Approaching marketing strategically

Marketing – a challenge for SMEs

There is no doubt that marketing can present significant challenges for SME businesses. The limited human and financial resources implicit in being a small business places practical constraints on how much marketing activity can be carried out and how much can be spent on it. That means every initiative and every dollar spent ought to be bringing in a good return – should optimise your limited resources.

What happens all too often is that marketing is ad hoc – a mailshot here, a radio ad there. And then sit back and see what happens. Or there’s a knee-jerk reaction to falling sales like “Quick let’s put on a promo”. This is marketing on the run – not planning. But it’s only by using a planned approach that you can get that optimum return.

Some of the shortcomings in marketing often found in SMEs:

• Reactive to a current crisis – not planned long-term
• Limited resources - lack economies of scale
• Strong reliance on passive word-of-mouth for sales
• Focus on developing sales through new customers
• Limited awareness of what marketing really is
• Tendency to 'shotgun' promotional activity
• Limited market intelligence

Putting together a full-blown marketing strategy encompasses a lot of activity: doing market research; working out objectives and setting particular strategies based on manipulating pricing, promotion and distribution channels; selling; customer care; branding, and much more. in this article, we won't cover every aspect of a marketing strategy - just those that relate to the aim of marketing itself.

Quite simply, marketing aims to be offering the right product or service:

• At the right price
• At the right place
• At the right time

Let's look at how you can do these strategically – by bringing some information and planning to bear. This approach will take you a long way toward improving your marketing effort and avoiding those weaknesses. I hope that by the end you will consider developing a complete marketing strategy for your business.

Let’s start by looking at your customer base – your market.

Knowing your customers

One of the most important factors in marketing is to know your market - this means knowing the customers you have, but it can also mean knowing something about the consumers you don't yet sell to if you are looking to expand your customer base.

Business owners with great ideas often convince themselves a market will just be there for their product - and they might be right. They decide on what they are going to offer, start the business and wait for the customers to roll in. They see their customers as a crowd of people, out there somewhere, just waiting for this product or service.

True, Everyone or Anybody might be a potential customer for your product. However, you probably don’t have the time or money to market to Everyone and Anybody. And that’s where a basic marketing strategy comes in – market segmentation.

Market segmentation

What is a market segment? Simple – a segment is just a group of people with common characteristics that set them apart as a group. Identifying the different customer segments that might use your product can be powerful information because it will allow you to target each segment with marketing activity that specifically addresses their reasons for buying what you are offering.

The point about segmentation is that you are looking for what you might consider your ‘ideal’ customer.

You might define that ideal customer in terms of income, age, geographic area, number of employees, revenues or the industry they work in and so on. It’s usually a combination of factors from these. For example, a massage therapist might decide her target market is women with household incomes of $75,000 or more who live in the more upmarket suburbs.

Segmentation focuses your marketing effort

The rationale behind segmenting your customers is quite simple. Owners of small businesses have limited resources to spend on marketing activities, so concentrating their marketing efforts on one or a few key market segments – what is referred to as their target markets – provides the basis for focusing marketing efforts on the customers most likely to respond to that marketing. That means the best return on your marketing expenses.

You are all familiar with target marketing. Every car manufacturer does it by looking at the entire potential driving population, segmenting them according to the type of vehicle they might find useful, and then manufacturing a range of cars to meet the needs of each segment. If the segment is "family with children" then they design a different car than the one for "young single male on executive income". But then they follow up by MARKETING them quite differently to those different groups to bring out the features and benefits particularly appealing to each one.

I don’t want to go into the nitty-gritty details of segmenting markets – suffice it to say that segmenting and target marketing offers huge benefits over undifferentiated, shotgun marketing.

Target marketing

When a business has decided on the segments it wishes to concentrate its marketing activity on, we say it has decided on its target markets. The term target market is used because that market – that group of customers - is going to provide you with your sales and so is the "bull's eye" at which you are going to aim all your marketing efforts.

Don't forget that a market is people... people with common characteristics that set them apart as a group. A strategist will look at their product and consider – or even spend money on investigating – what segments there are in the population that it will particularly appeal to and how best to then market to them.

The more statistics you have about a target market, the more precisely you can develop your marketing strategy to attract it to your product.

How many ways are there to segment a market?

So how many ways are there to segment a market? Quite a few actually: demographic, geographic, behavioural, psychographic, benefit and organisation.

You don’t have to segment in every possible way – some types of segmentation suit the markets for some products and others suit other products. Which way you go about creating segments depends largely on what you are selling and where you are selling it – like the massage therapist I mentioned who wanted to target a relatively well-to-do segment of women who she identified as being particularly receptive to the value of the therapy and affluent enough to meet the price she wanted to ask for her service.

She didn’t target all people or even all women. For example, the female population, in general, is one market. But the female population in the 15-24 year age group is a smaller component of that market and they are likely to not give as high a priority to health products as older women – nor are many of them likely to have the same disposable income to afford it.

You really must spend some effort clearly identifying your target market because only then will you have the information that will let you know how to reach them, what to say to them, how to say it and how widely you’ll need to market to reach them.

Different strokes for different folks

Customising your product / service offering and your communication to be appropriate to each segment’s needs is the single most effective marketing strategy. For instance, you may think you are selling computers, but what you are selling could be home entertainment, office efficiency or an information source. Each of those represents a segment of the computer market made up of people with particular characteristics and needs.

In the mobile phone industry companies created cell phones to suit differently defined segments of users; a standard one for practical, day-to-day use and a fashion handset that is seen every bit as decorative as a piece of jewellery when pulled from the clutch bag.

Strategic marketers then work their marketing efforts to appeal to the needs and interests of each particular segment. The computer seller, for instance, wouldn’t do just one ad - they might do a number. The one aimed at people whose primary use of a computer is home entertainment could stress screen size and resolution, memory, download speed etc. The one aimed at the person interested in using a computer in their business for memory, functionality, scalability and so on.

For each of those segments, you could further put together different sets of components with a different cost and advertise them in different places – places each audience is likely to be accessing. For instance, a computer system with some popular small business applications thrown in could be advertised in a trade journal.

Substantial evidence shows that businesses that take account of their market segments in this way are more likely to be successful. But only focus on a manageable number of segments to avoid overstretching your resources.

Marketing mix

That level of strategising brings us to the things you manipulate to get your product right for the target market – the marketing mix as it is known. One of the major failings of business owners is their preoccupation with the specific product they have to offer. This is usually at the expense of other marketing elements that they have failed to consider.

Those other things are Pricing, Place of distribution, and Promotion. Together, those four "P" words make up what is known as the 4Ps of marketing. They are the ingredients of your marketing mix. The marketing mix concept is used to describe how you combine these four elements into an overall marketing programme for each product that would make it appealing to a particular market segment.

The marketing process requires strategies and decisions on each of these elements. The interaction and interrelationship of all of these four elements must be considered also, each factor can’t just be treated in isolation. Let’s look at them.

The first P is for … product

I’ve already spent some time discussing the product and the need to key it to the needs of particular audiences. Other elements of the product that can be strategic to its success include its packaging and any warranty that goes with it. These elements help create the value the customer sees in the product.

Let’s just consider two other aspects of your product that are, strategically speaking, extremely important in marketing – giving it a unique core differentiator (a UCD) and knowing where it is in its life cycle.

Identifying your USP

Even if there are no direct competitors for your service, which is unlikely, there will still be other things a person could do with their money besides spending it on your product. They need convincing. By stating simply and clearly why your product or service is different, it will stand out from the competition. You can use a different USP for every product or service within your range. Alternatively, you may decide to use a company-related USP, such as a high level of customer service.

The process of identifying a USP helps you to focus on the key benefits that really sell your products or services and it’s those that will form your marketing message. For instance, when Citroen wanted to draw attention to the fact that not only do their cars have all the equipment expected as standard these days but that theirs have been designed specifically with the customer in mind they used that as their USP – "Technology as it should be: 100% useful".

Very effective – but before you can develop something like this you need to have done your homework, particularly concerning what features of your product you wish to promote; how and why the customer uses the product or service, and the features of your competitors’ product or service.

Again, strategic marketing comes down to knowing your customers and their needs – and a bit about the competition also – your USP does have to be ‘unique’ after all, not something your competitors are using.

Product life cycle

As you are aware, every product has a life cycle. For example, a product can quickly go out of fashion (e.g. a garment), or be overtaken technologically (e.g. software). Of course, others become an institution and seem set to go on forever like Coca-Cola. But with the rare exception, it’s true to say that products have life cycles and your strategy needs to concern itself with where your products are up to in their individual life cycle.

Some products you may see the need to phase out within a couple of years, while others may maintain their marketing position with a bit of updating. Repackaging, resizing, and discovering new uses and new users for your product can all be alternative strategies to extend the life cycle rather than developing new products - regularly developing and launching new ones is riskier and more expensive.

The second P is for … price

How did you decide on your current pricing? Did you compare yourself to your competitors and base your price on that? Or was it more guesswork than anything else? These are the ways most people do it, but they are not necessarily going to give you the best return – they aren’t the best ways to set a price in other words.

A strategic view of pricing will involve an assessment of the market conditions and competition, desired target returns on investment, product positioning, and image through price/quality relationships.

Pricing strategy

Let me demonstrate just one aspect of applying strategy to pricing – deciding to lower a price to attract more customers. Let's say you manufacture a product that sells for $100 and your cost of goods is $50 per unit, for a gross profit of $50. Your overheads amount to $5000 per month. In this situation, you need to sell 100 units per month to break even.

Now you want to sell more and decide you can take some business from a competitor by lowering your price temporarily. You lower it to $80 - a 20% cut. That makes your gross margin per unit just $30. Know how many units you’ll need to sell now to break even? Not 20% more, but 66%more! Well, maybe a 20% cut will bring in the extra orders and maybe it won’t, but you’d be well advised to have thought about the consequences before making the decision. Mis-pricing can be both costly and dangerous.

Let’s look at a different strategy – raising your prices. Through developing a strategy of product positioning and targeted marketing you decide you can ask for $120 a unit so your margin increases to $70. How many units do you need now to break even – just 71? That 20% increase in price means you need to sell far fewer to break even.

But remember, you can only raise the price when you can present customers with a better value proposition and that comes out of applying strategy to your marketing efforts. Some strategies you might try in preference to price-cutting are enhanced exclusivity, dropping high-maintenance products, adding values and / or improving the pull of your brand.

The third P is for …  Place

The third part of the marketing mix has to do with how you distribute to your customers so the "P" stands for "place of purchase". The obvious channels might include direct sales, through wholesalers or retailers, employing agents and distributors or even the Internet.

The thing here is to think strategically and consider alternative channels and influencers. For example, one accounting package software company built its success on using the accounting profession as a channel to reach its small business clients. A bit of thinking outside the box can produce some clever, not to mention profitable, strategies.

Your choice of channel should also fit in with the overall positioning of your product – obvious examples are the sale of high-ticket exclusive items through boutiques rather than discount emporiums. As with your price, where your product is available reflects on customer perceptions of its quality and status. Your channels of distribution must match the image goals of your product.

The fourth P Is for …  promoting

It is difficult for potential customers to buy your product or service if they don’t even know or remember it exists. Generally, a potential customer will have to be exposed to your product several times before they are likely to think of it first when the need arises. The first step in developing a promotion strategy is to realise that you are going to need to stay in front of your target audiences consistently if you are to be top of mind.

Secondly, each separate product or service should have its own separate promotional mix - that is, a range of promotional activities based on the needs of the market and the characteristics of the product.

By the term ‘promotional activities’ I mean more than just advertising - it also includes personal selling by sales representatives, sales promotion and premiums, unpaid direct promotion, public relations, and publicity. Promotion can represent a significant proportion of the total operating expenses of any business – which is why it’s important to know which targets to place it in front of, to get the message right for them and to select the channels they access to promote it in.

The way to ensure that this happens is to develop a promotions plan.

Best practices for a promotions plan

There are some things a promotions plan needs to include to be considered strategic. These include a suitable mix of channels. a timetable for delivery, a budget to sustain the programme and a plan for getting it known throughout the business.

Some of these are pretty obvious. All plans need suitable timelines. Concerning marketing this also involves looking at when the best time of year is to do any particular promotion or using a rolling promotional cycle, where, for example, you concentrate your promotional activity on a different segment every three or six months so that no group is missed out.

But it’s also part of a good strategy to let employees know as the promotions are rolled out. They will receive a phone call from a prospect answering an ad in the paper about an offer they know nothing about. It also puts them in the position of not looking too savvy to the prospect and that’s not good for business either. It’s not difficult to memo or email all employees who have some contact with customers when a new campaign starts up.

Let’s just look at the channel mix idea in a little more detail.

Deciding on channels to use

Where do you find your target customers? With this question, you're trying to determine how to match the channel of promotion used to the characteristics of your target audience. For example, if the market covers a large geographic area then advertising is probably the most effective approach and mass media, print or television will usually be required. But if the target market is a select group of individuals or businesses, then personal selling or advertisements in trade or professional journals may be more effective.

You must consider if you can narrow it even more – again, the best decisions can be made the more you know about your target audience. If you know what time and which television stations they are most likely to watch; or what publications they read, then you are well placed to make a sounder investment decision than if you don’t.

Consider the nature of your product also and how best its features and benefits can be conveyed to the target market. If the product is new, then demonstrations of the use and benefits are often required. This is where a visual medium, such as television and print, combined with in-store demonstrations can be effective.

Many people never think outside of a newspaper advertisement but a little imagination can probably find many other opportunities among these channels:

• Advertising
• Public relations and publicity
• Direct marketing
• Promotions and events
• Product marketing materials
• Salesforce

New customers needed ...?

Let’s leave the 4Ps there and move on to a different aspect of marketing strategy – winning new customers. Every business needs new customers and strategies for getting them, but in the rush to get new customers what’s often overlooked is how much extra business might be won by a strategy of working on the current ones.

It’s an old marketing adage that it’s cheaper to sell more to a current customer than find and sell to new ones. There can be a lot of truth in that depending on how much you have already done in increasing the sales to each customer. If you haven’t done much in that line, then explore the possibilities there first.

Keep in mind that the further you move away from your existing customer base, the more the risk and cost of marketing increase. This is because you know far more about your existing market and have far more information upon which to base your decisions. Your production, systems and procedures are also geared up to your existing market.

There are several simple growth strategies that SMEs roll out when they decide to expand their customer base but they may not appreciate the risks associated with them. You can list them by the amount of risk involved. You’ll notice that finding ways to sell more to existing customers is by far the safest way to grow.

• Selling more existing products to new markets
• Selling modifications of existing products to existing markets
• Selling new products to existing markets
• Selling existing products to new markets
• Moving into different markets with different products

When you really do need new customers

In some cases, as I said, a business does need to acquire new customers. There may be some very obvious ones - your existing market has dried up or has undergone a downturn for instance. But there are others that may not be so obvious – at least not until you start looking at things strategically and do some homework.

For instance, if you have done a customer value analysis and find that a couple of major customers are providing the majority of your income such that if you lost them the business would be in danger, then yes, you should be seeking new customers.

Over-reliance on a small customer base

There’s a simple calculation you can apply to either individual accounts or to different customer segments depending on the type of business you are in to look at.

Calculate the percentage of your total revenue accounted for by each account/segment, and for each, ask yourself what the impact on your business would be if you lost that customer/segment and whether you would survive. If the answer is ‘no’ to any of them, then you need to take steps to increase your customer base there.

Then you estimate how many customers you will need to reduce the risk to an acceptable level and go about developing strategies for winning them. But again, remember that the answer may be in looking at more customers from the same segment – not necessarily branching into new market segments.

A marketing plan – the document

All of the information you have gathered about customers and competitors, your selling messages, your promotions mix and so on needs to be put into document form. It is usually referred to as a Marketing Plan – in effect, an action plan for implementing your marketing strategy.

Your marketing plan takes each element of your marketing strategy and allocates detailed budgets, responsibilities, targets and deadlines. In its summary form, the marketing plan forms part of your overall business plan. Your promotions plan for the year should also be part of this document.

Documenting your strategy is a key step in making it work, but all too often it simply doesn’t get done.

Measuring marketing success

Serious strategists not only document but also set up a specific set of key performance indicators against which they can check their progress in achieving the goals they have set. Then, if at any time the actual for the year isn’t up to what was expected, it’s a warning to check why – and to maybe modify the strategies. It’s your guide to evaluating how successfully the marketing strategies are working out.

Checking actuals against the plan should be done no less than quarterly. I’ve listed the typical KPIs that a business might track about marketing on the slide.

Factoring in change

I want to finish off by mentioning a technique that can be very useful in laying the foundations for developing a complete marketing strategy. This technique is called a SWOT – for Strengths Weaknesses Opportunities and Threats. It is particularly useful for seeing what opportunities and threats are emerging in the marketplace for your business. After all, both customer needs and the business environment in which you operate change constantly, so a periodic assessment of any new factors entering the equation makes sense.

For example, if new regulations will increase the cost of competing in a market where you're already weak, you might want to look for other opportunities. On the other hand, if you have a good reputation and your key competitor is struggling, the regulations might present the opportunity to push aggressively for new customers.

But it’s also useful for bringing out the limiting factors that will need to be considered in your plans. Say you decide to promote on a website. Your reach is now much wider. If you started to receive orders from long distances or even from overseas could you increase production capacity to meet them? Could you organise delivery? Should you be adding a delivery charge to your pricing? Those sorts of possible knock-on issues need to be recognised in advance because they will affect your overall marketing strategy and even other processes within the business.

Competitor research

A SWOT will provide you with information on one group of people every strategist knows you need to take into account when making marketing decisions – your competitors. There are numerous ways you can use the information a good competitor analysis will provide to improve your marketing strategic advantage – to find out what they believe customers want, what channels they think are effective to reach customers and so on.

It’s not necessarily hard to come by this information either. If you've had difficulty digging up information about your competitors then try these ideas. First, you can simply ask your suppliers about them. They can be good sources of information. But also, visit their stores, check their websites, see how they exhibit at trade shows and even try out their products.

Competitor research can reveal good ideas you may want to try out – and sometimes you can learn from their mistakes.

• What are their products' strengths and weaknesses?
• What are the differences between your products' features / benefits and theirs?
• What is their pricing structure?
• Where do they promote their products?
• What is their advertising message?
• What is their positioning (profitability, market share, leadership)?

Customer research

I’ve spoken quite a bit about the need to know your customers so just let me finish by adding that one effective way of keeping up with customer views on your business and its products, and even sometimes with what the competition is doing also, is to do a customer survey or hold a customer advisory board.

These will keep you abreast of what their needs are now and how they are changing and that in turn can provide the insight necessary to decide if you need to modify products / services or develop new ones to fulfil these needs and also how to create the sort of marketing messages that will appeal to them.

Conclusion

A business can survive for some time with poor records, insufficient finance or a lack of management skills, but it can't last long without a market. You may have the best service available, but what if no one wants to buy it? A strong market for your service may exist but what if nobody knows about it or how affordable it is? What if everyone thinks your product is the same as all the others on the market? Something has to be done to make the phone ring - and that thing is marketing! Businesses of any size should include marketing, however simple, as a core part of their day-to-day activities.

Perhaps the most common problem faced by SMEs is their inability to effectively sell their products. There are numerous examples of businesses that can make high-quality products at a competitive price but have little experience or skill in finding people who are willing to buy them.

Only a strategic approach to marketing based on good knowledge of your own product, your customers and your competitors, will ensure you maximise returns on your marketing spending – so I hope you will seriously consider developing a marketing plan for your business.