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Support Programme for Enterprise Empowerment and Development

SPEED Training Module for Business Development

Marketing

your BusinessAccra 2006

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GTZ DANIDA


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Support Programme for Enterprise Empowerment and Development

SPEED Training Module for Business Development

Marketingyour Business

Accra, GhanaMay 2006

Published by:

www.speedghana.org

- GTZ, German Technical Cooperation and- DANIDA, Danish International Development Assistance

Project Implementation:

GFA Consulting Group, Germany www.gfa-group.de
http://www.speedghana.org/http://www.speedghana.org/http://www.speedghana.org/http://www.gfa-group.de/http://www.speedghana.org/http://www.gfa-group.de/


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Table of contents

1. Marketing.........................................................................................................................4

Marketing Functions............................................................................................5 Development of a Marketing Strategy..................................................................5

Marketing Concept..............................................................................................8

Market Segmentation.........................................................................................10

Market Research...............................................................................................11

Product Decisions..............................................................................................13

Branding and Packaging....................................................................................13

Pricing...............................................................................................................15

Distribution Channels.........................................................................................15

Promotion and Advertising.................................................................................17

2. Mini-Market....................................................................................................................19

3. Theory of Marketing Plan.............................................................................................25

4. Marketing Guide............................................................................................................30

5. Marketing Channels for Small Enterprises.................................................................44

6. Marketing Field Study...................................................................................................48

7. Marketing Plan..............................................................................................................53

8. The Basket Market........................................................................................................58

9. Marketing Plan Review.................................................................................................70


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Marketing your Business

1. MARKETING1

Marketing is an important operating arm of a business enterprise. Its activities begin evenbefore the product or service is produced and continue after the sale is made. This paper willprovide an overview of the marketing function. Starting with basic definitions of marketing andmarket and discussing marketing functions and the role of marketing in the economy, thepaper proceeds to cover the development of marketing strategy, consumer behaviour andmarketing research, and concludes with a treatment of the marketing decision areas - product,price, distribution and promotion.

Marketing is as old as history itself. It embraces the activities we engage in to satisfy oureconomic needs and wants.The central idea in marketing is the transaction, which is the exchange of desired objects by

two parties. Such exchange could be product for product (as in trade by barter), or product formoney in its various forms. For marketing or exchange to take place, it is necessary that therebe:1. two or more parties who have unsatisfied wants;2. some products or services and money to exchange; and3. some means of communication between the parties involved. We now give a definition

of marketing.

Marketing is the set of activities that facilitates exchange transactions involving economicgoods and services for the ultimate purpose of satisfying human needs. What activities areimplied in the above definition? They are many, but will be discussed under 'marketing

functions'.

Market as product buyers

To the African the word 'market' almost invariably means the marketplace which not only fulfilsits economic role as a place for buying and selling, but also serves as an important social,political and religious meeting place especially in the rural areas. A second meaning ofmarket, which is to be emphasised by us, is market as consisting of buyers of a product orservice. Our formal definition of market is:A market for a product or service consists of individuals or organisations that have purchasing

power and that are current or potential buyers of the product or service.

We should note three things about this definition.

1. A market could be ordinary people purchasing their needs or it could be organisationssuch as business firms, non-profit institutions such as schools and hospitals, or thegovernment - federal, state or local.

2. To be included in the market for a product an entity must have purchasing power, thatis money in its various forms - cash, cheque, credit.

3. Current buyers and potential buyers are included in defining a market. Thus, for aproduct being newly introduced in an area, the market consists entirely of potential

1 The handout is based on 'Business Studies Today', Ryan/Richards (1991), 'The Business PlanWorkbook', Colin/Barrow (1988), and 'Manual for the Preparation of Industrial Feasibility Studies',Beherens/Hawranek (1991).

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buyers. A major challenge to marketing is to convert potential buyers to actual buyers;in short to create a customer.

A third meaning of market is the verb sense, that is 'to market a product'. It suggests the

performance of activities needed to bring an existing product to buyers, a meaning clearlyrelated to the meaning of marketing. We now take up a discussion of these activities ormarketing functions.

Marketing functions

Within any business organisation, the marketing arm of the company fulfils some importantfunctions which are activities that must be performed to move products from producers toconsumers. From the literature ten such activities may be identified as follows.

1. Product developmentMarketing advises on what to produce; the quality, style, design,brand name and packaging - all based on consumer and market research.2. Pricing Marketing plays a large role in setting prices, whether at, above or below the

competitor's prices, and in determining a system of discounts for the middlemen whohandle the product.

3. BuyingThis involves selecting from an assortment of goods, determining quantity andquality, selecting sources of supply and negotiating the terms of purchase. (This issometimes called purchasing or procurement.)

4. Advertising is the impersonal presentation of goods through the mass media - radio,

television, newspapers, etc. Advertising agencies may assist marketing inperforming this function.

5. Personal selling This is selling done through person-to-person contact. A large

number of salesmen are engaged in outside sales work or in retail sales in shops andmarket-places. The sales force must be properly selected, trained and motivated toperform.

6. Sales promotion and merchandisingThis involves the development of such tools aspoint-of-purchase displays, window displays, free samples of the product, exhibitionsat trade fairs, news releases, price reductions during special 'sales' and so forth.

7. Physical distribution Marketing arranges for the physical handling of goods: storage,transportation and proper inventory management.

8. Market research Marketing must gather and analyse information about demand,consumer wants, competition, government policies, new products and generalchanges in our social structure. This function underscores the fact that marketingbegins even before the product is produced.

9. Credit management and financing Credit is often used in serious businesstransactions where firms buy and sell on credit. In addition, various types offinancingprovide permanent as well as temporary capital for the marketing process.

10. Post-sale transactions Marketing must arrange to handle customer complaints afterthe sale, and provide for after-sales service, especially for machines, equipment andconsumer durable goods. This shows that marketing does not end with the ringing ofthe cash register.

The development of marketing strategy

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Any organisational entity that engages in marketing activities to serve a customer group with aproduct or service is a marketer. We now consider how a marketer plans his marketingprogramme. This is part of the overall job of marketing management, which is concerned withthe tasks of setting marketing goals, analysis of market conditions, planning the marketing

effort, setting up suitable organisation, execution of plans and control of operations.

Marketing mix: variables controlled by the marketer

A key input into the development of marketing strategy is market analysis, which is adetailedinquiry into market conditions - buyers (size, location, quantities purchased, attitudes andpreferences, etc.), competitors and middlemen carrying the product. The marketer thenchooses a target market to cultivate and develops his marketing strategy by making decisionsregarding the product, the price, the distribution and the promotion in order to satisfy theneeds of the target market and provide the best chances of achieving the stated marketinggoals.

The combination of controllable variables - product, price, distribution and promotion -whichspells out the marketer's strategy is called the marketing mix. The kinds of decisions to bemade for each component of the mix are as follows.

1. Product assortment: design, quality, branding and packaging; product additions,modifications and deletions.

2. Price Setting base price; middlemen's margins, allowances, discounts; freightpayments and geographic considerations, product-line pricing; charging establishedprices.

3. Distribution Selecting channels of distribution; selecting and managing distributorsor middlemen to carry the product; establishing a logistics system for storing, handlingand transporting the product.

4. Promotion to stimulate market interest in the product by determining the relativecontributions to be made by advertising, personal selling and sales promotion (forinstance, free samples); choosing advertising message; creating advertising copy,choosing suitable media; managing the sales force.

The concept of the marketing mix was popularised by Neil Borden in 1954. Another author,Eugene McCarthy in his book Basic Marketing: A Managerial Approach uses a usefulmnemonic - 'the Four P's' - to denote the four elements of the marketing mix - Product, Price,Place and Promotion - where 'Place' stands for distribution.

The key notion suggested by the word 'mix' is that the plan of action is an integrated one in

which the decisions on the four variables make sense in relation to one another. Thus, a highquality product would ordinarily carry a high price, be distributed through retail outlets having aquality image and the advertising would be in appropriate media that could display thesuperior features of the product.

Another point to be noted is that when a marketing mix is developed, an alternative mix thatdiffers on all or some of the four decision variables might conceivably be used to meet theneeds of the market and the goals of the marketer. This means that there are different ways toreach a target, but none is guaranteed success ab initio. To illustrate, we consider alternativemarketing mixes for the marketing of bottled palm wine.

Problem

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Suppose that market analysis indicates promising opportunities for the marketing of bottledpalm wine, where it is assumed that the technology for the preservation of palm wine hasbeen perfected. Sketch two alternative marketing strategies that could be implemented.

General observations

Palm wine is an alcoholic drink which is in direct competition with beer. Because the winetapers are getting older and young men in the rural areas are not available, or if available notinterested in learning the skill of wine tapping, the product is getting more and more scarceand its price is virtually exceeding that of beer. The bottler of palm wine, under the presentconditions of scarcity of supply of the raw material, will therefore have the major problem ofhow to make the price of the finished product competitive with the price of beer.

Marketing mix 1

One strategy is to make the product of very high quality, and package it in a distinctive bottlethat does not look like the beer bottle. For pricing, the price is set higher than beer but not ashigh as imported foreign wines. For distribution, the kind of high volume distribution channelsutilised for beer is not used; instead the channels for hot drinks and foreign wines is used; thismeans that the product is displayed on shelves in shops. For promotion, it is now apparentthat, given the decisions made already on the other components of the marketing mix, thepromotional job is to present the bottled palm wine as a prestige drink that is surrounded bytradition and certainly superior to beer; a product that one should use in traditional and otherimportant ceremonies as well as for quiet enjoyment. Advertising copy that will properlyportray this image could include traditional ceremonial settings, and drinking with cow horns

and calabash cups instead of glasses. Actually, the product is positioned to compete withforeign table wine and not with beer.

It is apparent that the above strategy will not lead to very high volume sales, but with amoderately high price the level of sales could lead to profitable operations.

Marketing mix 2

An alternative strategy, especially if the wine supply problem could be solved, for examplethrough palm plantation development and improved tapping methods, is to position bottled

palm wine as a direct substitute for beer. The product will be of good quality but will not befancifully packaged; in fact, beer bottles could be used. The emphasis will be to reduce thecosts of production as much as possible. The price will be competitive with beer, that is, it willnot exceed the price of beer.

Distribution channels will be similar to those used for beer distribution, that is there will beappointment of major distributors and attaches as well as direct supply to major customerssuch as hotels and clubs. Promotion will portray the product as more satisfying and nourishingthan beer, a product that fits into any occasion - whether traditional or modern. Provided theprice is low enough, the wine can be presented as the common man's drink, whether in thevillage or in the city.

We have so far given only the bare outlines of two alternative marketing mixes. Many detailsremain to be filled in for actual implementation. It cannot be determined ahead of time which

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strategy will be more successful than the other, especially as the effects of uncontrollablevariables such as competitive reactions are not known.

Marketing concept

If a business conducts its affairs in such a way that the needs of its customers are always keptin view, and every effort is made to give value and satisfaction to the customers whilepursuing its own goals such as profit, it is said to be guided by the philosophy of the marketingconcept. Such expressions as 'the customer is king' or that 'marketing should begin and endwith the consumer' or being 'customer oriented' are all statements expressive of the marketingconcept.

The marketing concept is quite an idealistic philosophy, especially in Africa where variousbasic products and services are in scarce supply, and the sellers have little interest ormotivation in pleasing customers. Further, government monopolies exist and seemunconcerned about customer needs or complaints. The marketing concept is likely to beapplied more seriously when there is a strong competition in the market; the marketer whocreatively caters to customer needs is likely to win a differential advantage over lessimaginative competitors and thereby realises more sales and profits.

Environmental constraints: variables not controlled by the marketer

We have seen that a marketer controls the variables - product, price, distribution andpromotion - to determine his marketing mix, and that he should execute his plans with thephilosophy of the marketing concept. In addition, he has to contend with a number of external

variables that affect the marketing effort. These variables are not ordinarily controllable by themarketer and are therefore classified as environmental constraints. They include competitors,the state of the economy such as growth or recession, consumers and their unpredictablebehaviour, suppliers and middlemen, business-related laws and regulations, technology, thephysical environment such as natural resources and climate and the larger society with itsculture. These complicate the marketer's tasks enormously and lead to a situation wherestrategies that were effective yesterday may not work at all today.

It should be noted that while the environmental variables affect marketing, the environment inturn is affected by marketing. For example, consumers' needs, values and preferencesdetermine what is produced and how it is presented, and the larger society with its culture -customs, languages, religions and so on - casts a pervasive influence on the marketing effort.

Marketers' actions in turn influence society by exposing people to new products, services andideas, thereby for better or for worse breaking down the traditional modes of behaviour andfostering new attitudes and habits.

Understanding and influencing buyer behaviour knowing your consumer

It cannot be over-emphasised that marketing should begin with a thorough understanding ofthe consumer himself - his needs, location, preferences, attitudes, perceptions and socio-economic characteristics (age, sex, income, etc.). The marketer then tries to build theinformation gathered into the design and execution of his marketing strategy and tries,

through promotional methods such as advertising, to influence consumer attitudes andbehaviour in favour of his product or service.

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When a marketer launches his product or service and fails to secure sufficient consumerpatronage, it is often a signal that he has not done his homework with regard to consumers'needs, though occasionally it might be due to the inept planning and execution of his

marketing programme.

It is sometimes necessary to make a slight distinction between 'buyer' and 'consumer'because the person who makes the buying decision is not always the ultimate consumer oruser of the product. The marketer is immediately interested in understanding the behaviour ofthe product buyer, but he should also be interested to know how the product is used and beconcerned about the satisfaction (or lack of it) of the consumer.

Buyers may be conveniently divided into household buyers and non-household buyers. Thelatter group includes industrial, commercial, institutional (schools, hospitals, etc.) andgovernment buyers.

Forces that influence buying decisions

The forces that determine what, when, where and why consumers buy and the prices they arewilling to pay are varied and interrelated in a complex manner. These may be convenientlyorganised into three groups.

1. Economic determinants of demand.2. Internal psychological variables.3. Social and cultural influences.

Economic determinants of demand

The key economic factors that influence buyer behaviour are income, availability of credit,expenditure patterns, prices of the product and prices of complementary and substitute goodsand elasticity of demand. Total household income less all taxes is called disposable income.The portion of disposable income that is left over after expenditures on food, housing, clothingand other necessities is called discretionary income, which is available for expenditure onluxuries and other non- essentials.

There are two kinds of elasticity of demand: income elasticity of demand and price elasticity ofdemand. Income elasticityof demand is defined as the percentage change in the quantity of acommodity consumed divided by the percentage change in income. To take demand for food

as an example, it turns out that income elasticity of demand for food is lower for rich familiesthan for poor families. This is so because if incomes are already high, further increases willnot influence food consumption substantially, but if incomes are low, a large share ofadditional incomes will be spent on food.

Price elasticityof demand is defined as the percentage change in quantity demanded dividedby the percentage change in price. When this quantity is greater than unity demand is said tobe elastic, and if less than unity demand is inelastic. The marketer is interested in the effect ofprice changes on total revenues. When demand is inelastic, price changes will result in lessthan proportional changes in quantity sold, thus revenues may not be eroded if price goes up.As an example, the demand for drugs and medicines is usually price inelastic, because theneed to secure health is essentially insensitive to price or cost.

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Internal psychological variables

An important factor in the buying decision is the buyer himself. Why does s/he want to buy the

item? Has the type of person s/he is related to the desire to buy the item? How does s/hereceive and organise information about the item? How does s/he feel about the item in termsof likes and dislikes? What does s/he know and remember about the item? These questionsare probing the effects of the internal psychological forces of motivation, personality,perception, attitudes and learning, respectively. For any given buying situation, one force maybe dominant or multiple forces may be at work.

We should particularly emphasise the role of attitudes and preferences in purchase decisions.An attitude is a learned predisposition to react to an object in a certain way - positively ornegatively. It describes one's feelings in terms of liking or disliking the object. A preference isthe condition of liking one object better than another. A positive attitude will lead to thepurchase of an item, but a negative (or neutral) attitude will not. A major task of advertising isto induce positive buyer attitudes towards the product. Behaviour itself may affect attitudeeven as attitude affects behaviour. A person may not have been interested in a particularproduct and may have had no attitude towards it, but on trying it s/he develops an attitude -positive or negative. Or a person may have had a negative attitude before trying a productand then modifies the attitude to positive after trial. This is the main reason why the giving outof free samples of a product is a key sales promotion tool.

Social and cultural influences

Man is a social being and his behaviour is influenced by other persons and by the groups he

belongs to or aspires to belong to (called reference groups). Family members, friends,neighbours and work associates are familiar examples of people who influence us. Socialconformity is strong in buying decisions. It is sometimes surprising how many things we ownare also owned by people we associate with. Purchase decisions for certain productcategories, especially those that are 'conspicuously consumed', are particularly prone to socialinfluence. Examples can be found in clothes and fashions for young people on whom peergroup pressure is strong, cars for men, clothes and jewellery for women and home furnishingsand durable goods for households on which friends, relatives and neighbours exertconsiderable influence.

Going beyond personal and group influence, we consider the larger society or culture. Peoplelive in a cultural milieu that embraces their history, values, morals, customs, art and language.

Culture exerts a broad influence on buying behaviour and determines the kinds of productsthat may be used by the people. For example, Muslims would not use pork products oralcoholic drinks. More importantly for marketing, culture and tradition determine the opennessof a people to new ideas and their willingness to try new products and services.

Market segmentation

Markets consist of buyers who differ in many ways and who may therefore be classified intosub-markets or market segments on the basis of a suitable characteristic or variable.Variables such as geographic location, age, sex, income, social class, benefits sought from

use of product or problems faced have been used to segment or subdivide markets.Assuming that a market can be subdivided, the marketer then decides whether to ignore the

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existence of market segments and make one product offer to the entire market, or torecognise the existence of sub-markets and design into the product those features that meetthe unique needs of one, some or all of the identified segments. In the latter case, all otheraspects of the marketing mix - price, distribution and promotion - will be geared to the

demands of the segment(s).

Obviously, any market segment isolated should represent substantial demand before it wouldbe worth giving it special attention. It is apparent that a marketer who wishes to enter a marketalready crowded with competition should proceed by first doing market segmentation (iffeasible) to determine if there exists a segment ignored by the other competitors. Of course, ifthe marketer feels that he has a superior product, he might decide to challenge thecompetition in their entrenched segments.

Information for decisions: marketing research

Adequate information is the life-blood of decision-making and management. Companiesnormally develop their own regular system of gathering marketing information. In Africa, thereappears to be a heavy dependence on field reports filed by sales representatives concerningmarket conditions, competitors' actions, middlemen and consumer reactions to companies'products and marketing policies. In many cases a separate research department does notexist, little or no research budget is provided and work is rarely sourced out to outsideresearch organisations. Such outside research firms are few today because the demand fortheir services is low.

Benefits of research:

Various benefits can be derived by taking marketing research seriously even if it is done on amodest budget.

1. Marketing research is the primary tool for conducting market analysis where as muchinformation as possible is gathered about consumers (e.g. their needs, attitudes andpreferences, socio-economic characteristics), competitors (their products, prices, etc.) andmiddlemen (their types, discounts or margins enjoyed, etc.).2. The marketer exploits the information gathered from market analysis to plan his

marketing mix - product, price, distribution, and promotion. Research can tell whatproducts are needed, which product features are popular, which price ranges areacceptable to buyers, which retail outlets are favoured by buyers, through which mass

media the buyers are likely to be reached and so forth.3. When the marketing plan is launched, research is needed to monitor results and

investigate various kinds of problems relating to the marketing effort. For example,research is needed to measure the effectiveness of advertising or to determine thereactions of middlemen to a new product.

Costs of research

Marketing research may be a costly undertaking if properly done. The value of informationobtained should always be balanced against the cost of acquiring it. Cost elements includepersonnel and materials for field work and data processing and report preparation costs.

The option of not doing research should always be considered, especially when the decisionthat may benefit from it must be made quickly. Indeed, the problem of time availability is a

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serious one, because many marketing decisions must be made quickly and yet good researchrequires ample time for proper design and execution.

The marketing research process

Marketing research may be defined simply as the gathering and analysis of information toguide marketing managers in marketing planning and problem solving. It is a systematicprocess that involves some recognisable steps. Four basic steps of marketing research are:

1 Problem formulation.2 Situational analysis and exploratory research.3 Formal research.4 Solution.

Problem formulation

A clear definition of the research problem is probably the most important research task. But itis not an easy matter. Frequently, the symptoms of a problem - for instance declining sales -are obvious to all, but the cause or causes are less obvious. The researcher holdsdiscussions with the sponsor of the research in order to understand the latter's problems andmarketing objectives. The context or environment in which the problem is embedded isexamined to gain a better insight into the problem. This involves asking about internal(company) and external factors that may bear on the problem.

Situational analysis and exploratory research

The key characteristic of the second stage of the research process is consultation ofsecondary sources of information. We should now distinguish between secondary data whichare data that existed prior to the need to solve the problem, andprimary data which are freshdata collected specifically to solve the problem. Secondary data sources include internalcompany records on the product's sales, costs, customers and other marketing variables;outside sources such as publications by government agencies (in Africa, especially theFederal Office of Statistics) and private bodies; relevant research both inside and outside thecompany; informal interviews with informed people both inside and outside the company.

If the problem was properly identified in the first step, the analysis in step 2 may be sufficientto solve it, in which case further formal research would be unnecessary. Usually, the analysisof the second stage leads to a better definition of the problem and very likely suggests theneed for formal research.

Formal research

Formal research entails the collection of primary or fresh data to solve the problem or meetthe information need. The most frequently used formal research method is the marketingsurvey. Major activities in survey design and execution involve questionnaire construction, theactual data collection (through mail survey, telephone survey or personal interviews) and the

editing and coding of returned questionnaires. The population of respondents from whominformation is to be obtained could consist of individual consumers, households or

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organisations. Although a selection of a representative sample from the relevant population ismade, sometimes it will be wise to do a census, that is to include every member of thepopulation, if the numbers are small. This is often the case when organisations are surveyed;consumer surveys, on the other hand, usually involve use of samples because of the large

numbers of consumers.

Solution

The final step in the research process is data analysis and interpretation of results. Thesimplest analytical method, especially for surveys, is ordinary tabulation and frequencycounts, followed by calculation of percentages. For example, if respondents were asked ifthey would purchase a product at a stated price, research might find something like 'forty percent of respondents said they would definitely buy, while only twenty .per cent said they woulddefinitely not buy.'

When the researcher completes his data analysis and interpretation of results, he prepareshis recommendations for the sponsor of the research. A written report embodying therecommendations should, as far as possible, be free of technical jargon, be in clear style anduse charts and tables where necessary. It should be reasonably brief and above all includespecific action implications for the sponsor. Examples of concrete recommendations are: 'Thecompany should seriously consider increasing the price of the brand by twenty per cent.' or'The current budget for advertising should, at a minimum, be doubled.'

Marketing decisions areas

The key areas in which marketing managers have to make decisions correspond to the fourcomponents of the marketing mix: product, price, distribution and promotion. Sales forceoperations may be isolated from promotion as a separate area of decision making; ifinternational marketing is undertaken by a company, then all the above decision areas will berelevant in the context of serving markets outside national boundaries. Having earlier outlinedthe kinds of decisions made while discussing the marketing mix, we shall now elaborate onthe key decisions only.

Product decisions

The product or service is the offer that the marketer makes to buyers and it is of centralimportance in the marketing effort. A product may be defined as a bundle of physical andpsychological satisfactions that a buyer receives from a purchase. It includes not only thetangible object, but also such supportive elements as packaging, convenience of purchase,post-sale services and others that buyers value.

Branding and packaging

A product should be given a unique brand name to distinguish it from other goods offered tobuyers. The name should be distinctive and easy to pronounce, and it should capture theessential product idea. The name should be registered as a legal trade mark, thus protecting itfrom use by competitors. It is a fact that many African manufacturers do not bother to put anybrand names on their products, and some unscrupulous ones assign names that sound

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almost identical to the names of well-known successful products. These suggest lack ofconfidence in the product's quality by the producer. In any case, a producer who is marketinga successful but nameless product is making a grave error that should quickly be corrected.

Packaging has the basic function of protecting the product, hence the package must bedurable enough to survive handling during distribution. It should be aesthetically pleasing andbe distinct enough to stand out when placed side by side with competitors' brands on the retailshelf. It should also be convenient to handle by consumers (consider the convenience of theaerosol spray can that revolutionised the packaging of certain liquid products). The packagelabel, apart from providing certain kinds of information that may be required by law such asnet weight, volume and ingredients, may be used by the producer to promote the product if awell-designed promotional message is inscribed on it.

Building the product mix

The product mixis the composition of products being marketed at any point in time by acompany. When products are closely related, especially with regard to end use, theyconstitute a product line. An example of a product line is a phonograph turntable, a stereoamplifier, speakers and a voltage stabiliser (for Africa). A product line may be narrow (that islimited) orbroaddepending on whether the associated products are few or many. Two of thecommon ways to build up a product line are:

1. by adding differentiated features to a basic product design in order to appeal todifferent market segments (market segmentation strategy); and

2 . by adding products that are complementary, meaning used together. Sometimes amanufacturer will market brands of a product that are virtually identical except forbrand name and packaging, although advertising will claim unique differences. This

strategy is called multi-branding and is commonly observed in consumer packagedgoods industries such as toilet soap and detergents.

The manufacturer's objective is to improve his competitive position by securing larger shelfspace in retail stores and thereby taking sales away from other producers' brands.Proper management of an existing product mix includes knowing when to modify products ordelete those faring badly in the market-place. Sales figures and consumer research providethe necessary information for the decisions.

Product innovation

A 'new' product is one that is new to a company, but not necessarily new to the market wherethe generic product may already exist. The management of a true product innovation (that is,a product new to the market) follows six main stages which we simply outline here.1. Idea generation: product ideas may come from many sources - company, salesmen,

customers, competitors.2. Idea screening: selecting the most viable ideas to exploit.3. Business analysis: analysis of sales, costs and profit projections.4. Product development: building and testing prototypes, etc.5. Test marketing: placing product samples in actual retail stores to test consumer

acceptance.6. Commercialisation: full-scale marketing on a national basis.

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Pricing decisions - Factors that influence price setting

Setting base price

The base price is the price that the producer receives at the factory gate; it does not includeany mark-ups or allowances to compensate middlemen for distributing the product. The mostimportant method of setting a base price is the full cost method. The rationale for full-costpricing is that all products should bear their full share of costs. Any product's price, therefore,must cover all allocated costs plus a 'reasonable' profit mark-up or margin. The formula forfull-cost pricing is: Price = ATC(1 + M) where ATC is average total cost per unit of the product,and M is the profit mark-up percentage.

Pricing in the distribution channel

We must now consider how the 'ex factory' price is translated down the distribution channel(i.e. through wholesalers and retailers) to the consumer. Suppose the producer has notsuggested what the retail price should be and merely asks the distributors or wholesalers topay his producer price per item. To cover their costs and provide for profit, the distributors willadd their profit mark-up percentage or margin to their cost before selling to retailers; and theretailers in turn will add their own mark-up before selling to the final buyer. Thus, a chain ofmark-ups exists in the channel of distribution. Each middleman uses a pricing formulaidentical to the mentioned equation, where ATC represents his unit cost of the product. Insome cases the producer may recommend a retail price for his product and then allowmiddlemen discounts based on that retail price. This type of discount is called a trade orfunctionaldiscount; it covers the middleman's operating costs and profits and represents hisinducement or rebate for performing important functions in the distribution channel. For

example, suppose the recommended price for a standard- sized can of paint is 1 110 $ perunit, granting a discount of twenty-five per cent means that the manufacturer bills thedistributor for 1 110 $ (1 - 0.25) or 117.50 $. Thus, if the distributor gets a shipment of 100cans, the invoice is for 11 750 $.

Channels of distribution and logistics

The task of distribution is to make the goods physically available to buyers. A distributionchannel is defined as the combination of institutions through which a producer markets hisproducts to the ultimate buyer. By institutions we mean middlemen such as wholesalers,

distributors, retailers and agents. These middlemen perform important functions such ascontacting current and potential buyers of the product, inventory ownership and risk bearing(that is, taking title to goods before they are sold), various kinds of sorting and handling of theproduct, storage and transportation, extending credit or financing (of their customers) andproviding the producer with information about their local market.

Selecting distribution channels

A producer can distribute his product through a variety of channels. If the producer decides tosell directly to consumers, he uses a direct channel. This may take the form of having salespeople going from door to door to peddle the product, or it may mean that the producerestablishes a network of wholly-owned retail outlets.

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Five sets of factors affect channel selection:1. The market coverage desired by the producer, e.g. to cover an extensive market area

will need the use of indirect channels for intensive distribution.2. The degree of channel control desired, e.g. to ensure proper presentation of the

product to consumers, the producer uses direct channels by eliminating allmiddlemen.

3. Product characteristics, e.g. a bulky product like coal may use direct channels tominimise handling.

4. Market characteristics, e.g. frequent and/or impulse purchase by buyers wouldsuggest the use of intensive distribution, every available channel is used.

5. Manufacturer characteristics, e.g. only a manufacturer with adequate financing canown its retail outlets, if such direct distribution is called for.

Selecting and motivating distributors

Having selected the types of channels to employ, the producer has to pick particularmiddlemen or distributors. He uses such selection criteria as the credit-worthiness of thedistributor, his selling ability, inventory and storage space and his personal qualities. Theproducer may adopt a variety of measures to build enthusiasm and excitement among therevellers, such as providing sales training for distributor personnel, providing useful tips onpurchasing and stock control and supplying sales promotion aids such as printed material onthe products and point of purchase and showroom displays. Proper management ofdistributors includes a periodic evaluation of each distributor's sales performance in relation toprevious periods or other distributors, and ensuring that he moves adequate volume ofinventory on the full product line offered by the producer.

Physical distribution or logistics

Physical distribution or logistics is concerned with the efficient movement of raw materialsfrom suppliers to the production line, and of finished goods from the end of the production lineto the customers. A number of associated activities must be performed and these may begrouped under the four main categories of:

1. transport;2. inventory;3. warehousing (including materials handling); and4. communication.

A wide variety of transportation modes is available to move goods - rail, highway, water,pipeline and air, each with different cost and service (speed) characteristics. Decisions mustbe made regarding the mode of transportation to use for each type of shipment. Inventory is ofcentral importance in distribution system design. Since the cost of carrying inventory is high,procedures for proper management of inventory must be installed. Warehouses (or depots)store inventories. Decisions must be made as to how many warehouses are required, wherethey should be located and what products should be stocked in what quantities. Materialshandling involves the movement of goods within the plants and warehouses. Suitableequipment (such as fork-lift trucks, conveyors, pallets) must be available to permit economichandling of goods. Finally, there must be good communication flow in order to co-ordinate all

the logistics activities effectively. For example, a good communications system should be ableto make available on demand the present stock position of each item at each stock location.

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The promotional programme

Advertisingisdefined as any form of non-personal communication through the mass media

that is paid for by an identified sponsor. Along with sales promotion, personal selling, publicityand public relations it forms the promotional or communications programme of the marketer.Sales promotion is any activity that is used to stimulate sales of a product or service usuallyoccurring once or over a limited period of time. Examples are 'sales' conducted by retail storesat festival periods such as Christmas, the giving away of free samples of the product, andprice reductions on goods.

Personal sellingrefers to the use of salesmen to push the product or service. The sales forcemust be selected, trained, motivated (especially through a good compensation plan) andcontrolled for effective performance.

Publicityis information about a company and its products that is conveyed to the public by themass media because such information is newsworthy and the company pays nothing for it.Public relations efforts of the marketer are concerned with building and maintaining goodrelations with special publics such as customers and the public at large. And such image-building may use advertising as a tool.

The various components of the promotional programme are not used in isolation. Forexample, although advertising may be most suitable for one purpose and personal selling foranother, the two are often employed simultaneously, the relative emphasis depending uponcircumstances. Further, advertising may be used to announce a sales promotion activity.

Advertising

Advertising is a young industry in Africa. Since many products are relatively scarce in thecountry, the typical producer is able to dispose of his output without much promotional effort.With the exception of consumer products companies - especially cosmetics and toiletriesmanufacturers - African marketers do not spend much on advertising and some do notadvertise at all. Yet the trend is changing as more and more companies are realising thatadvertising can be a positive force in their marketing as competition increases. An indicator ofthe growing importance of advertising is the rapid growth in Africa of the number of advertisingagencies.

There are two basic objectives of advertising, namely:

1. to inform the target audience about the product or service; and2 . to create or stimulate demand for the product or service through persuasion.

These translate ultimately into sales of the product, but in planning a specific advertisingcampaign the marketer may choose a more concrete goal such as 'to increase consumerawareness of the product by thirty per cent'.

The key advertising decisions are:

1. setting the advertising budget;2. creating advertising copy; and3. selecting media and vehicles and allocating from the budget to them.

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The advertising budgetmay be based on a percentage of sales or it may be keyed to a levelcomparable to what the competitors are spending. Advertising copy isdefined as the wordsand picture or illustration that make up the advertisement and the way they are laid out tocreate a total impression. Through the copy the advertiser says what he wants to say (called

the theme or message) in the way he wants to say it. Various advertising media areavailablesuch as radio, newspapers magazines, television, outdoor advertising and cinema films.Radio is currently the most popular medium in Africa, but each medium has its advantages inreaching particular types of target audiences. After selecting the suitable media, the next job isto decide how much time or space to purchase in each vehicle (e.g. daily advertisements often or twelve lines in the newspaper medium) and how these insertions will be spread overthe time period covered by the advertising campaign. This is called media scheduling.

In planning and executing his advertising programme, the advertiser relies heavily on theservices of his chosen advertising agency. The advertising agency advises clients onadvertising strategy, creates advertising copy, supervises advertising production and buysmedia time and space. The larger agencies provide many other services, such as advising on

marketing planning and sales promotion, designing and producing brochures and point-of-sale displays, advising on publicity and public relations and conducting marketing research.

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2. Mini Market

General informationObjective: The participants

- get aware of basic elements of marketing

- get ware of the importance of meeting clients` demands.

- get aware of their selling and negotiation skills.

Duration: 1,5 hours

Type of Technique: Simulation exercise

Difficulty level: Medium

Requirements: - 2-3 magazines with colored pictures- scissors

- metaplan cards

- masking tape- flipchart

Preparation of room: At the beginning, chairs are in u-shape formation.Enoughroom for the buyers to prepare their products is needed later.

The story

In this exercise, all participants act as individual sellers, trying to sell a self-made orself-owned item or a service to other participants, external guests or the trainers whoact as customers. In one corner of the room, a table is prepared with materialsparticipants can use for their product development/marketing. As in real life,participants have to perform in a limited market, as only few products will be acquiredby the buyers. After a short time given for preparation, the mini market is opened to thecustomers offering many different products and services. The customers walk around,

listening to the sellers advertise their items. Finally the customers choose someproducts or services they want to buy and acquire them in a real selling-buyingtransaction.

In processing the exercise, the results and marketing strategies are analysed. Manyparticipants will recognise that they failed to start with the most important: investigatingcustomers needs, desires and tastes and to develop a proper marketing strategyafterwards. They also get aware of the difficulties selling in a limited market and theirpersonal skills to negotiate. Finally, the basics of marketing are highlighted.

Mini market is a good introductory exercise as it allows to discuss various aspects ofmarketing. It stimulates creativity.

The exercise can be easily adapted to different situations.

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Procedure

Step Time Most important

content

Required

material

Hints

Introduction 2 Motivation of participants.

Introduce the exercise as anopportunity to practisepersonal skills to marketown products or services.

Instructions/explication ofrules

8 Explanation of theparticipants tasks: everyparticipant has 15 min.to decide on a productor service which he/shewill try to sell to the

others and prepare thechosen item for selling.

Clarify the rules ofexercise utilising theprepared chart (seebackground material).

Tell them to listen to theinstructions carefully as youwill repeat the instructionsonly once.

Announce that you will onlyentertain questions which

shall clarify things written onthe instruction sheet.

Any other information whichthey would like to knowapart from those given willhave to be sought by themfrom the facilitators onanindividual basis.

Dont advice them on theimportance of analysing thetarget market.

Depending on the purchasepower of the group, themaximum selling price canbe lower or higher.

Make sure that theparticipants understand thatthe sold items will not bereturned to them later on.

Preparationfor minimarket

15 Ask for volunteers whowill act as buyer (arelation of at least 1

buyer to 5 sellers shouldbe established; you astrainer can act asadditional buyer).

The buyers leave thetraining room and arenot allowed to come untilthe market has beenopened by the trainer.

The participants choosetheir individualproduct/service, ifneeded, produce it andprepare a presentation.

Basket withmaterial

Monitor the time as no extratime will be given. Timepressure is intended andshould be felt by theparticipants.

Do not advice the wholegroup on the need of marketinformation.

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Step Time Most importantcontent

Requiredmaterial

Hints

The sellers decide how

and where to promotetheir products orservices.

While the sellers arepreparing, the trainerexplains the buyers therules of the exercise. Hebrainstorms with thebuyers on the question:Why do people buy?and collects the ideas onthe flipchart.

See exercise material.

Do not ask for or mentionthe 4 Ps! Take care that youdo not start already theprocessing!

Selling 2 tobecalcu-latedforeachseller

The trainer opens themarket. The buyers goto one shop or anotherin random order.Participants experiencetheir personal sellingand negotiating skills.

After the market isclosed by the trainer,participants come backto their seats in U-

shape.

The marketing andnegotiating strategies arethe most important as far asthe learning points areconcerned. In case you astrainer are a buyer makesure that the points to bediscussed during processingare part of the negotiationwith you.

Presentationof results

5 Record on theflipchart which sellersold most productsand at which price.Who made thebiggest salesvolume?

Processing 20 Key questions:

What are yourfeelings now?

Ask the sellers aboutthe decision process:for what reasons didyou choose yourproduct/ service?

What was yourstrategy in marketingthe product/service?

What are the reasonsfor success and

failure?

Participants get the chanceto express their emotions

and to make someindividual conclusions.

Trainer elicits that somesellers stuck to their sellingprice, others were not able

to create a positiveatmosphere for the buyers,again others were too curt

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Requiredmaterial

Hints

Who asked the buyerabout his needs andtastes beforedeciding on a certainproduct/ service?Why did others not?

Have all buyersexplain their personalreasons for buying.

Why did bargainingwork out in somecases and not at all in

others?

during negotiations or

simply did not have change.

Refer also to the ideas onWhy do people buy? thatthe buyers collected before.

Generalisa-tion &Application

15 What can be learntfrom this exercise?

What can beimproved inmarketing theparticipants realproducts/services?

The trainer explains the4 Ps (see backgroundmaterial) to theparticipants.

To the well-known 4 Psthere has been added2 afifth P for services which iscalled person or process.The fifth P comprises e.g.,relationship with client,technology, environment.Other considerations have been addedto the 4 Ps namely:

people (or everyone

involved from producer toconsumer);packaging(which means the wrapperor the box the productcomes in, but also alladded-value and intangibleassets); andphasing(oreverything to do with time).

It depends on the grouphow extensive and detailedthis part is presented.

Hints for preparation, typical situations and dangers

Despite the rule that the items must be owned or produced by the participants, somemay try to by-pass and sell materials from the host institution (e.g. scissors, clocketc.) found in the classroom. Do explain that only materials out of the basket can beutilised.

Some participants are very shy and do not advertise their items actively. While doingthe bazaar walk, involve them into negotiations. Others may be too loud so that a wildsession may take place.

2 In his book Why marketing management should be different for services, C.H. Lovestockcreated the fifth P for process, also called professional performance.

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Inject also funny remarks in order to render this exercise a lively one.

Variations

If the trainer feels that participants need to acquire more marketing experience andtime is available, a second round can be introduced, with all participants selling thesame item (e.g. eggs, chewing gum or matches) provided by the trainer.

Background material

Instructions for the sellers

Sell an item to the buyer.

You have 3 possibilities:1. To sell an item owned by you2. To sell an item you produce right now3. To sell a service which can be realised within 3 min

You have 15 min. for deciding what to sell, eventually produce it and for preparingyour sales presentation.

Not all products will be bought. Buyers will pay with real cash.

Maximum price is 50.000 cedis.

It will be a real buying-selling transaction.

Sold items are not returned or exchanged afterwards.

You must not sell at a loss.

---------------------------------------------------------

Instructions for the buyers

Walk around the bazaar, listen carefully to the promotion and negotiate with thesellers.

Do not accept first price offered.

You can buy as many products or services offered by the sellers as you like, as long asyou are convinced of the product and its price.

Finally, take a decision and buy the product or service paying cash.

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The Marketing Mix

as proposed by Philip Kotler

PRODUCT PRICE

- Scope of product mix

- Depth of product mix

- Quality

- Design

- Packaging

- Maintenance

- Service

- Warranty service

- Possibility of returning a purchase

- Price positioning

- Rebates and conditions of payment

- Financing conditions

PROMOTION PLACE

- Advertising

- Public relations

- Personal sale

- Sales Promotion

- Brand Policy

- Channels of distribution

- Distribution density

- Lead time

- Stock

- Transport

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3. THEORY OF MARKETING PLAN

General information

Objective: The participants

know the importance of the marketing plan in preparingthe business plan;

understand the components of a marketing plan;

develop knowledge on how to formulate a marketing plan

Duration: 1,5 hours

Type of Technique: Lecturette, structured discussion

Difficulty level: Medium

Requirements: Flipchart, marker pens, session handouts, metaplan cards

Preparation of room: U-shape of chairs

The story

This session is aimed at introducing the detailed marketing plan format. It is presentedin the form of a lecturette with discussion where the trainer introduces the marketingplan format, the main contents and then the participants can clarify any doubts relatingto it. The learning points derived from the Mini Market game could be used as linkingpoints or as examples while describing the marketing plan format.

After the presentation the participants are requested to write a marketing plan for theirown (real) product or service with the help of the given forms.

ProcedureStep Time Most important

contentRequiredmaterial

Hints

Introduction ofthe subject

5' The trainer introducesthis session byexplaining that theparticipants can nowapply the experiencesmade in the Mini Marketexercise to their own

real products andservices.

soft board,flip chartboard,previouslypreparedmetaplancards,

pencil,paper

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Requiredmaterial

Hints

Presentationof themarketing plan

format

30

He could get the

participants mind settowards marketing byasking test questions ashow do you knowwhether there is amarket for yourproduct?, what is thedemand?, where wouldyou best market it? etc.Further session/ discussion steps:

The purpose of the

marketing plan from theparticipants point ofview is extracted.

The contents of themarketing plan areexplained in detail withthe help of thepreviously preparedmetaplan cards.

The Marketing PlanFormat and guide

questions (seebackground material ofthis session) are thenhanded out to theparticipants.

When going through theformat, the guidingquestions are discussedin parallel.

The informationrequirements in general

are also discussedduring the process.

Preparedmetaplancards

The importance ofpreparing a marketing

plan to check theviability of theproduct/service inquestion should beemphasised.

Clarificationand discussion

25 The trainer encourages theparticipants to clarifyterminology, doubtson the format or onthe contents.

Any further queriesregarding the formatand its sub-

components areclarified.

The participantsget the chance toexpress their viewsregarding themarketing plan.

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Requiredmaterial

Hints

Homework 30 The trainer then

distributes thedetailed MarketingPlan Guide (seeseparate sessionunit).

He requests theparticipants todevelop ashomework for thenext session themarketing plan fortheir own product orservice.

If time allows beforethe first day of thecourse ends, theparticipants study theGuide and start towork on it.

Announce that in thefollowing session onthe second course

day some individualmarketing plans willbe presented to theparticipants (if theentrepreneur agrees)and discussed.

Hints for preparation, typical situations and dangers

None.

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Background material

Marketing plan format

1. Description of Product(s)

2. Target Market Segments

3. Target Market Area

4. Demand Analysis

5. Supply Analysis

6. Competitors Marketing Strategies

Product Strategy

Price Strategy

Place Strategy

Promotion Strategy

7. Project Marketing Strategies

Product Strategy

Price Strategy

Place Strategy Promotion Strategy

8. Sales Forecast

9. Fixed Assets for Marketing

10. Total Marketing Expenditure Budget

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Marketing plan guide questions

1. What is/are the product(s)?

2. Which target market segment does each of the product aimat? or: To whom will the business sell its products?

3. Which geographical areas will be the chosen segments?

4. What will be the demand for the product, similar productsand substitutes within the target market segments in thetarget market areas?

5. What will be the supply of similar products and substituteswithin the target market segments from the target marketareas?

6. What are the strategies of the competitors who supply toyour chosen target market segments and target marketareas in terms of product, price, place and promotion?

7. What will be your strategies to supply to your chosen targetmarket segments and target market areas in terms ofproduct, price, place and promotion?

8. What will be the selling price and how much will be sold?

9. What f ixed assets will be required for marketing and howmuch will they cost? What will be the life of the assets andhow will they be depreciated?

10. How much of expenditure will be incurred in terms ofmarketing, including cost of marketing personnel?

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4. THE MARKETING GUIDE

Part I: Guiding Questions

Part II: Marketing Plan Example

Part III: Workbook

PART I GUIDING QUESTIONS

1.1 What is the product?

Give a short description of the product, its size, colour, shape, the quality, thepackaging, and the range of products to be offered. Describe product features,uses and benefits, whether it is a new or an existing product.

1.2 How does it compare in quality and price with its competitors?In answering this question, determine what will make the product unique in the

market. Will it be of better quality than what is currently available, or will the

price be significantly different to make it easier to sell? What other features willmake it different from competitors' products?

1.3 Where will the business be located?Location of the business is essential to either reduce costs, or increase the chances

of customers stopping at the business to look at your products or at least makeinquiries. If the business is retail or service oriented, it must be near the market.If it is production oriented, it may be better to be closer to its raw materialsources or near infrastructure facilities (e.g., port), transport and utilities (e.g.,power) centres.

The important factors to consider in location are:

- proximity to essential raw materials- proximity to markets and distribution channels- availability of transport facilities- availability of efficient and cheap skilled labour- existence of related industries (forward/backward linkages)- infrastructure facilities (e.g., road, power, port, etc.)- communication facilities (e.g., post office, telephone, fax, telex, etc.)

Good location is one of the most crucial factors in market development, hencechoice of location should therefore be carefully considered. Location shouldalso be differentiated in terms of marketing outlets or factory location. In mostsmall businesses, marketing outlet and factory may refer to one and the same

location.

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1.4 What geographical areas will be covered by the project?Determining the geographical coverage (that is, where to market the product)

depends very much on the nature of the product; how well it lends itself totransport and distribution; the size of the market in different localities; the

presence of strong competitors in the areas under consideration; yourwillingness to travel and, of course, on existing contacts or channels ofdistribution you are familiar with.

In general, it is easier to deal with a limited market area, since travel time anddistribution costs can be kept to a minimum.

1.5 Within the market area, to whom will the business sell its products?Here we are really talking about a specific target group or market segments among

the population, within the specified market area you have chosen, to whom youwill aim to sell your products. Identify these customers as clearly as possible(e.g., their characteristics and profile in terms of age, sex, income, buying

practices, consumption pattern, etc.) in order to ensure that the product doesindeed suit their taste, needs, wants, taste, income, lifestyle, etc.

Will you sell to wholesalers, retailers, and if so, what are the consequences? If youplan to have a retail outlet, choice of location is critical.

1.6 Is it possible to estimate how much of the product is currently being sold?This estimate should be possible to do in a number of ways. Basically, the approach

is to move from the general to the particular. For example, you can start byestimating consumption, usage or sales of the product per head of thepopulation in your market area.

Then, one by one eliminate certain segments (specific groups categorised by age,income, location, sex, habits, etc.) of the population who may not be yourconsumers so that, in the end, a reasonable figure can be assumed to becorrect. If possible, it is good to check some statistics, if they are available. Ifyou cannot avail of any reliable statistics (secondary data), it may be better tomake a simple and low-cost sample survey, i.e., gather firsthand or primarydata. For example, if you know how many shops there are which sell your orsimilar products, and if you question a few of them regarding their sales, youcan estimate the total sales of the product.

Market Survey Checklists

The following is a series of checklists which can guide you in your interview withwholesalers, retailers, and consumers (people who use the product) orcustomers (people who buy your product). The questions are intended to beillustrative and you should learn how to begin your interview (by building rapportwith your interviewees so that they will open up and not feel suspicious orthreatened) and pose your questions diplomatically, politely and clearly to getthe desired information and accurate answers.

If the questions are adequately answered, you can make a preliminary estimate ofthe total demand in your market area and the share of the market which youcan realistically capture, given an effective marketing strategy. If similarproducts are distributed mainly by wholesalers and retailers, conducting such asurvey is really the first step in establishing a relationship with your customers

and finding out their needs.

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There are two main reasons for doing the survey:a) accurate collection of information so that a reliable level of sales and

production can be forecasted;b) establishment of good relations with your own potential customers or

buyers.

I. Wholesalers/Importers' ChecklistMost consumer products such as biscuits, sugar, toothpaste, matches, etc., find

their way to the consumers through wholesalers who purchase the goods inbulk from a factory or distributors and then sell them in smaller quantities togrocery stores and retail shops (customers).

Since there are usually few wholesalers and many retailers, it is often best to startyour market survey by seeing the wholesalers. Once you have defined yourmarket area, try and locate all the wholesalers who supply your area and askthe following questions:1) How many wholesalers are there in your market area? What are their

names and where are their locations?2) What market areas does each wholesaler cover?3) How much of your product does each sell per year? Is it increasing

every year? If yes, by how much?4) Are there seasonal fluctuations?

For example: 1 2 3 4 5 6 7 8 10 11 12 monthsHighMediumLow

5) What about the extent of competition? Are they large in size, are theirproduct features the same, what are their quality standards? What aretheir marketing practices?

6) What about product improvements, i.e., do they think the market needssome new design, more varieties, better features, new productspecifications?

7) What are their selling price of your product?8) At what price do they buy it?9) What is the length of credit extended to them by their suppliers (one

week, one month?), if any?10) Assuming your product is of a suitable quality and priced competitively,

how much of your product would they take as a sample order?

II. Retailers' ChecklistRetail shops are the last link between producers and consumers. Ultimately, they

make the final sale to the public. Their proximity to the buyers makes themvaluable sources of information on what people actually want and buy.

For example, if a person buys ink which turns out to be of poor quality, then thecustomer will complain to the shop from where he made the purchase, ratherthan going to the factory. For this reason, retailers are in a strategic position toidentify gaps in the market, particularly between what his customers demandand what his wholesalers can supply. Some creative retailers may be able togive you new product ideas that could also be made in your factory.

The objectives of interviewing retailers are:a) to cross-check data provided by wholesalers;

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b) to learn about the needs, wants, taste, buying habits, etc., of theconsumers;

c) to look for potential new products;d) to learn how to position your product as against your competitors'

products;e) to learn how to market your product more effectively;f) to help identify promotional measures that will be useful in selling the

product (e.g., display boards, give-aways, samples, etc.);g) to help formulate the marketing strategy of the business.

Some questions which may be asked from the retailer:1) How much of the product does he sell in a year?2) How many competitors does he have in his neighbourhood?3) Does he experience any seasonal fluctuation in sales?4) From what wholesaler or manufacturer does he buy the product?5) Is he given any credit by his suppliers?

6) If he is given credit for the product, for how long is the credit given?7) Does he sell on wholesale anywhere, if so, where?8) What is his purchase price for the product?9) What is his selling price for the product?10) Does he have any ideas whether his customers would like any changes or

improvements in the product?11) Does he buy the product cash or on credit?12) Does he sell on commission?

III. Customers' or Consumers' ChecklistEven if you have interviewed wholesalers and retailers, it is important to discuss

market acceptance with customers (who buy the product) and consumers (whouse the product). Their feedback is very useful, either to cross-check previouslycollected opinions or to stimulate new ideas that neither of the other two groupsof interviewees have touched on or captured.

In particular, if your product is a capital good (e.g., machinery), it is necessary to talkto consumers as they normally purchase directly from the factory. Somequestions which can be asked from customers and consumers are:1) Why did you buy this product?2) When (What month) did you buy it?3) How often do you buy this product?4) Will you be needing more of this product in future? How many?5) How much did you pay for it?

6) Are you satisfied with it?7) Would you like to see any changes or improvements?8) From where did you buy it (locality), from whom?9) Why did you buy it from this particular supplier?

You must have a record of the profile of your interviewees (wholesalers, retailers,consumers) such as age, occupation, income, buying habits, sex, consumptionpattern, etc. as this information will be helpful in analysing and describing yourmarket.

1.7 What share or percent of this market can be captured by the business?This is always a difficult question to answer precisely, since much depends on your

ability as an entrepreneur to sell your product, your network, the effectivenessof your marketing strategy and your aggressiveness in pushing the product

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combined with business common sense. It also depends on the extent andstrength of competition. However, some guidelines can be given. If you havedone your market survey properly, you will know the following information aboutyour competitors:

a) whether there are few or many competitors;b) whether they are large or small in size;c) whether their product features are similar or not similar to one another;

d) whether their product features are similar or not similar to yours.

The following decision guide may help in processing this information to make anestimate of your market share.

DECISION GUIDE

Number ofCompetitors

Their Size * Their ProductFeatures

Market Share (in %)

Many Large Similar 0 - 2,5Few Large Similar 0 - 2,5One Large Similar 0 - 5Many Large Dissimilar 0 - 5Few Large Dissimilar 5 - 10Many Small Similar 5 - 10Few Small Similar 10 - 15Many Small Dissimilar 10 - 15One Large Dissimilar 10 - 15Few Small Dissimilar 20 - 30One Small Similar 20 - 50One Small Dissimilar 40 - 80No competitor 100

* It is assumed that your business will be in the "small" category when entering themarket.

1.8 How much of the product will be sold?Now that you have estimated the market share you can realistically capture, youmake an estimate of your targeted sales (sales forecast), that is, every monthfor the first year and yearly for the next five years. The first annual salesforecast is generally a fraction of the estimated market share and could be

anywhere from 60 to 80% of the market share in the beginning. This is to giveallowance for some errors in estimating the market.

1.9 What is the selling price of the product?There are three common ways of determining the selling price of your product.These are:

a) The "Cost-Plus Method"This is done by adding a reasonable profit margin (say 20% to the final total product cost

(i.e., marketing cost plus production cost plus administration cost, plus financecost). The final product cost per unit is determined by dividing the total productcost by the number of units produced. To this figure you may add a profit margin.b) The "Comparative Method"

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This method compares your product with others in the market and then, basedon your product's quality and other features, you may fix your price lower,higher or the same as your competitors'.c) "What the Market Will Bear Method"

This method is based on supply and demand of the product. For instance, ifthere is a scarcity of the product in the market (sellers' market), you can setyour selling price high, hence your profit margin could be higher. Similarly, ifthere is a surplus of the product in the market (buyers' market), you may beforced to lower your price, and consequently your profit margin. (Twoalternatives to avoid reducing profit margin are: (1) to reduce the product costby identifying which areas under marketing, production, administration andfinance can be reduced), and (2) to identify other market segments who canafford to buy at the original price).In practice, all three methods should be used from time to time in any business,but in general and especially when starting a business, it is safer to use the"Cost-Plus Method". It is also a good business strategy to anticipate your

competitors' reaction to your pricing strategy.

1.10 What promotional measures will be used to sell the product?Promotion is one of the most neglected aspects of marketing a product.Promotion is necessary to entice and convince buyers to purchase your productand not your competitors'. Promotion is generally divided into advertising, salespromotion, publicity and personal selling. Some of these measures are:- advertisements on radio, newspapers, magazines, trade journals or, if

appropriate on television,- volume discount (reduced prices when selling in bulk),- handbills distribution,- prompt, regular, courteous and efficient service to your clients,- good merchandising ensuring proper display of your product on the shelves of

your market outlets,- special credit facilities to regular customers,- posters,- billboards,- signboards,- free samples,- free trial,- press release,- buy one - take one,- raffles,

- coupons,- sponsorship of local shows, festivals,- participation in trade fairs and exhibits,- personal selling.

One word of caution on promotional measures. These activities cost money toyour business, so be sure that for every promotional measure adopted, there isa foreseeable increase in sales. Without a justifiable increase in sales, cost willescalate, hence increasing the unit cost of the product.

1.11 What marketing strategy is needed to ensure that sales forecasts are achieved?

Formulating a marketing strategy means proper planning, balancing and

integration of the business's product strategy, pricing strategy, distributionstrategy and promotion strategy. In order to market effectively, you must identify

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your market, know your product and study your competitors. You also have tospend some amount for promotion, price your products correctly and distributethem to your retailers and/or consumers effectively and efficiently. You shouldnot assume that because your product is good that customers will automatically

buy your product. Analyse what the best time of the year is to promote yourproduct there might be seasons where marketing would not have any effect.

1.12 How much do you need to promote and distribute your product?

You must have a marketing budget that includes your marketing cost such asfor promotion, distribution and salaries of your sales force, if any. Not allmeasures are equally adequate for your product.

PART II MARKETING PLAN EXAMPLE

1.1 Description of the ProductCommon laundry soap is currently sold in small round balls with a diameter of 3

inches or 7 centimetres which can easily be cupped in the palm of the hand andthen rubbed with water into the clothes that are being laundered. The size andweight of each piece vary slightly according to customers needs and what theycan afford, but the normal range is between 200-400 grams per piece.Depending on the type of oil used in making the soap, the colour can rangefrom light to dark brown. The soap carries the brand name "Energiser".

1.2 Comparison of the Product with its Competitors'Mr Marketing, who regularly deals in soap in his grocery store, has long observed

that the quality of soap currently sold in the market is poor and he has received

many requests from his customers for a better quality soap. Due to the distanceof the town from the capital city (about 50 km), only three soap distributorsregularly supply soap in the area. Quality of the soap is based on its cleansingpower, smoothness in rubbing soap against the clothes, no chemical reaction tothe hands, and less water consumption for a clean rinse. The proposedmanufacturing project aims to fulfil these four requirements.The main factor in determining a soap's quality is the oil used. Mr Marketingintends to use palm oil instead of the more commonly available rice bran oil. Hesells the ordinary quality soap at a price of cedis 13,500 per kilo (kg), but hisregular customers say they would be willing to pay up to cedis 15,500 per kg, ifthe soap is superior.

1.3 LocationThe business will be located in Mr Marketing's present store location in the centre of

Georgetown at 38, Training Street. This location has been chosen for thefollowing reasons: the production operation can easily be supervised by theowner; it is near the transportation hub; it is close to its targeted markets; andonly minor investment in building expansion will be needed.

1.4 Market AreaMr Marketing plans to distribute the soap principally in his grocery store and in ten

neighbouring villages which are within two hours' ride by public transport fromthe town centre. This area has been selected because: (a) Mr Marketing

personally knows many of the major retailers of soap in these villages; (b) it isclose to the factory location; and (c) it is often neglected by distributors from thecapital city of Accra.

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1.5 Main CustomersWhile the main buyers of soap are eventually individual households, Mr Marketing

plans to sell his soap in his grocery store where there are many walk-in clients

from the town as well as retailers from the villages. In the ten neighbouringvillages he has contacted the 15 major soap retailers and they have agreed tosell his soap, provided its quality is at least as good as what they are sellingnow. These retailers have confirmed that their customers are demanding abetter quality soap.

1.6 Total DemandThese retailers, when surveyed, claim that each of them sell approximately1,000 kg of soap every month, or a total demand of about 15,000 kg per month.

1.7 Market ShareA sample survey of competitors in the area indicated that there are only three

manufacturers selling soap to the 15 major retailers to whom SBS SoapManufacturing plans to sell its product. The competitors are small in size andthe quality of their products is inferior to what is planned by the project.

Because the number of competitors is small, their size is small and their product isdissimilar to the one proposed, a market share of 20 to 30% is estimated asbeing reasonable. The more conservative estimate of 20% in the first year willbe assumed. In the initial stages of production, operating at 100% capacitycannot be assumed. There are bound to be initial operating problems, rawmaterial shortages, distribution difficulties, etc., hence only 80% is projected tobe served in the first year.

1.8 Selling PriceThe selling price is based on "Cost-Plus Method". Mr Marketing feels that a profit

mark up of 8% over the total product cost is very reasonable and competitiveespecially at this initial stage.

Unit product cost is estimated at cedis 12,960. Adding the 8% profit mark up, hiswholesale price is cedis 14,000 whether delivered or walk-in. This means thatby adding another 10% mark up for the retailer, the retailers selling price will becedis 15,400. At this price, it is slightly below the price of cedis 15,500 which hisregular customers indicate to be willing to pay for a superior quality soap. Hecharges the retail price of cedis 15,400 for walk-in single purchase clients.

1.9 Sales Forecast

If the total demand is 15,000 kg per month and the projected market share is 20%,the projects potential market size is 15,000 kg x 20/100 or 3,000 kg per month.However, for practical purposes, only 80% of the projected market size will beconsidered for sales forecast, that is, 3,000 kg x 80/100 or 2,400 kg per month,or 28,800 kg in a year.

Mr Marketing believes that the market is expanding quite rapidly as the town ofGeorgetown has the highest population growth rate among the 20 towns in theprovince of Businessheaven, and a large cement plant will be built soon nearthe town. Conservatively, he projects that his sales v

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