4-2 identifying the target market

CHAPTER 4

VOLUME AND VOLUME STRATEGIES

LEARNING OBJECTIVES

After reading this chapter, students should be able to:

Understand how volume fits into the business process. Explain the three-step process of achieving volume. Identify at least five tools of volume. Discuss the importance of credit in the sale of big-ticket items. Explain the multiplier effect of volume.

CHAPTER OUTLINE AND LECTURE

4-1 INTRODUCTION

The total revenue generated by a venture is a function of a simple equation:

Revenue = Price × Volume

Volume is a difficult aspect of business for many entrepreneurs to master because it involves both logic and creativity.

o The logic of volume refers to the need to conduct market research to understand the consumer needs that drive demand for the venture’s products and services.

o Entrepreneurs who neglect to perform the necessary market research may spend a lot of time and money testing one business concept after another but never really serve market needs.

The creativity aspect of volume generation is often referred to as marketing.

o In standard marketing classes, students are taught the so-called Four Ps: product, price, placement, and promotion.

Four Ps cover all considerations that a business must address when it attempts to market a product.

Chapter 4: Volume and Volume Strategies 4-2

The Four Ps are important to entrepreneurs as well, but the challenges involved in bringing a new product or service to market require a more expanded set of considerations.

o Creative volume strategy is required in the early days of a venture to make sure that the venture’s precious resources are well spent and that sales volume, in short order, takes on a life of its own.

Entrepreneurs have a multitude of tools to generate sales volume.

o The most used tool is price.

To the entrepreneur, price often seems to be the most obvious of the volume tools, but using price to adjust volume exposes the venture to the risk of underpricing or competitive retaliation.

o Tools to generate sales volume are studied and tested by nearly every entrepreneur, because every entrepreneur is motivated to increase revenues.

It is the process by which tools are applied that determines the revenue achievements of the venture.

Three primary steps are involved in driving volume to achieve revenue goals:

1. Identify the venture’s target market.2. Communicate with the target market. 3. Persuade the target market to do business with the company rather than a

competitor or substitute.

4-2 IDENTIFYING THE TARGET MARKET

The difference between the market and a venture’s target market is profound.

Target market, consists of the subset of potential customers who can be made aware of the venture’s products and services and who can be persuaded to purchase those offerings.

o The target market is defined as some fraction or portion of the overall market. o Defining the target market is a logical process that starts with an understanding of who

the customers are and what drives their desire to buy a product or service.

o The better the venture understands its customers, the more likely it is to tailor its products and services to meet their needs.

o In addition to understanding the customer, the venture must also understand its own product or service offerings.


o Too often the founding team for a new venture has only a general understanding or even a misunderstanding of its own products and services. The first step in determining the venture’s target market is to segment the overall

market. In this process, the entrepreneur identifies various subsets of the overall

market and then determines which of these subsets is going to provide the greatest opportunity for the venture’s products and services.

The venture’s market can be segmented using a variety of criteria. One of these is demographics.

o Demographics refers to the characteristics of the target market, usually defined in terms of noncontroversial categories such as: age, gender, ethnic background, household income, and number of children.

Entrepreneurs can use the data generated by these sources to segment their market and to adjust their product or service offering to match the needs of the target market.

Understanding the power of demographics on the potential success of a venture can prevent costly mistakes.

In addition, obtaining reliable demographic data on the target market can be critical to effectively managing sales volume.

Another strategy that is often used in segmenting markets is to determine the relative size of the various segments.

o Market size is a function both of its actual size and of its potential size based on the constraints facing the entrepreneur.

Other criteria that entrepreneurs use to segment markets and identify a target market are geographic location of the market and psychographic profile of the market.

o Geographic location, concerns where the customers are physically located. A market’s psychographic profile refers to the activities, interests, opinions, attitudes, and values of the people that constitute a market segment.

o Understanding these characteristics of a market segment is an important part of developing a volume strategy, whether or not the target market is chosen for psychographic reasons.

Based on this segmenting process, the entrepreneur can determine which segment should be the target market.

o In addition, the process of segmentation provides details about important target market characteristics.


o With this information, the entrepreneur can determine the most effective way to bring the products and services to market and the most effective means for positioning the products and services in the context of any competitors that may already be pursuing the same segment.

4-3 COMMUNICATING WITH THE TARGET MARKET

Once the target market has been identified, the next step in the volume process is to choose the method of communicating with that market segment.

Entrepreneurs can use many techniques to communicate with potential customers. Most of these techniques are well known and widely used, including:

o Direct salespeople, employees, television advertising, radio advertising, print publications, telemarketing, the Internet, direct mail, marketing collateral, billboards, location, signage strategic alliances, trade shows, promotions, credit.

Most entrepreneurs elect to use a variety of volume tools to maximize exposure to potential customers.

o The variety of tools selected to communicate with customers is referred to as the marketing mix.

o Volume strategy involves the careful selection of marketing tools to ensure maximum exposure of the venture’s message to the target market.

o Of course, a major constraint on the new venture’s marketing mix, like limits on its market size, will be the scarcity of resources, mainly, money.

o The new venture’s limited funds make it imperative that its investments in communication volume tools be focused and effective.

o The entrepreneur cannot afford to waste money on experiments, and should certainly avoid volume tools that have not been proven to be effective.

o Today, many of the firms that invested in that volume strategy are no longer around.

As a rule of thumb, entrepreneurs should not invest in a communication strategy unless they can be reasonably sure that the strategy will generate more money than it cost.

4-3a Direct Salespeople

Direct salespeople are probably the most effective of the volume tools, but they are also the most expensive.

Direct salespeople are effective because they have personal contact with customers, so they can build relationships with customers and sell themselves as well as the venture’s products and services.


o By building trust with customers, salespeople can know when customers are dissatisfied with the product or service.

o A good salesperson strives to maintain regular contact with customers and to correct any breakdown in customer satisfaction.

o Direct salespeople are expensive because of their salary, benefits, and other cost items such as travel and entertainment.

o Most new ventures find that the use of a direct sales force is not feasible from a cost perspective unless the venture’s offering is a big-ticket item or unless the initial sale generates a large repeat purchase series.

4-3b Employees

One often-neglected yet very effective volume tool is the employees of the venture—especially those on the front line who have customer-facing jobs.

Customer-facing jobs are those that provide direct contact with customers. It’s important for the entrepreneur to recognize that employees in these roles often represent the venture’s only direct contact with customers.

Customer-facing employees are the venture’s ambassadors. It is wise for entrepreneurs to make sure that the people in these key roles are well versed in the company’s products and are motivated to treat customer’s right.

Employees who believe in the firm’s products and services will convey that attitude to the customer.

4-3c Television Advertising

Television advertising is another effective volume tool for many new ventures because it combines visual impressions with audio to focus the attention of the viewer on the important aspects of the product or service.

Television is also able to use written text with impact by sizing, positioning, and color.

o Most television stations are local and broadcast over a limited geographic area.

Ventures that have defined their target market using geography can take advantage of television’s limited reach.

o Targeting ensures that television ad buyers spend money only on ads that will reach their target markets.

For ventures that don’t have a target market defined by geography, a mass-market approach may be effective.


o The rates for advertising on television vary according to the number of viewers and the popularity of the station in comparison with competing stations in the area and its affiliation with nationwide networks

In general, advertising on cable-only channels will be less expensive than advertising on programming offered by local broadcast stations.

Cost of advertising on television varies as well during the time of day or night the commercial is aired.

Prime time of day or evening will result in the highest advertising charges.

Venture must look carefully at its target market, its offerings, and the likelihood that a series of ads will be cost-effective.

o Company must investigate the particular audience of the television station being considered and the target audience it is attempting to sell before it decides to employ this tool of volume.

4-3d Radio Advertising

Radio advertising has many of the same characteristics of television advertising but is generally less expensive than television, although consolidation in ownership of television and radio broadcasting has resulted in higher radio rates in recent years.

Because the cost of radio advertising is less than television advertising, it is possible for a venture to use a saturation technique when introducing a new product or service to the marketplace.

This technique uses repetition of the radio ad, perhaps on multiple stations, as a means of obtaining the potential customer’s attention.

Radio advertising is sold in much the same way that television ads are sold. Most stations have sales representatives who provide the entrepreneur with a rate sheet.

o The rate sheet outlines the charges for ads of varying lengths and for varying times of day or for the different radio shows that air on the station.

Entrepreneurs who launch nonprofit ventures are able to save money on advertising by using a public service announcement (PSA).

o PSAs can be used to announce nonprofit services or fund-raising events. Most stations will run PSAs at no charge.

o Most stations will also only run PSAs during nonprime hours and usually not during the most popular radio shows.

As a business in its own right, the radio station will attempt to sell all the ad space during its peak times, when its prices are highest and margins are greatest.


4-3e Print Publications

Newspapers and magazines present entrepreneurs with a more targeted volume tool than radio or television advertising. Publishers of print media study their readership carefully and make the data available to advertisers.

Entrepreneurs who have done their demographic homework find a straightforward choice of which print publication will be most effective.

o Based on the data provided by the publisher, entrepreneurs can match their demographics with the market profile of the print publication.

o National newspapers generally set aside a proportion of ad space for local distribution only.

o This technique enables them to reduce the costs for local distribution while still providing lower-budget ventures with the prestige of advertising next to nationally known brands.

Research indicates that for situations in which responses are required, the best advertisements are those that offer an impressive, relevant benefit to the reader.

o This “promise” should contain the business brand name, should take no longer to read than is normal for the media, and should be clearly the most striking part of the advertisement.

o Younger generations are extremely visually literate.

On the low end of the print advertising spectrum is classified advertising.

o Classified advertising is inexpensive and can be effective for many products and services. The effectiveness of other types of advertisements in newspapers depends on the size, frequency, and location of the ad within the publication.

Magazines are usually national in distribution, but many regional magazines have been established in recent years.

Some publications are distributed for free at local businesses. Entrepreneurs have many choices in print publications and must be careful to monitor the

return on each investment.

o Other less expensive print media can also be effective volume tools. Neighborhood newspapers are most effective when the venture’s target market is localized and its product or service is appealing to the readers. Trade magazines have the advantage of being targeted to the special interests of the group to which they are distributed.


o Each of these publications circulates within a narrow interest group. If that interest group constitutes the venture’s target market—or at least a subset of the target market—advertisements in trade publications can be cost-effective.

Most professionals who read trade publications do so to find solutions to problems inherent to their profession and industry.

If the venture provides a solution to one of those problems, it has a high likelihood of being noticed and of motivating action.

4-3f Telemarketing

Telemarketing is one way that businesses can advertise their products and offer their services.

Businesses often use professional telemarketers or call centers to make telephone calls and send faxes to potential customers on their behalf.

o Call centers are businesses that specialize in making or receiving calls on behalf of other companies.

o Increasingly, companies use foreign-based call centers to manage their telemarketing and help desk functions in a business relationship known as outsourcing.

o Today, many firms use inexpensive foreign call center firms to manage their inbound and outbound customer calls.

Telemarketing and telemarketers have received criticism in recent years.

o The number of calls being received at the home of consumers caused a highly negative reaction to this form of selling.

o As a result, the government has passed regulations that severely restrict this form of marketing.

o Millions of consumers registered through the national Do Not Call Registry, which became effective in October 2003.

Telemarketing is still a very useful tool in business-to-business relationships, where the restrictions do not apply.

o It also continues to be effective in situations in which the company and the customer have an existing relationship.

4-3g The Internet

The Internet as a tool of volume is still developing.

Most effective for new ventures that offer a product or service that does not require personal inspection or handling prior to purchase.


o The steps to creating an effective presence on the Internet are straightforward and similar to those for traditional advertising.

o Entrepreneurs must understand how the market evaluates and purchases a venture’s products to create the most effective Web presence.

o One of the biggest differences between Internet marketing and traditional marketing is the time and space considerations.

o The entrepreneur also has more time to communicate a message through a website than, say, via a radio or television ad.

o Users of a firm’s website should be able to find the information they need without having to spend a lot of time searching.

o An excellent way to take advantage of the space available on a website is by providing materials that educate as well as sell.

The best way for a business to encourage repeat visits to its website is by establishing contact with the people who do visit the site.

o To do that, a business needs to gather personal information from site visitors. One effective way to collect personal information is to offer educational and interesting content via an e-zine.

An e-zine is an online magazine, usually delivered to customers and potential customers via e-mail.

An e-zine differs from spam. Spam is the term used to describe unwanted e-mail solicitations.

E-zines use a technique known as opt-in marketing.

o Opt-in means that recipients can decide to subscribe to the e-zine or they can elect to unsubscribe.

Entrepreneurs should be careful to include the unsubscribe feature in their e-zines to avoid alienating customers who dislike receiving spam.

After a business makes contact with people, the next step is to build a relationship with them. Personal contact is wonderful but limited and time consuming.

Through an e-zine, a venture can establish repeat contact with individuals and continue to build a relationship with them. Repetition is in the heart of marketing.

People often need to hear about a product or service many times before they will look into it. An e-zine provides that repeat contact. When done right, a business can continually present its offerings to its e-zine readers without being overbearing.


Finally, to build their brand and inform customers of their offerings, many companies use banner ads on websites other than their own company website.

o Banner ad rates soared during the height of the dot-com revolution but have since come back down. Research into the effectiveness of banner ads is still inconclusive,

o Despite the lingering uncertainty of the effectiveness of banner ads, entrepreneurs can take advantage of the distribution power of the Web to build their brand and inform potential customers about their offerings.

o Banner ads are effective if they are repeated and if they are associated with high-quality brands and content by where they appear on the Web.

4-3h Direct Mail

Direct mail is an especially effective tool if it can be targeted to a reasonably specific target market.

It has become a much more expensive method because both postal charges and printing costs have increased.

The largest drawback for this approach to volume is that the large number of users has made the customer more insensitive to receipt of the communication.

4-3i Marketing Collateral

The term marketing collateral refers to a company’s communications material that can be physically distributed and left behind. Marketing collateral includes such items as brochures, handbills, and business cards.

o Handbills are a very cost-effective substitute for direct mail when the target market is local.

o Handbills are usually delivered door to door, placed on vehicles in shopping centers, or handed out to pedestrians or shoppers.

4-3j Billboards

Billboards are an effective tool of volume if they are located in a high-volume traffic route.

The great strength of billboard advertising is the constant repetition to the potential customers who drive past the billboard regularly.

The limitation on the use of billboards is the commitment of resources.

o Billboard contracts usually span several months and several locations.


o The better locations are usually assigned to the largest users. It is frequently necessary for a new venture to accept some marginal locations in order to have access to prime locations later.

Entrepreneurs who have a geographically defined target market can use billboards to great effect.

4-3k Location

The real estate broker’s mantra is that property value is based on three things: location, location, location. This old axiom is true for many businesses, especially those that require the customer to physically visit the location in order to buy the product or service.

One important thing for new business owners to remember is that when a customer must visit the business location in order to make a purchase, the customer must feel comfortable.

o Retailers go to great lengths to present merchandise in a manner that makes shopping easy and intuitive for customers.

Location can impact customer behavior.

o Entrepreneurs can reduce the impact of location by enabling customers to order without having to visit the business.

o The Internet has been the solution for many companies seeking to reach customers who are unable to or simply don’t want to visit the company’s physical location.

The wise entrepreneur presents customers with multiple ways to interact with the company and to purchase its products and services.

4-3l Signage

Signage at the business location is vital when the location of a business is important to the business’s success.

The size, color, and design of the company’s signs communicate a first impression of the business and its product.

Point-of-sale (POS) displays are used by businesses whose products are sold through retail outlets.

o No matter the size of the retail outlet, if the product is to compete with other products like it, shelf space and POS displays are vital.

o The POS display must attract the attention of the shopper, and it must explain the product and its benefits.


4-3m Strategic Alliances

Strategic alliances are another tool of volume.

The strategic alliance occurs between two companies whose products do not compete but whose customers are the same.

o If one of the companies already has direct salespeople calling on the common customers, that company can add the other company’s product to their sales calls without compromising their own company’s sales and with the possibility of increasing the potential sales amount in each sales call.

o The company that does not pay for the salespeople pays a commission to the company providing the personnel.

4-3n Trade Shows

Trade shows are an excellent volume tool for new products because the audience is targeted to the specific type of product or service.

The trade show is an expensive tool, but because of its audience characteristics, it is effective for building volume in a new company.

Trade shows provide an outstanding communication vehicle because they allow direct salespeople to talk one on one with interested potential customers and because they allow a large number of direct sales presentations in a single day.

Trade shows are particularly effective for an entrepreneur who is introducing new products or establishing new dealership or distributorships.

4-3o Promotions

Promotions, when they are creative, can be most effective and can have the highest payoff of any volume tool.

A promotion is an event that attracts potential customers because of its uniqueness. Promotions can involve giving free items or providing entertainment. When the promotion is clever enough, the event will be covered by the news media.

o Not only is this media coverage free, but because it is covered as news, it is accepted by the observers as more genuine than a paid advertisement covering the same product or service.

4-3p Credit


Credit is also a potent volume tool. Credit allows consumers to purchase many products that would otherwise not be available to them.

Credit has allowed the United States to become a consumer-driven economy. The advent of credit cards has given companies the opportunity to expand the volume of their small-ticket items.

Credit cards have become so widespread that only persons with very bad credit ratings do not have access to them.

The new venture uses volume tools to communicate with its target market.

4-4 PERSUADING THE TARGET MARKET

Persuading the target market to respond to the venture’s communication is the third step in the volume process.

If steps 1 and 2, targeting the market and communicating with the market, are done properly, the success of this step will be a matter of degree.

It is rare that step 3 is a total success or a total failure. To be effective, the persuasive message must be responsive to the characteristics of the

customers in the target market.

o Persuasive messages should help differentiate the entrepreneurial venture from existing competitors and at the same time accurately communicate the offering.

o Entrepreneurs engaging in this creative process may take several iterations to refine the persuasive message.

o If expected results are not being achieved, the reason may be that the message is not motivating potential customers as anticipated.

o In such cases, it may be wise for the entrepreneur to alter the message slightly and gauge the effects of the new approach.

o The goal is find the message that produces the best results.o Marketers have very few choices about how to differentiate their offering from those of

competitors. o Research into product differentiation has defined three strategies for differentiating a

product:

1. With the cost/price leadership strategy,2. Under the quality leadership strategy, 3. Through the niche strategy.

Each strategy has advantages and disadvantages.

o Claiming to be the price leader will win immediate interest from the market but requires that the venture keep its operating costs low so that it can make a profit.


o Quality leadership (often referred to as the differentiation strategy) gives the venture pricing power, but it will have a limited market size and will compete within that limited market with other upscale brands.

Niche marketing (also referred to as the focus strategy) can be effective but could limit the venture when it wants to grow beyond the defined niche.

o Many entrepreneurs hire marketing consultants, advertising agencies, or public relations firms to assist in the development of a persuasive message.

o One benefit of using a vendor to help craft the persuasive message is that the entrepreneur will also begin to understand his or her business better.

o The marketing vendor has been trained to ask penetrating questions that force the entrepreneur to think differently and in a more focused manner about the true value proposition of the venture’s offerings.

The value proposition comprises the features and benefits, in the context of price, that the customer can expect to obtain from the venture’s offerings.

o Marketing scholarship has identified three basic value propositions:

Operational excellence refers to the entrepreneur’s ability to provide products or services that are produced more efficiently and that offer time or cost savings to customers.

Product leadership means that the entrepreneur is offering the best quality product or service.

Through customer intimacy, the venture is touting its ability to serve customers.

1. A firm chooses customer intimacy as its primary value proposition; it will still operate efficiently and provide quality products and services.

2. However, its level of customer service and the depth of its relationship with the customer will lead the industry.

o The persuasive message should appeal to as many human senses as possible. A good persuasive message invokes a sense of urgency, persuading the customer to take action to gain the benefits of the venture’s offerings.

o The customer must also receive enough information to make a decision about the offering.

o To that end, the persuasive message must include information about how to obtain the product or service.

o For a persuasive message to be effective, the ordering instructions should be simple and clear.


o Finally, it’s important that the message be repeated. An axiom of the advertising business is that any message that is not repeated at least three times is wasted.


KEY TERMS

4 Ps: product, price, promotion, and placement: The four considerations that a business must address when attempting to market a product.

Banner ads: Internet ads that appear on select websites and that are normally hyperlinked to the advertiser’s home page.

Call center: Businesses that specialize in making or receiving calls on behalf of other companies.

Classified advertising: Advertising in restricted sections of newspapers, magazines, and other wide-circulation periodicals.

Cost/price leadership strategy: Product-differentiating strategy in which the venture claims to be the low-price leader in the target market for particular products and services.

Customer-facing jobs: Jobs in which employees have direct contact with customers.

Demographics: The characteristics of the target market, usually defined in terms of noncontroversial categories such as age, gender, ethnic background, household income, and number of children.

Differentiate: In this text, to make one’s product or service stand out from those of existing competitors and at the same time accurately communicate the offering.

Do Not Call Registry: A government-operated registry at which individuals can sign up to prevent telemarketers from calling them.

E-zine: An online magazine, usually delivered to customers and potential customers via e-mail.

Geographic location: Where the customers are physically located.

Marketing: The creativity aspect of volume generation.

Marketing collateral: The material that a company develops to communicate with the target market; usually consists of such items as brochures, handbills, and business cards that can be physically distributed and left behind.

Marketing mix: The variety of tools selected to communicate with customers.

Niche strategy: Product-differentiating strategy in which a venture identifies a niche market such as a particular ethnic group and claims that its offerings uniquely meet that market’s needs.


Opt-in marketing: Marketing technique, used in e-zines, in which recipients can decide whether or not to subscribe.

Outsourcing: The practice of using another firm to perform internal business functions such as telemarketing.

Psychographic profile: The activities, interests, opinions, attitudes, and values of the people who comprise a market segment.

Public service announcement: Free radio and television announcements of nonprofit services or fund-raising events.

Quality leadership strategy: Product-differentiating strategy in which the venture makes no claims about price but rather caters to a market that prefers upscale, luxury, or prestigious offerings and brands.

Rate sheet: An outline of a radio station’s charges for ads of varying lengths and for varying times of day or for the different shows that air on the station.

Segment: The process of identifying various subsets of the venture’s overall market and then determining which of these subsets is going to provide the greatest opportunity for the venture’s products and services.

Spam: Unwanted e-mail solicitations.

Target market: The subset of potential customers that can be made aware of the venture’s products and services and that can be persuaded to purchase those offerings.

Telemarketers: People who make phone calls on behalf of a company to generate a sales lead or to close a sale.

Value proposition: The features and benefits—in the context of price—that the customer can expect to obtain from the venture’s offerings.

Volume: The need to conduct market research and understand consumer needs that drive demand


PRACTICE QUIZ

1. Revenue = Price × Volume. Answer: True Reference: 4-1

2. The creativity aspect of volume generation is referred to as innovation. Answer: False Rationale: The creativity aspect of volume generation is called marketing.Reference: 4-1

3. The 4 Ps in marketing are product, price, placement, and promotion. Answer: TrueReference: 4-1

4. One of the criteria used for segmenting a venture’s market is demographics. Answer: TrueReference: 4-2

5. Once the target market has been identified, the next step in the volume process is to choose the design of the product. Answer: False Rationale: Once the target market has been identified, the next step in the volume process is choosing the method of communicating with that market segment.Reference: 4-3

6. Advertising on cable-only channels will be more expensive than advertising on programming offered by local broadcast stations. Answer: False Rationale: In general, advertising on cable-only channels will be less expensive than advertising on programming offered by local broadcast stations.Reference: 4-3c

7. The saturation technique uses repetition of the radio ad as a means of getting potential customer attention. Answer: TrueReference: 4-3d

8. Nonprofit ventures save money by making public service announcements. Answer: TrueReference: 4-3d

9. E-zine is synonymous with spam. Answer: FalseRationale: An e-zine differs from spam in that an e-zine is an online magazine and spam is unwanted e-mail solicitations.Reference: 4-3g

10. The term marketing collateral refers to the material that a company develops to communicate with the target market and to be physically distributed to the target market. Answer: TrueReference: 4-3i


11. The first step in determining a venture’s target market is to look at the overall market and a. Segment it. b. Combine it. c. Determine it.d. Advertise it. Answer: A Rationale: The first step in determining a venture’s target market is to segment the overall market. Reference: 4-2

12. Which of the following terms refers to the activities, interests, opinions, attitudes, and values of the people who comprise a market segment?

a. Demographic profile b. Geographic profile c. Customer interests d. Psychographic profile Answer: D Rationale: A market’s psychographic profile refers to the activities, interests, opinions, attitudes, and values of the people who comprise a market segment.Reference: 4-2

13. The variety of tools that a venture selects to communicate with customers is called thea. Communication mix. b. Marketing mix. c. Integration mix. d. Advertising. Answer: BRationale: The variety of tools selected to communicate with customers is referred to as the marketing mix.Reference: 4-3

14. When target market segmentation by geography does not work, which of the following approaches is more likely to be effective? a. Consumer marketb. Demographic market c. Mass market d. Advertising Answer: CRationale: For ventures that don’t have a target market defined by geography, a mass-market approach may be effective.Reference: 4-3c


15. Research into product differentiation has defined three strategies for differentiating a product; which of the following is not one of them?a. Cost/price leadership strategyb. Quality leadership strategyc. Product value leadership strategyd. Niche strategyAnswer: CRationale: With the cost/price leadership strategy, the venture claims to be the low-price leader in the target market for particular products and services; with the quality leadership strategy, the venture makes no claims about price but rather caters to a market that prefers upscale, luxury, or prestigious offerings and brands; and with the niche strategy, the venture identifies a niche market such as a particular ethnic group and claims that its offerings uniquely meet that market’s needs.Reference: 4-4


QUESTIONS TO BE DISCUSSED

1. What are the three steps in driving volume to achieve revenue goals?

Answer: Three primary steps are involved in driving volume to achieve revenue goals:

Identify the venture’s target market. Communicate with the target market. Persuade the target market to do business with the company rather than a competitor or

substitute.

REF: 4-1

2. Describe the difference between a market and a target market?

Answer: The difference between the market and a venture’s target market is profound. The market for a product or service is every person in the world who would purchase the product or service if he or she could afford it. The target market, on the other hand, consists of the subset of potential customers who can be made aware of the venture’s products and services and who can be persuaded to purchase those offerings. The target market is defined as some fraction or portion of the overall market.

REF: 4-2

3. How can an entrepreneur segment a market? Explain how a retail entrepreneur might segment his or her market.

Answer: Based on this segmenting process, the entrepreneur can determine which segment should be the target market. In addition, the process of segmentation provides details about important target market characteristics. With this information, the entrepreneur can determine the most effective way to bring the products and services to market and the most effective means for positioning the products and services in the context of any competitors that may already be pursuing the same segment.

Retailers go to great lengths to present merchandise in a manner that makes shopping easy and intuitive for customers. If customers are confused or frustrated because they can’t park near the business or because they can’t easily find it on a map, they may use their frustration as an excuse not to purchase the venture’s products or services. Location can impact customer behavior.

Entrepreneurs can reduce the impact of location by enabling customers to order without having to visit the business. The Internet has been the solution for many companies seeking to reach customers who are unable to or simply don’t want to visit the company’s physical location. Everything from home electronics to automobiles can now be purchased online. The


entrepreneur should recognize that some portion of the venture’s target market will prefer to visit the location prior to any purchase, and other portions will be satisfied with an online purchase. The wise entrepreneur presents customers with multiple ways to interact with the company and to purchase its products and services.

REF: 4-2, 4-3k

4. Which method of communicating with the market is the most effective? Why?

Answer: Direct salespeople are probably the most effective of the volume tools, but they are also the most expensive. Direct salespeople are effective because they have personal contact with customers, so they can build relationships with customers and sell themselves as well as the venture’s products and services. By building trust with customers, salespeople can know when customers are dissatisfied with the product or service. A good salesperson strives to maintain regular contact with customers and to correct any breakdown in customer satisfaction.

Direct salespeople are expensive because of their salary, benefits, and other cost items such as travel and entertainment. These high costs, coupled with the limited number of sales calls that can be accomplished within a given period of time, make the cost per direct contact expensive. Most new ventures find that the use of a direct sales force is not feasible from a cost perspective unless the venture’s offering is a big-ticket item or unless the initial sale generates a large repeat purchase series.

REF: 4-3a

5. Explain what is meant by the term marketing mix. How does a venture determine the effectiveness of a communication method?

Answer: The variety of tools selected to communicate with customers is referred to as the marketing mix. Volume strategy involves the careful selection of marketing tools to ensure maximum exposure of the venture’s message to the target market. Marketers in companies large and small are getting more sophisticated in their efforts to ensure adequate return on their marketing investments. Of course, a major constraint on the new venture’s marketing mix, like limits on its market size, will be the scarcity of resources—mainly, money. The new venture’s limited funds make it imperative that its investments in communication volume tools be focused and effective. The entrepreneur cannot afford to waste money on experiments—and should certainly avoid volume tools that have not been proven to be effective.

REF: 4-3


6. In the organization, what level of employee is most likely to be involved in selling?

Answer: One often neglected yet very effective volume tool is the employees of the venture, especially those on the front line who have customer-facing jobs. Customer-facing jobs are those that provide direct contact with customers. Some customer-facing jobs include:

Check-out clerk Telephone order taker Bank teller Wal-Mart greeter Technical support Hair stylist

Note that the customer-facing jobs mentioned here are normally considered to be lower-level jobs within the venture.

REF: 4-3b

7. How can nonprofit organizations obtain free advertising on radio programs? What is meant by the term rate sheet?

Answer: Entrepreneurs who launch nonprofit ventures are able to save money on advertising by using a public service announcement (PSA). PSAs can be used to announce nonprofit services or fund-raising events. Most stations will run PSAs at no charge. However, most stations will also only run PSAs during nonprime hours and usually not during the most popular radio shows. As a business in its own right, the radio station will attempt to sell all the ad space during its peak times, when its prices are highest and margins are greatest.

An outline of a radio station’s charges for ads of varying lengths and for varying times of day or for the different shows that air on the station is known as the rate sheet.

REF: 4-3d

8. What is meant by the term classified advertising? What types of products or services might be advertised using this approach?

Answer: Advertising in restricted sections of newspapers, magazines, and other wide circulation periodicals is known as classified advertising.

Classified advertising is inexpensive and can be effective for many products and services. The effectiveness of other types of advertisements in newspapers depends on the size, frequency, and location of the ad within the publication.

REF: 4-3e


9. What is an e-zine? What is meant by the term opt-in marketing?

Answer: An online magazine, usually delivered to customers and potential customers via e-mail is e-zine. Marketing technique, used in e-zines, in which recipients can decide whether or not to subscribe, is opt-in marketing

REF: 4-3g

10. Explain what is meant by the term value proposition. What is the value proposition of McDonald’s? Of Disney? Of Wal-Mart?

Suggested approach: The value proposition comprises the features and benefits, in the context of price, that the customer can expect to obtain from the venture’s offerings.

The students should research and provide the value proposition of McDonald’s, Disney and Wal-Mart.

REF: 4-4


RUNNING CASE: COMMUTER COFFEE

“Report on Research into Price and Volume”

Introduction: Carlos called the meeting to order, and Dale immediately asked for the floor. Dale reported that, after a stumbling start, his survey of the drivers on Westheimer had been a great success. He said that he had learned a lot, not just about customer preferences but also about taking surveys in heavy traffic.

Questions for Discussion

1. Do you think the survey data collected by Dale is useful to help Commuter Coffee set price and estimate volume? Explain.

Suggested approach: The students should provide their opinion on the depth of the survey strategies employed by Dale and ascertain if it is a useful strategy to help Commuter Coffee set price and estimate volumes. At the very least, his survey gives them a starting point. A more detailed study would be needed to accurately determine potential volume and pricing.

2. How did the group decide that Commuter Coffee would operate on average at 80 percent capacity? Do you agree with this estimate? Explain.

Suggested approach: Students can base their answer on the following excerpt from the Running Case. Students need to analyze and explain why they agree/disagree with the following estimate.

After further discussion, the group settled on opening with three lines, which would give a maximum potential of $810 per day, or $210,600 annually. The group then split wildly on their estimates of how much less than the maximum the business would attract. Dale argued for the maximum, whereas Jessie felt they would be lucky to do 70 percent of the maximum. Carlos sought a compromise of 80 percent. Shena pointed to Dale’s survey, which indicated that 60 percent of the drivers were interested in trying the idea. That finding meant that seventy-two drivers who passed during a single light change would be interested. She said that although this figure argued for the maximum, there would be rainy days and other bad weather days so that the 80 percent number sounded more likely to her. The group agreed with Carlos and Shena.

Since the estimate was based on pure conjecture, it probably is quite meaningless.

3. What calculations did the group use to estimate the number of customers that the company was likely to serve in an average week? What calculations would you use?


Suggested approach: In the case it may be noted that Shena noted that approximately 120 cars passed in each light cycle, which would mean that the company would be servicing only one customer per 120 cars.

Students should ascertain the basis by which the group has estimated the above numbers; based on the situation what type of calculations would the student use to determine the number of customers that the company was likely to serve in an average week.


EXPERIENTIAL EXERCISE 1 “Evaluate Radio Advertising”

Introduction: Students should discuss radio advertising as a means of reaching a target market. Students are required to identify the three or four most notable radio advertisements in the local market and answer the following questions:

1. What makes these ads distinctive?2. To whom do the ads appeal?3. What is the frequency of the ads on the local airwaves?4. How many people hear the ads each day

Suggested approach: Students should contact the local radio station on which the ads are being run and request a rate sheet. The instructor should help the students estimate how much money the entrepreneur has spent to run those ads. In light of this calculation, the following questions are discussed:

1. How many people need to respond to the ad and make a purchase each week?2. Is it reasonable to suspect that the entrepreneur’s investment in radio advertising is paying

off?3. What other advertising does the venture use?4. How important is radio in the overall marketing mix?


EXPERIENTIAL EXERCISE 2 “Develop a Persuasive Message”

Introduction: The goal of the exercise is for students:

To pick a business or nonprofit organization, Identify a target market for it, and Craft a persuasive message that is designed to motivate the target market.

The business or organization selected for the exercise should be a local brand, such as the college or university; a local car dealer or service organization; or a popular local nonprofit organization, for example, a festival or charity.

Task: Students are organized into groups of five to seven, and a group leader is chosen. Within thirty minutes, each group must

1. Identify a target market for the chosen business or organization. The target should be defined through demographic data, geographic location, or psychographic profile.

2. Determine the needs of the target market and develop a value proposition that is targeted to those needs.

3. Create a persuasive marketing message that communicates the value proposition to the target market.

4. Develop a thirty-second radio ad to communicate the persuasive message.


OTHER RESOURCES

Websites of interest:

American Marketing Associationhttp://www.marketingpower.com/

AdAge.comhttp://www.adage.com/

http://www.adage.com/

http://www.marketingpower.com/

4-2 identifying the target market

Documents

good salesperson strives

achieve revenue goals

maintain regular contact

cost price leadership strategy

launch nonprofit ventures

quality leadership strategy

public service announcement

popular radio shows