tremendous number of services—e.g., eye examinations, eye glass prescription services, tire installation, insurance services, upscale coffee, and vaccinations. To the extent these services can be added in a cost effective manner, that is a good thing. Ironically, however, what frequently happens is that “room” now opens up for a “bare bones” chain to come in and fill the void that the original store was supposed to have filled! New stores can now come in and offer lower prices before additional, costly services “creep” in. Note that upscaling over time may be an appropriate strategy and that the owner of the “rising” chain may itself want to start another, lower-service division (e.g., Ralph’s may want to own another chain such as Food 4 Less).

Supply Side Gaps. Supply side gaps come about when a business finds that the services that it has traditionally offered to customers in the past are now too expensive to justify the value they provide. For example, in the “old days” (i.e., until the early 1990s), travel agents provided a valuable service—they would “match” travelers and airlines, finding a reasonable fare and travel time and issuing the ticket to the customer who, then, did not have to call all the airlines for a fare and then visit the airport or an airline office. However, nowadays, it is much more convenient for consumers to carry e-tickets, and it is frequently easier to go online to compare fares and travel time at one’s convenience. Therefore, travel agents, to command their commissions, will often need to provide something extra that the online services cannot. The problem is that, for most consumers, there just isn’t much that the travel agent can offer other than fancy coffee or donuts, which you can get more conveniently elsewhere anywhere. Maybe they can take passport photos or arrange bus transportation to a cruise ship, but is that enough to justify people coming to them? Online services are starting to offer package deals—air fare, hotel, and car rental—anyway.

Finding opportunities. Again, it is important to emphasize the need for market balance. Frequently, there will be room for higher cost services for one segment, and perhaps a diametrically opposed service for the lower cost service.

Gaps, costs, and performance. Generally, we find that gaps do not exist when cost and service are “in line” with customer expectations. Thus, for example, Nordstrom serves a segment that desires high service. Nordstrom incurs a great deal of costs in this, which are ultimately passed on to the consumer, but Nordstrom’s customers are willing to pay for this. Similarly, Wal-Mart provides some, but less, service and does so at a very low cost. Thus, another segment’s preferences are served. Thus, service output demand is matched with supply. On the other hand, many auto repair facilities provide less service than is expected and do not adequately make up for this by low prices. Therefore, an opportunity might exist for someone to offer better service at a not much higher cost. On the other hand, nowadays people may not be willing to pay the extra cost for going to a butcher shop and pay significantly more if what they get is only a little better than what is available in the supermarket meat section.

Closing gaps. Firms may be able to close, or reduce, their gaps by reconsidering their offerings. A gasoline station that offers an “average” level of service at prices higher than those of self-service stations might either target the low cost segment, lowering prices and cutting costs, or targeting a premium service and “beefing up” service. Similarly, a firm that faces a segmented market might “branch off” into different units that offer different levels of service to different customers. For example, Toyota started the Lexus division for consumers who demanded more service than would have been cost effective to offer to its traditional customers. On the supply side, closing gaps mostly involves improving efficiency and/or reducing costs in other ways. Alternatively, existing channels may be reassessed—e.g., airlines have deemphasized travel agents.

Channel Management and Conflict

Vertical integration. Generically speaking, products may come and reach consumers through a chain somewhat like this:

Raw materials —> component parts —> product manufacturing

—> product/brand marketing —> wholesaler —> retailer

—> consumer

Money can be made at each stage in the chain and it may be tempting for firms to try to get into all aspects. For example, Henry Ford wanted to make all the components for his own cars, so Ford tried to run its own rubber plantation with limited success. The temptation to try to expand vertically can be especially strong when an industry faces limited growth and thus presents limited opportunities for reinvestment into traditional operations (e.g., if the auto industry is not growing as much as desired, one way to reinvest profits, rather than having to pay them back to stockholders who would then have to pay taxes on the dividends, might be to buy steel mills. The problems, however, is that the management is not used to running such businesses and that managerial time will be spread among more areas.

Business structures. A business can be squarely focused in just one area—e.g., Kentucky Friend Chicken is only in the fast food business and prides itself on this. On the other hand, certain businesses are part of an assortment of businesses that all have common, or at least overlapping, membership. Sometimes, these businesses can be related in some way—for example, Pepsico used to own several restaurant fast food chains, and Microsoft, in addition to being in the software business, used to own Expedia, the online travel service. Here, expertise and brand equity might be transferred from businesses to business. In other situations, however, these “empires” may consist of unrelated businesses that were bought not so much because they “fit” into management expertise, but rather because they were for sale when the conglomerate had money to invest. With the tobacco industry currently being relatively profitable but having a questionable future, a tobacco firm might invest in a software maker. Generally, such investments are risky because of problems with management oversight. In Japan, many firms are part of a keiretsu, or a conglomerate that ties together businesses that can aid each other. For example, a keiretsu might contain an auto division that buys from a steel division. Both of these might then buy from a iron mining division, which in turns buys from a chemical division that also sells to an agricultural division. The agricultural division then sells to the restaurant division, and an electronics division sells to all others, including the auto division. Since the steel division may not have opportunities for reinvestment, it puts its profits in a bank in the center, which in turns lends it out to the electronics division that is experiencing rapid growth. This practice insulates the businesses to some extent against the business cycle, guaranteeing an outlet for at least some product in bad times, but this structure has caused problems in Japan as it has failed to “root out” inefficient keiretsu members which have not had to “shape up” to the rigors of the market.

Motivations for outsourcing. While firms, as discussed above, often have certain motivations for trying to “gobble” up as many business opportunities as possible, there are also reasons for “outsourcing” or contracting out certain functions to others. Auto makers, for example, have often found it profitable to buy a number of components from non-union manufacturers. Often small vendors, run by entrepreneurs, are better motivated to perform certain services—e.g., insurance agents can have an incentive to build up and service a client base more effectively than an internal staff could. It is also possible for outsiders to specialize—chemical firms, for example, may be better able to research and develop paints than auto manufacturers. Smaller independent firms may also operate more leanly, facing market competition better than large, centralized firms. A firm specializing in just making nuts and bolts may have greater economies of scale than Rolls Royce, which makes only a limited number of cars.

Channel Power. Some channel members need others more than others need them. For example, Wal-Mart has a lot more power, given its large volume purchases, than many of its suppliers. There are several sources of power. Reward power involves a channel member being able to positively reinforce another’s performance—e.g., Coca Cola may be able to give a price break or pay a fee for additional shelf space. A retailer that meets a certain goal—e.g., the sale of 50,000 cases per month—may receive a bonus. In contrast, coercive power involves the threat of a punishment. A large retailer, for example, may tell a small manufacturer that no further orders will be forthcoming unless a price discount is offered. Expert power includes knowledge. Wal-Mart, for example, because of its heavy investment in information technology, can persuasively argue about likely sales volumes at different price levels. “Legitimate” power involves government or other regulations—e.g., auto dealers have a great deal of power over auto makers because only they are allowed to sell to end customers in the continental U.S. under most circumstances. Finally, referent power involves the desire of the other side to be associated—most manufacturers of upscale merchandise are highly motivated to ensure their availability at Nordstrom’s.

Channel conflict. We have seen throughout the term that conflict exists between channel members. For example, Coca Cola would like to increase its sales by offering a discount on its cans. However, the retailer knows that overall soda sales will not go up much when Coke is put on sale—consumers who bought other brands will just switch, for the most part. Therefore, the retailer might like to “pocket” any discount that Coke offers. Similarly, Bass might like to increase its sales by selling to Costco, but its full service retailers will object to this competition. A number of approaches to resolution are available, but none are perfect. Sharing of information may help build trust, but this can be expensive, cumbersome, and may result in this information being available to competitors. The two sides might seek outside mediation, with a supposedly neutral party suggesting a fair solution, or the two sides may try to compromise on their own. One side may accommodate the other, but may not be motivated to continue to do so in the future, or the other may try to coerce its way through threats of punishment.

Distribution Intensity Decisions

We have seen distribution intensity issues throughout the course, so here we will mostly consider overall strategic issues related to these decisions.

Distribution opportunities. First of all, we must consider what is realistically available to each firm. A small manufacturer of potato chips would like to be available in grocery stores nationally, but this may not be realistic. We need to consider, then, both who will be willing to carry our products and whom we would actually like to carry them. In general, for convenience products, intense distribution is desirable, but only brands that have a certain amount of power—e.g., an established brand name—can hope to gain national intense distribution. Note that for convenience goods, intense distribution is less likely to harm the brand image—it is not a problem, for example, for Haagen Dazs to be available in a convenience store along with bargain brands—it is expected that people will not travel much for these products, so they should be available anywhere the consumer demands them. However, in the category of shopping goods, having Rolex watches sold in discount stores would be undesirable—here, consumers do travel, and goods are evaluated by customers to some extent based on the surrounding merchandise. (Please see the chart in the PowerPoint notes).

The product life cycle. In general, a brand can expect lesser distribution in its early stages—fewer retailers are motivated to carry it. Similarly, when a product category is new, it will be available in fewer stores—e.g., in the early days, computer disks were available only in specialty stores, but now they can be found in supermarkets and convenience stores as well. Certain products that are not well established may have to get their start on “infomercials,” only slowly getting entry into other types out outlets. (Please see PowerPoint chart).

Brief review of distribution intensity issues:

• Full service retailers tend dislike intensive distribution.
• Low service channel members can “free ride” on full service sellers.
• Manufacturers may be tempted toward intensive distribution—appropriate only for some; may be profitable in the short run.
• Market balance suggests a need for diversity in product categories where intensive distribution is appropriate.
• Service requirements differ by product category.

Termination of brands. A retailer may terminate a brand when carrying it under existing terms no longer seems attractive. This can be done overtly—the channel member explicitly announces that the brand will no longer be carried—or more indirectly in the sense that inventory holdings are reduced and customers are recommended substitute brand and/or products.

Maintaining channel member performance. One way to motivate channel members to carry one’s product is through a pull strategy. This involves establishing consumer demand, usually through advertising and/or a strong brand image. For example, most pharmacies need to carry the brand name Bayer aspirin to satisfy their customers. Note, however, that Bayer has invested a great deal of money in this. Alternatively, a firm may offer contract provisions making it attractive to be carried—e.g., prices may be guaranteed for some period of time. Geographical or target market exclusivity may also be offered—a retailer who knows that no one else in the area carries the Vengeful Visions gun line will be more motivated to aggressively push the brand. Stopping short of exclusivity, a firm may attempt to stop supplying channels that sell below a certain retail price “maintenance” level—e.g., Levi’s may decide that they will sell to anyone who wants to carry their jeans so long at such retailers do not sell them below a certain price. Then, retailers can be assured that a certain margin can be achieved, and can invest in services.

“Simulating” exclusivity. When truly exclusive distribution proves undesirable, intra-brand competition can be reduced by offering slightly different, and thus, non-comparable versions to different retailers.

Making exclusivity attractive. Manufacturers can motivate channel members to emphasize their brands by creating mutual dependence. For example, Sony might agree to make a new line of high definition televisions for sale exclusively at Best Buy if Best Buy in return will invest heavily in repair facilities for this new product. If one retailer forsakes other brands in return for a large discount on high quantity orders, both sides may also save money through economies of scale. Finally, the retailer and manufacturer may develop a certain joint brand identity. For example, the high end department stores need to carry high end cosmetics to be credible, and in order to maintain their credibility, high end cosmetics must be available in high end stores.

Retailing

Retail positioning. There are several ways in which retail stores can position themselves. One strategy involves low-cost, low-service. On the opposite side of the spectrum, others may offer high-cost-high-service. Generally, having a clear strategy and position tends to be more effective since “average” stores tend to face a greater scope of competition—e.g., Sears competes both “below” with K-Mart and “above” with Macy’s. K-Mart, in contrast, competes mostly laterally, facing Wal-Mart and Target.

Margins. Stores need to maximize their profits and must consider their margins to do so. Gross margins generally reflect the difference between what a store pays the retailer and what it charges the customer. On the average, this difference in supermarkets is about 25%. (Although there are large differences between product categories, as an illustration, a can that sold for $1.00 might have been bought on wholesale for $0.75). Net margins, in contrast, take into account the allocated costs of running the store—wages, rent, utilities, insurance, and “shrinkage.” In grocery stores, these margins are usually less than 5%. Margins can be considered at the unit level—you make $0.35 on a package of salt—or as a percentage of sales—35% if the salt sold for $1.00. Sometimes, it may also be useful to consider margins per unit of space to best allocate retail space to different categories.

There are two theoretical forms of retailing. The “High-Low” method involves selling products at high prices most of the time but occasionally having significant sales. In contrast, the “everyday low price” (EDLP) strategy involves lower prices all the time but no sales. In practice, there are few if any EDLP stores—most stores put a large amount of merchandise on sale much of the time. It has been found that offering lower everyday prices requires a very large increase in sales volume to be profitable.

Increasing power of retailers. As more and more products compete for space in supermarkets, retailers have gained an increasing power to determine what is “in” and what is “out.” This means that they can often “hold out” for better prices and other “concessions” such as advertising support and fixtures. A significant trend in recent years has been toward manufacturers’ “private label” brands—that is, the retailers’ own brands competing against the national ones. For example, Del Monte peas may now have to compete against Ralph’s brand of peas in those stores. Although private label brands sell for lower prices than national brands, margins are greater for retailers because costs are lower. For example, it is more profitable to sell a can of peas $1.00 when it cost $0.60 to supply than it is to sell a name brand can at $1.25 when that cost $1.05 at wholesale.

“Power” and “category killer” retailers. A number of retailers have become a great deal more efficient in recent years than has been traditional in the industry. Firms like Wal-Mart have invested greatly in information technology and logistics and have committed to taking a risk on placing large orders placed well in advance of the need. These stores have frequently attracted a large customer base by charging consistent low prices. The philosophy here is to make a little bit of profit on each thing sold and then selling a great deal. A special case is the “category killer” which focuses on a specific product category—e.g., Circuit City buys up very large volumes of electronics and thus can bargain for low prices from manufacturers. Manufacturers get the benefit of large, consistent orders, but must in turn offer exceptionally low prices or risk having business shifted to other brands. Note that in practice, the category killer tends to carry a large variety of brands, buying a large volume of each. Thus, the mere threat of switching to other brands is enough to get a concession from each brand.

Retailing polarity. A number of retailers have tended to go to one extreme or the other—either toward a great emphasis on price or a move toward higher service. Rapid economic growth has made high service retailers more attractive to a growing number of affluent consumers, and less affluent consumers have become more accustomed to intense price competition between different retailers.

Marketing strategy

A marketing strategy is a process that can allow an organization to concentrate its (always limited) resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage.

Types of strategies

Every marketing strategy is unique, but if we abstract from the individualizing details, each can be reduced into a generic marketing strategy. There are a number of ways of categorizing these generic strategies. A brief description of the most common categorizing schemes is presented below:

• Strategies based on market dominance - In this scheme, firms are classified based on their market share or dominance of an industry. Typically there are three types of market dominance strategies:
  • Leader
  • Challenger
  • Follower

psycological

• Porter generic strategies strategy on the dimensions of strategic scope and strategic strength. Strategic scope refers to the market penetration while strategic strength refers to the firm’s sustainable competitive advantage.
  • Cost leadership
  • Product differentiation
  • Market segmentation
• Innovation strategies - This deals with the firm’s rate of the new product development and business model innovation. It asks whether the company is on the cutting edge of technology and business innovation. There are three types:
  • Pioneers
  • Close followers
  • Late followers
• Growth strategies - In this scheme we ask the question, “How should the firm grow?”. There are a number of different ways of answering that question, but the most common gives four answers:
  • Horizontal integration
  • Vertical integration
  • Diversification
  • Intensification

A more detailed schemes uses the categories:

• Prospector
• Analyzer
• Defender
• Reactor

• Marketing warfare strategies|Warfare based strategies- This scheme draws parallels between marketing strategies and military strategies.

Pricing Strategies for Small Business

The pricing strategy of your small business can ultimately determine your fate. Small business owners can ensure profitability and longevity by paying close attention to their pricing strategy.

Commonly, in business plans I’ve reviewed, the pricing strategy has been to be the lowest price provider in the market. This approach comes from taking a quick view of competitors and assuming you can win business by having the lowest price.

Lowest Pricing Does Not Win

Having the lowest price is not a strong position for small business. Larger competitors with deep pockets and the ability to have lower operating costs will destroy any small business trying to compete on price alone. Avoiding the low price strategy starts with looking at the demand in the market by examining three factors:

1. Competitive Analysis: Don’t just look at your competitor’s pricing. Look at the whole package they offer. Are they serving price-conscious consumers or the affluent group? What are the value-added services if any?

2. Ceiling Price: The ceiling price is the highest price the market will bear. Survey experts and customers to determine pricing limits. The highest price in the market may not be the ceiling price.

3. Price Elasticity: If the demand for your product or service is less elastic, you can then have a higher ceiling on prices. Low elastic demand depends on limited competitors, buyer’s perception of quality, and consumers not habituated to looking for the lowest price in your industry.

Once you understand the demand structure in your industry, review your costs and profit goals as set in your business plan or financials. The low price strategy is best avoided by small business but there are conditions such as a price war that can drag a company into the lowest price battle.

Avoiding a Price War

A price war can wreck havoc in any industry and leave many businesses, out of business. In the early 90’s, I observed the competitive exercise equipment market enter a price war in a large city market. Profits were plentiful but a price war took the gross margins from 42% to 12%. In less than 18 months, over 60% of the retailers were out of business while my division went national. Take these tips to evade a deadly price war:

Enhance Exclusivity: Products or services that are exclusive to your business provide protection from falling prices.

Drop High Maintenance Goods: There may be products or services in your business that have high customer service and maintenance costs. Drop the unprofitable lines and find out what customers don’t want.

Value-added: Find value your business can add to stand out in the marketplace. Be the most unique business in the category.

Branding: Develop your brand name in the market. Brand name businesses can always stand strong in a price war. Leave the price-cutting and price wars to big business. Small businesses with solid pricing strategies can escape a price war and low price position. Carefully, consider your price decisions. Your business depends on it.

New Product Marketing: Need Help In Marketing A New Product? Publicity Can Be A Profitable New Product Marketing Strategy

Publicity is the most cost effective way to launch your company’s latest new product regardless of whether you plan to market your new product on a local, national or international scale.

With publicity, you can introduce a new product to thousands, even millions of people literally overnight and gain valuable new product marketing research in the process.

IMA defines publicity as mass communication with potential customers through the media. Publicity is the process by which your company’s new product marketing “sales pitch” is transformed into an editorial format or news.

Editorial coverage of new product marketing launches can take many forms, but the most profitable type usually occurs in print media such as newspapers and magazines.

Print publicity has a “shelf life,” - the printed word can reach and convert readers into buyers for weeks, months, and even years after publication. Conversely, two minutes of radio or television editorial coverage - once it has aired - disappears forever with its power to reach and convert the listening or viewing audience into buyers.

Print media can also be targeted to “vertical markets” or homogeneous audiences, which is a requisite for a new product marketing campaign to produce profitable results. Radio and television traditionally reach a “horizontal” consumer audience with broad unrelated interests which decreases the strength of your message and its probability for success.

Publicity and advertising are often confused with each other. You have to pay hefty prices for advertising space; whereas, the space publicity appears in is free. Publicity is perceived more favorably than advertising because the availability of advertising space is virtually unlimited and thus worth less - anybody can buy an ad and market their new product.

Publicity, on the other hand, always occupies an independent third party’s - the media - limited space for newsworthy topics. The catch? Getting publicity requires knowing how to convince the press your new product marketing launch is actually newsworthy.

Although publicity is free, there are much less quantities of it available. Publicity’s scarcity makes it considerably more valuable than advertising.

The result? An inch of publicity is worth a foot of paid advertising.

In advanced cases, publicity can be used to win public opinion and major economic victory for your company. At a minimum it can generate new interest in your company and sales of your new product.

IMA has generated over one thousand local, national and international placements -news stories - for our clients new product marketing campaigns over the last decade - reaching tens of millions of people and producing millions of dollars in sales.

Make publicity an integral part of your new product marketing processes and you too can generate buyers for your new product overnight.

Promotion- push and pull strategies

“Push or Pull”?

Marketing theory distinguishes between two main kinds of promotional strategy - “push” and “pull”.

Push

A “push” promotional strategy makes use of a company’s sales force and trade promotion activities to create consumer demand for a product.

The producer promotes the product to wholesalers, the wholesalers promote it to retailers, and the retailers promote it to consumers.

A good example of “push” selling is mobile phones, where the major handset manufacturers such as Nokia promote their products via retailers such as Carphone Warehouse. Personal selling and trade promotions are often the most effective promotional tools for companies such as Nokia - for example offering subsidies on the handsets to encourage retailers to sell higher volumes.

A “push” strategy tries to sell directly to the consumer, bypassing other distribution channels (e.g. selling insurance or holidays directly). With this type of strategy, consumer promotions and advertising are the most likely promotional tools.

Pull

A “pull” selling strategy is one that requires high spending on advertising and consumer promotion to build up consumer demand for a product.

If the strategy is successful, consumers will ask their retailers for the product, the retailers will ask the wholesalers, and the wholesalers will ask the producers.

A good example of a pull is the heavy advertising and promotion of children’s’ toys – mainly on television. Consider the recent BBC promotional campaign for its new pre-school programme – the Fimbles. Aimed at two to four-year-olds, 130 episodes of Fimbles have been made and are featured everyday on digital children’s channel CBeebies and BBC2.

As part of the promotional campaign, the BBC has agreed a deal with toy maker Fisher-Price to market products based on the show, which it hopes will emulate the popularity of the Tweenies. Under the terms of the deal, Fisher-Price will develop, manufacture and distribute a range of Fimbles products including soft, plastic and electronic learning toys for the UK and Ireland.

In 2001, BBC Worldwide (the commercial division of the BBC) achieved sales of £90m from its children’s brands and properties last year. The demand created from broadcasting of the Fimbles and a major advertising campaign is likely to “pull” demand from children and encourage retailers to stock Fimbles toys in the stores for Christmas 2002.

Setting and Negotiating Prices and Fees

Setting and negotiating prices and fees is an integral part of authentic promotion. This is true in part because of the stewardship relationship you have with your business. In addition, naming your price with confidence is part and parcel of embodying your offer.

Doing the right work for the right client at the right price requires a bit of homework. Let’s start with setting fees and prices. (Artists: this section is tailored to the needs of consulting and service professionals. While the principles pertain to you, the nuts and bolts of pricing creative work are not covered in detail. For an excellent discussion of pricing artwork, see Caroll Michels’ book How to survive and prosper as an artist.)

Setting prices and fees is a function of several variables:

• Your desired income and the costs of earning it
• The amount of time available for you to earn that income
• The value (perceived and actual) that a client places on your services
• What the market will bear
• What your competition charges

Setting Prices / Fees and Hidden Costs of Stewardship

Calculating fees based on what you want to earn and what it costs you to earn it is relatively simple. However, if you are accustomed to earning a paycheck, there are some refinements to this simple notion that may have escaped your notice.

Many businesses are vulnerable to changes in the marketplace. Depending on your profession, it is wise to plan for times when work is scarce. By building reserves for these times, you can use them not only to support yourself when work is scarce, but also to enjoy a long-desired vacation or to take advanced training. If you are in a vulnerable industry, you will need to earn enough to eventually save one to two years’ living expenses.

This lesson was vividly demonstrated to thousands of dot-commers during the recent boom and bust. Contractors (and employees) earned unprecedented incomes and quickly evolved spending habits to match. When the bust came, many were caught in a double bind: loss of income on one hand and high living expenses on the other.

If you are just starting out, make a plan to save part of your income until you have built up this cushion. Be open to supplementing your income from other sources until your business can support you and allow you to save at least 10% of your income. Don’t let the thrill of collecting a high hourly billing rate seduce you into living an expensive lifestyle that prevents you from building reserves.

“Deep Marketing” Engages Customers

By Denis Pombriant, Beagle Research Group, LLC
Customer centricity, the voice of the customer and the customer experience are all ideas swirling around CRM today, and they have in common a need to find ways to more actively incorporate the customer into many customer-facing business processes. Social networking—or techniques associated with it, at least—has often been suggested as a means of achieving the goal of greater customer involvement. Several challenges arise whenever this topic comes up, though.

One of the most obvious questions on many lips is why? After all, if you ask 50 people the same question about a company and its products you are likely to get 50 different answers. Then what? Also, social networking, rightly or wrongly, has been tagged as a less than serious technology in some circles because its uses span everything from dating clubs to simple networks of business contacts. In other words, social networking is largely used to contact almost total strangers by people who want something.

Nevertheless, our research shows that a variant of social networking can be used effectively in business to help drive innovation, and we have suggested that, if used properly, it can represent an additional business process to add to the marketing arsenal. The social networking technique I refer to is simply called a “community” or a “community of interest,” and I have called the business process “Deep Marketing” to distinguish it from the everyday “Short Marketing” cycle that we have grown accustomed to for lead generation and sales.

‘I have seen an active community of men, 18 to 24 years old (a hard demographic to capture), who volunteer a great deal of information to the consumer products company, Unilever.’

Deep marketing has its intellectual roots in the books of several business gurus such as Glen Urban, author of Don’t Just Relate—Advocate (Wharton School Publishing May 2005); Eric von Hippel, in Democratizing Information (The MIT Press, April 2005); and Fred Reichheld, in The Ultimate Question (Harvard Business School Press, March 2006). These and other authors have, in one way or another, shown that customers want to volunteer ideas to their vendors to help drive better products and services: what some have called cocreation of value.

Simply put, Deep Marketing engages with customers to gather their insights and opinions, which, in turn, drive actionable knowledge. Because it operates online, Deep Marketing can be pursued much more rapidly and at significantly lower costs than traditional surveys and focus groups.

Figure 1 outlines the basic Deep Marketing process and shows its relation to traditional sales and marketing. Note how the information output of Deep Marketing influences both product development and marketing with the data that customers freely divulge.

If you think about it, customers have a vested interest in seeing their vendors succeed, and smart vendors are beginning to leverage this reality to guide innovation not only for products and services but also for marketing messages.

The best example I have seen of how Deep Marketing works is in the customer community of interest. Companies hand-select the community members from invited individuals who represent desirable demographics that companies want to target. Members agree to visit a web site for a specified amount of time each week to interact with other members and to answer questionnaires or render opinions about relevant topics.

For example, consumer products companies might ask life-style questions along with questions about products. The same might be true of a financial services company; though, as you might expect, the questions would be tailored to the circumstances.

Figure 1. The Deep Marketing Cycle in context (Source: Beagle Research Group, LLC)

I have seen an active community of men, 18 to 24 years old (a hard demographic to capture), who volunteer a great deal of information to the consumer products company, Unilever. This community provided insights into what the well-groomed young man thinks and does in his social life, insights that Unilever used to fine-tune its product—Axe Body Spray—and its marketing messages. Unilever credits its community’s input for helping to propel Axe to leadership status in its market, and the company won a 2005 Explor award from the American Marketing Association for its innovative use of technology.

Other industries
Communities, and Deep Marketing, are not simply for CPG companies, either. Charles Schwab, the financial services colossus based in San Francisco, also relies on customer communities and deep marketing to capture customer insights. Recent Schwab communities have included a group of customers who are active stock traders with a minimum amount of cash invested and another group composed of high-net-worth individuals with a threshold amount invested with Schwab.

Schwab customer community participation is quite good—a finding that might surprise conventional marketers, given the relative inaccessibility of these groups to traditional marketing approaches. But because Schwab appears to these customers to be actively listening to their input, and then tangibly making use of it, these people make the effort to contribute.

Not long ago, Charles Schwab, himself, wanted up-to-date information about his clients’ investing strategies and views of the market in preparation for a press tour. Schwab worked with the community administrators to craft a questionnaire, and, according to Schwab Vice President Jonathan Craig, “clients were literally writing essays to him about what they liked and what needed improvement.”

You might expect that kind of response for the boss, but it demonstrates the power of the community and the kind of response community hosts have come to expect when dealing in this realm.

Other companies as diverse as General Motors and Nabisco have used customer communities with similar results. These companies have demonstrated that deep marketing can generate high and enthusiastic customer participation and a wealth of information that drives product and service innovation as well as helping to fine-tune marketing messages. Deep Marketing is not a panacea, and it will not cure all marketing ills, but it is an important addition to the marketing quiver at a time when many of marketing’s arrows have gone dull.

---

Denis Pombriant is a well-known thought leader in CRM and the founder and managing principal of the Beagle Research Group, LLC, a CRM market research firm and consultancy.

MARKETING MIX

What is the marketing mix?

The marketing mix is probably the most famous marketing term. Its elements are the basic, tactical components of a marketing plan. Also known as the Four P’s, the marketing mix elements are price, place, product and promotion Read on for more details on the marketing mix . The offer you make to you customer can be altered by varying the mix elements. So for a high profile brand, increase the focus on promotion and desensitize the weight given to price. Another way to think about the marketing mix is to use the image of an artist’s palette. The marketer mixes the prime colours (mix elements) in different quantities to deliver a particular final colour. Every hand painted picture is original in some way, as is every marketing mix.

Price

There are many ways to price a product. Let’s have a look at some of them and try to understand the best policy/strategy in various situations

Place

Another element of Neil H.Borden’s Marketing Mix is Place. Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer.

Product

For many a product is simply the tangible, phsysical entity that they may be buying or selling. You buy a new car and that’s the product - simple! Or maybe not. When you buy a car, is the product more complex than you first thought?

Promotion

Another one of the 4P’s is promotion. This includes all of the tools available to the marketer for ‘marketing communication’. As with Neil H.Borden’s marketing mix, marketing communications has its own ‘promotions mix.’ Think of it like a cake mix, the basic ingredients are always the same. However if you vary the amounts of one of the ingredients, the final outcome is different.

WHAT IS MARKETING ?

Most people think that marketing is only about the advertising and/or personal selling of goods and services. Advertising and selling, however, are just two of the many marketing activities.

In general, marketing activities are all those associated with identifying the particular wants and needs of a target market of customers, and then going about satisfying those customers better than the competitors. This involves doing market research on customers, analyzing their needs, and then making strategic decisions about product design, pricing, promotion and distribution.

In other words, the five categories listed on the MOTI home page represent the broad scope of marketing.

This view is consistent with the following definition of marketing found in a popular marketing textbook:

“Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, services, organizations, and events to create and maintain relationships that will satisfy individual and organizational objectives.”

-Contemporary Marketing Wired (1998) by Boone and Kurtz. Dryden Press.