This Document Contains Chapters 5 to 6 Chapter 5: Learning from the Competition: Your Competitive Intelligence I. Business Plan Building Block (SLIDE 5-2) This chapter will help you improve your competitor intelligence by learning from and defining the competition. It will help you build distinctive value for your product or service and further define your specific niche. It will also help you establish what drives your strategy. After completing this chapter, you will be able to write a brief competitive overview. II. CHAPTER LEARNING OUTCOMES (SLIDE 5-3 and SLIDE 5-4) After completing this chapter, your students should be able to: • Use competitive intelligence to collect and use information about your competition for the purpose of growing your business. • Discover how to create and grow your market with the help of your customers and competition. • Define your real competition through competitive touchpoint analysis. • Scout the competitive landscape to research your competition. • Evaluate your potential competitors using a competitive test matrix or SWOT analysis. • Begin your pricing strategy by completing a competitor pricing review sheet. • Define the unique benefits offered by your product or service. • Use the four-phase life cycle to change the arena and establish your competitive positioning strategy. • Discover ways to create uniqueness through service and product change. • Benefit from partnerships and associations with your potential competitors. • Draft your competitive strategy. III. LECTURE OUTLINE 1. Who Is Your Competition? (SLIDE 5-5, SLIDE 5-6, SLIDE 5-7 & SLIDE 5-8) Encourage your students to think of their competitor in broader context. Stress that their competition includes those companies or individuals that provide similar products, services, or benefits as perceived by their target customer (SLIDE 5-5). Review the three types of competitors (SLIDE 5-6): 1. Direct (first level) competitors are those companies or individuals that offer the same types of products or services as perceived by your target customer. These are the most obvious types of competitors. 2. Indirect (or second level) competitors are companies or individuals that provide the same benefits as perceived by your target customer. Indirect competitors compete with your business for “same occasion” dollars. 3. Invisible competitors include any business or individual that has the capacity and desire to provide similar products, services, or benefits to your customer. Explain to students to identify their direct, indirect, and invisible competitors they are going to need to conduct competitive intelligence (CI)—the process of learning, collecting, and using information about your competitors for the purpose of growing your business. Competitive intelligence is proactive and future-oriented. Suggest to students that they are looking to develop and improve their specific niche or position in the marketplace. Review SLIDE 5-7, their competitive intelligence will require a well-researched understanding of: • your target customers, • your current competition, and • your future competition. Ten common goals of competitive intelligence are provided in SLIDE 5-8. 2. Competitive Touchpoint Analysis (SLIDE 5-9, SLIDE 5-10 and SLIDE 5- 11) Encourage your students to get them started on evaluating their competition, but first they will need to recognize what is of value to their customer. Touchpoint analysis (Action Step 28, page 109) is a way for your students to begin learning about their competition in order to find out what benefits are important to them (SLIDES 5-9 and 5-10). It involves analyzing customers’ perceptions of the competition in order to find out what benefits are important to them. A touchpoint is any contact that that customers have with any aspect of competition. Explain that by making a list of all the touchpoints allows your students to identify their competitors’ strengths and weaknesses. A touchpoint analysis will also enable your students to develop a distinctive competency—unique features and benefits that attract customers and encourage customer loyalty (SLIDE 5-11). 3. Scouting the Competitive Landscape (SLIDE 5-12, SLIDE 5-13, SLIDE 5- 14, and SLIDE 5-15) Explain that there are all kinds of primary and secondary sources that will help your students learn more about their competitors. A number of these major other sources are listed on page 105 and SLIDE 5-12. These information sources will need both primary and secondary research skills. The particular source(s) that will be most useful will depend on the type of business, resources, time factors, and so on. A more comprehensive list and discussion of online and offline sources of competitive intelligence can be found by linking on to the Industry Canada sites provided in Box 5.1, page 110. Once information is gathered on competitors, explain to your students that they are going to have to do competitor profiles (SLIDE 5-13). The kinds of information they will be looking for are shown in SLIDE 5-14 and SLIDE 5-15 and Box 5.2, page 111. Encourage your students to complete Action Step 29, page 111, which will help them to complete a list of potential competitors. 4. Developing Your Competitive Strategy (SLIDE 5-16, SLIDE 5-17, SLIDE 5- 18, SLIDE 5-19, and SLIDE 5-20) Explain to students that it’s time now that they begin to think about their competitive strategy (SLIDE 5-16). Positioning is the process of establishing in the mind of the consumer a unique image or perception of a company, product, or service. Competitive positioning is the process of establishing unique benefits and features that the target customer values relative to the competition (page 113). Competitive positioning provides answers to three major questions (SLIDE 5-17): • What is it that makes your company unique? • What is your distinctive competency? • What key component will give you the competitive edge? Explain to students that all decisions, including those about what products to develop, which customers to target, and which markets to enter, should be based on their driving force (or distinctive competency). For most small businesses, there are three broad competitive strategies, pages 113–114 and SLIDE 5-18: 1. Niche or focus strategy. A company carves out a specific or narrow segment of a market. This strategy is particularly popular among smaller businesses. 2. Differentiation strategy. A differentiation strategy helps a firm to compete by successfully developing and maintaining a unique perception of its product or service that is valued by the customer. 3. Cost leadership strategy. A company successfully competes on price by being a low-cost producer or service provider. Normally, this is not a recommended strategy for most small businesses. However, there are creative exceptions such as PropertyGuys.com, as we will learn in Chapter 14. Explain to students that a competitive test matrix (SLIDE 5-19) is one method that can help them to evaluate their potential competitors and establish their unique distinctive competency or driving force (Figure 5.1, page 115). Also explain that another approach to developing their unique product or services relative to their competition is the more traditional competitive SWOT— an analysis of the internal strengths and weaknesses and external threats and opportunities for perceived competitors (SLIDE 5-19). Recall that in Chapter 3, page 73, we introduced a SWOT analysis to develop a strategy for a business idea. Explain to students that they now can use this same SWOT framework as they analyze their competitors. The first section of Action Step 30, page 117, will assist your students in developing their own competitive test matrix. In preparation for a discussion on pricing (Chapter 6) with your students, explain to them that we want them to start thinking about the price they will be charging for their product or service given their competitor touchpoint analysis and their competitor analysis (SLIDE 5-20). Encourage your students to complete a competitor pricing review sheet (Box 5.3, page 116). Have your students complete action Step 30, page 117, which will encourage them to think about their competitive pricing statement. 5. The Competition Life Cycle (SLIDE 5-21) The competition has a life cycle that can be grouped into four broad stages: embryonic (birth), growth, maturity, and decline. For the most part, these stages are determined by the product life cycle (see Figure 5.2 and Figure 5.3, page 118). As shown in Box 5.4, page 119, characteristics of each stage include: 1. Embryonic (birth) • no competition; arena is empty • pricing is experimental • low sales volume • difficult to find distributors, and resellers demand huge gross margins • profit is chancy and speculative 2. Growth • product innovation • strong product acceptance • beginning of brand loyalty • lots of promotion • distributors and resellers want product • profit shows signs of peaking 3. Maturity • peak customer numbers • zero product modifications • product differentiation instead of product improvement • production runs are longer • resellers cool off • advertising investments increase, in step with competition • some businesses fail • prices declining 4. Decline • extreme depression in the marketplace • competition becomes desperate • R&D ceases • promotion vanishes • price wars • few resellers • opportunities emerge for entrepreneurs in service and repair • very few firms hang on 6. Your Competitive Positioning Strategy (SLIDE 5-22 & SLIDE 5-23) Competitive positioning is the process of establishing unique benefits and features that the target customer values relative to the competition. Explain to your students that their competitive strategy must be a constant process of positioning and moving their product or service toward a growth market (SLIDE 5-22). By constantly adding benefits to their product or service, they can change the arena and guide their business into growth segments (see Figure 5.4, page 120). Encourage them to continually learn from their customers and competitors so they can change and adjust. Explain to your students that they can guide their business back into growth segments and create their own niche by using two major thrusts (SLIDE 5-23): 1. Create strategic alliances. 2. Create uniqueness by continually changing your product or service to meet the changing needs of your customers. 7. Think Points for Success Review the following think points with your students: √ Customers help you determine who your competitors are. √ There are three basic types of competitors—direct, indirect, and invisible. √ A competitive touchpoint analysis can be conducted by using primary research techniques such as questionnaires, interviewing, and surveying. √ Learning from the competition will help you formulate your competitive positioning strategy and position your business. √ Knowing your driving force and distinctive competency will help you make better decisions. √ Your competitive positioning creates uniqueness by continually adding benefits to your product or service, and it guides your business into growth segments. √ Establishing strategic alliances with your competitors also gives you a competitive edge. 8. Checklist Questions and Actions to Develop Your Business Plan (SLIDE 5-25 and SLIDE 5-26) Review the following Checklist Questions and Actions to Develop Your Business: • Define and analyze your real competition through competitive touchpoint analysis. • Construct a competitive test matrix or competitive SWOT analysis. • Draft a competitive pricing strategy. Are your prices competitive? • What is your major competitive positioning strategy? • What is unique about your product or service? • Are there any invisible competitors ready to invade your territory? • What is the size of the total market, and what share do you expect to achieve in the first, second, and third year, and why? IV. SUGGESTIONS FOR GUEST SPEAKERS Some guest speakers to consider include: 1. An athlete. It is preferable to invite someone who is well known to students. Have him or her talk about training, the will to win, and why athletes have coaches. Ask about the intensity of competition, when it increases, and when it fades. How does he or she prepare for a major competition? 2. An owner or manager. Select an owner/operator of a major fast food franchise such as Subway, Second Cup, or Tim Hortons. Suggest that he or she discuss how the company does its competitive analysis. Who is their major competition and why? How does the company try to differentiate its product/service? 3. A salesperson. A used-car salesperson would give your class a taste of what competition is like in a mature or declining industry. A computer-hardware sales manager might paint a slightly different picture, while a salesperson for medical equipment for outpatient care and home use might paint still another picture. V. CLASS PROJECTS 1. Ask students to close their books. Write the four phases of the competitive life cycle on the board and have student volunteers list the qualities or characteristics of each phase. When completed, have students open their books and add those qualities that were missed (see Box 5.4, page 119). With the complete list on the board, take three to five products or services through the competitive life cycle. Urge your students to be imaginative and to use products or services they are familiar with. 2. Have students list the five major businesses in their local area and then list three competitors for each one. 3. Choose a mature industry and brainstorm ideas for survival. (This is particularly important if a start-up leaps into a business that is capital intensive with much expensive equipment and large bank loans.) 4. Send your students into the marketplace for a look at how small business owners are competing with each other. VI. INTERNET EXERCISES 1. SWOT Analysis For many companies, competitive SWOT is part of their strategic analysis process. SWOT raises answers to a number of key questions under the four letters of the SWOT acronym: S: What are the company’s most important strengths, and how do you best employ and strengthen these? W: Which weaknesses are the most critical for the company to deal with, and how can these be improved? O: What are the companies’ best external opportunities and possibilities, and how can these be utilized or optimized? T: What are the most important or emerging threats, and how can these be eliminated or avoided? Ask students to visit the Strategis “Managing for Business Success” site: http://strategis.ic.gc.ca/epic/internet/inmfbs-gprea.nsf/en/lu00030e.html A SWOT analysis worksheet is provided. Get students to fill in the analysis sheet with answers to the four key questions about their anticipated business and where it is going in the future. 2. SWOT Lesson and Exercise Ask students to link on to Marketing Teacher.com: http://www.marketingteacher.com/Lessons/lesson_swot.htm Get them to read the SWOT analysis lesson and complete the SWOT analysis exercise. 3. Partnership Selection Ask students to visit the Strategis “Managing for Business Success site: http://strategis.ic.gc.ca/epic/internet/inmfbs-gprea.nsf/en/lu00030e.html A list of the more important criteria for good partner selection is provided. Get students to check off or prioritize the ones they feel are most important in their partner selection and search strategy. 4. SME Benchmarking Tool (Box 5.1, page 110) SME Benchmarking Tool: http://ic.gc.ca/eic/site/pp-pp.nsf/eng/Home Performance Plus is an online performance benchmarking tool that can help small businesses determine how they measure up against their competitors Have students click on Small Business Profiles and discover the answers to these questions: • What are the Small Business Profiles? • How are they derived? • How can you use the profiles? • How “small” are the businesses represented in the Small Business Profiles? • What data items are available? Encourage students to click on to “View a Sample Case.” By following this example, they will learn how to use this “treasure” information source to get current and historical industry information. VII. SUGGESTED LESSON PLAN VIII. SUGGESTED ACTIVITIES ACTIVITY 1: Review and Overview 1. Review Chapter 4 and answer any questions. (Show SLIDE 4-2, SLIDE 4-3, and SLIDE 4-4 and SLIDE 4-18 of Chapter 4 if necessary.) 2. Introduce Chapter 5 and show and explain SLIDE 5-2, SLIDE 5-3, and SLIDE 5-4. Activity 2: Who Is Your Competition? Show and briefly explain SLIDE 5-5 and SLIDE 5-6. Optional class discussion exercise (30–40 minutes) 1. Begin by explaining the term competition (SLIDE 5-5) 2. Ask students to recall the Ron Taylor case, page 103, in the opening vignette. (If they did not get a chance to read the caption, give them a few minutes to do so). Ask how Ron defined his competition and who his real competitors were? a. Answer: Ron defined his competition in terms of anyone who could provide not only the same features but also the same benefits. He learned that his real competitors might even be his potential customers. In today’s market, even customers can become competitors. 3. Now ask who the competitors of Crazy’s Roadhouse were (page 105). a. Answer: Max, the owner, learned that he had a number of different competitors, depending on the dining-out time. 4. Complete the discussion by explaining that in this new economy, it is no longer obvious who the real competition is. With technology, such as the Internet, the potential competition could be anywhere from “down the street to half way across the world.” Point out that today’s customer is far more elusive and less loyal. The key here is that, to a large extent, the customer defines who the real competition is, and primary research, supported by secondary research, is critical. 5. Explain that small businesses should plan not to fight the competition. In many cases, they should be looking to partner and form strategic alliances with the competition. 6. Show and briefly explain SLIDE 5-6. Activity 3: Competitive Intelligence Show and explain SLIDE 5-7 and SLIDE 5-8. You might want to begin by getting students to recall the experience of Perri Domm of Goodbye Graffiti in the opening caption. The lack of competitive intelligence was a costly mistake. Fortunately, Domm learned his competitive lesson. He now arms himself with competitive intelligence, has a competitive plan, and keeps a sharp look out for competition—spending some $150,000 just to maintain and build his unique brand. Activity 4: Competitive Touchpoint Analysis See NETA Lesson Plan #1 Activity 5: Other Sources of Competitor Information Show and briefly explain SLIDE 5-12, SLIDE 5-13, SLIDE 5-14, and SLIDE 5-15. Encourage students to complete Action Step 29, page 111. Activity 6: Networking Break Encourage students to network and learn more about each other during the break. Activity 7: Developing Your Competitive Strategy See NETA Lesson Plan #2 Activity 8: The Competition Life Cycle 1. You may want to ask students to recall the industry life cycle stages discussed in Chapter 2, page 40. Explain that the same type of cycle applies to the competition. 2. Show and explain SLIDE 5-21. 3. You may want to refer students to Figure 5.2 and Figure 5.3, page 118. 4. For more details, refer students to Box 5.4, page 119. Activity 9: Your Competitive Positioning Strategy 1. Show SLIDE 5-22 or refer students to Figure 5.4, page 119. Explain that different competitive strategies are needed at each stage of the product life. A major objective of competitive positioning for businesses is to create their own pie by continually guiding their businesses into growth markets or segments. As an example, you may want to review how Mina Cohen (page 120) shifted her embryonic business into a growth market by creating an association with a travel agency. 2. Show SLIDE 5-23. Suggest that a competitive strategy should focus on the following two major thrusts: 1. Creating strategic alliances. 2. Creating uniqueness by continually changing your product or service. 3. Complete the discussion by reiterating that competitive market strategy involves learning from your customers and competitors in order to guide the business into a growth market—where the action is. Activity 10: Summary, Q&A, and Preparing for Chapter 6 1. Recap the key points for each objective (using SLIDE 5-2, SLIDE 5-3, and SLIDE 5-4 if necessary). 2. Encourage students to complete the Business Plan Building Blocks on page 123. 3. Show SLIDE 5-25 and SLIDE 25 and encourage students to complete the Checklist Questions and Actions to Develop Your Business Plan, page 124. You may also want to briefly review the Think Points for Success, page 123. 4. Show SLIDE 5-27 and encourage students to complete the case study questions. Answers to the case study questions are contained below in Section IX. 5. Respond to any questions that students may have. 6. Encourage students to go to the Nelson Small business site: www.knowlescastillo6e.nelson.com. Click on to the Test Yourself link and complete the true or false/multiple choice, short answer, and matching exercise for Chapter 5. 7. Have students read Chapter 6 in preparation for the next lesson. Some instructors may want to encourage students to also prepare a mind map of key points contained in Chapter 6. IX. CASE STUDY In the opening vignette of Chapter 4, we profiled My Virtual Model (MVM), a successful Canadian company headed up by Louise Guay and Jean-François St-Arnaud. MVM’s major B2B clients included Lands’ End, Sears, L.L. Bean, and Adidas. In this case study, we encouraged you to do some further research into this winning company. Now we want you to dig a little deeper and consider the competitive environment for MVM. Our Chapter 5 case study questions will help you put to practice what you have learned from this chapter and improve your competitive intelligence skills. Case Resources The following sites will help you answer the case study questions. We suggest that you begin with the two case study Web casts listed first. • Innovation in Canada, The Practice of Innovation: http://innovation.ic.gc.ca/gol/innovation/site.nsf/en/in04697.html. Be sure to view both Web casts. • Innovation In Canada, The Practice of Innovation, My Virtual Model, Case Profile (text version): http://innovation.ic.gc.ca/gol/innovation/site.nsf/en/in04706.html • Innovation In Canada, The Practice of Innovation, My Virtual Model, Case Profile (text version): http://innovation.ic.gc.ca/gol/innovation/site.nsf/en/in04712.html • Innovation Canada, “Case 6, My Virtual Model Inc.” http://innovation.ic.gc.ca/gol/innovation/site.nsf/en/in04211.html • Innovation Canada, Module 5—Stage 4—the Continuous Innovation Cycle: http://innovation.ic.gc.ca/gol/innovation/site.nsf/en/in04199.html • My Virtual Model home page: http://www.myvirtualmodel.com/en/index.htm. • Lands’ End, About Lands’ End: http://www.landsend.com, then click on “About us” • Lands’ End, Direct Merchants: http://www.prnewswire.com/mnr/landsend/11847/ Case Study Questions and Answers 1. Types of competitors a. On page 105, we encouraged you to think about your competition in a broader sense. Briefly define MVM’s competition in terms of this expanded definition. Answer: MVM’s competition includes all those companies or individuals that provide or can provide similar online products, services, or benefits as perceived by their target customer. This means that any company that improves the online shopping experience would be a possible competitor. The main point here is that any company that can provide the same or similar benefits is a potential competitor (indirect). MVM’s competition could also include invisible competitors—people or businesses that have the capacity or desire to provide the same products, services, or benefits. b. Briefly describe the difference between a direct and an indirect competitor. Answer: Direct or first-level competitors are those companies or individuals that offer the same types of products or services, as perceived by your target customer. They offer a product or service, which is potentially interchangeable with your product offering in the eyes of the consumer. Indirect or second level competitors are companies or individuals that provide the same benefit as perceived by your target customer. c. According to St-Arnaud of MVM, “We have the technological base to do everything more cheaply and more quickly than our competitors. It’ll take them a long time to catch up” (http://innovation.ic.gc.ca/gol/innovation/site.nsf/en/ in04211.html). In Chapter 2 we highlighted Unique Solutions Design. Link onto The Virtual You (http://www.uniqueltd.com/main_products.html). Is Unique Solutions Design a possible MVM competitor? Answer: The Virtual You™ of Unique Solutions Design is a web application designed for retailers in the apparel market. It allows individuals to "try on" their garments virtually. Tanya Shaw Weeks and her company Unique Solutions Design Ltd. Could very well be a direct competitor of MVM. Although, her “Virtual You” is not exactly the same product as the MVM “My Virtual Model”, it can be argued that Unique Solutions Design offers the same services as perceived by their target customer. d. In Box 4.1 (page 83), we highlighted Critical Mass, a Canadian company that helped Nike build an online one-to-one relationship with its customers. Is Critical Mass a possible MVM competitor? Briefly explain the reason for your answer. Answer: Critical Mass is a possible example of an indirect competitor. Although Critical Mass does not provide the same product/service (a virtual model) they do provide an online interactive tool that allows Nike visitors to customize their purchase. As such, Critical Mass provides a similar benefit as MVM and as such could be considered a potential competitor. Note: Some students may want to argue that Critical Mass is a direct competitor. In part, they may have a good point. However, the main issue here is “Does MVM have possible competitors?” The answer is yes they do. e. Is it possible for Wal-Mart or IBM to be invisible competitors of MVM? Briefly explain your reasons? Answer: An invisible competitor is any business that has the capacity and desire to provide similar products, services, or benefits to your customer. Both of these companies have the capacity to compete with MVM. It is possible for them to be potential competitors if they so desired. They don’t compete now, but in the future—as online sales grow—they could become fierce competitors. 2. Touchpoint analysis a. Briefly describe the objective of a competitive touchpoint analysis. Answer: Competitive touchpoint analysis is the process of analyzing customers’ perceptions of the competition to find out what benefits and features are important to them (page 107). b. Suppose you are a potential MVM competitor. Get together with three or four of your friends or classmates (or you might want to do this on your own), and link onto the My Virtual Model home page (http://www.myvirtualmodel.com/en/go_shopping.htm). Choose an online MVM shopping site, and each of you go shopping. Begin developing your competitor review sheet (Action Step 29). Evaluate (1 is poor, 10 is great) the following touchpoints: shopping experience, price/value, product availability, customer service, product delivery, and method of payment. What was your average group rating for each category? Would you shop again on this site? Why? Why not? Answer: This makes for a very interesting class discussion. Answers will depend on student responses. After evaluating the My Virtual Model shopping site, our average group ratings were: • Shopping Experience: 8 • Price/Value: 7 • Product Availability: 6 • Customer Service: 7 • Product Delivery: 7 • Method of Payment: 8 Overall, we would shop again due to the user-friendly experience and good payment options, though improvements in product availability and delivery speed would enhance the overall appeal. 3. Competitive positioning a. What is meant by the term competitive positioning? Answer: Competitive positioning, page 119, is the process of establishing unique benefits and features that the target customer values relative to the competition. Competitive positioning refers to the strategic process of establishing a brand or product's unique place in the market relative to competitors. It involves differentiating offerings based on factors like quality, price, or features to attract a specific target audience. Effective positioning highlights a company's strengths and creates a distinctive image in the minds of consumers. b. Based on your analysis in Question 2, above, and a review of MVM, formulate a possible competitive positioning statement for MVM. Answer: Responses will differ, but one possible answer is: For online merchants, using the My Virtual Model technology improves their bottom-line profitability by increasing revenues while cutting costs. Three core technologies—My Virtual Model™ Dressing Room, My Fit, and My Virtual Model Imail™ —enable consumers to "try on" clothes in a unique, fun, simple, and interactive Internet dressing room. Shoppers using My Virtual Model solutions spend more, buy more, and return far fewer items. (Source: the MVM home page, About Us: http://www.myvirtualmodel.com/en/about_us.htm) "My Virtual Model (MVM) provides a cutting-edge virtual shopping experience with highly customizable avatars, offering superior value through an intuitive, user-friendly interface and diverse product range. Unlike competitors, MVM excels in integrating advanced virtual modeling technology to enhance personalized online shopping and ensure seamless, secure transactions." 4. Competitive strategy a. As we described in this chapter, for most small businesses there are three broad competitive strategies. Briefly describe these three competitive approaches. Answer: (pages 113 and 114) 1. Niche or focus strategy. A company carves out a specific or narrow segment of a market. 2. Differentiation strategy. A differentiation strategy helps a firm to compete by successfully developing and maintaining a unique perception of its product or service that is valued by the customer. 3. Cost leadership strategy. A company successfully competes on price by being a low-cost producer. Firms pursuing this strategy must be effective in engineering, purchasing, manufacturing, and physical distribution. The three broad competitive strategies are: 1. Cost Leadership: Offering products or services at the lowest cost in the industry to attract price-sensitive customers. 2. Differentiation: Providing unique products or services with distinctive features or quality that stand out from competitors. 3. Focus: Targeting a specific market segment or niche, tailoring offerings to meet the unique needs of that segment better than competitors. b. What was MVM’s major competitive strategy and driving force (or distinctive competency)? Answer: MVM employed a differentiation strategy. Its driving force or distinctive competency was technological, based on three core technologies.—My Virtual Model™ Dressing Room; My Fit; and My Virtual Model Imail™. 5. SWOT analysis a. Briefly describe the components of and rationale for a competitive SWOT analysis. Answer: A competitive SWOT is an analysis of the internal strengths and weaknesses and external threats and opportunities for both a firm and its perceived competitors. A competitive SWOT analysis helps to establish a firm’s distinctive competency or driving force and evaluate potential competitors. This helps a business to focus on its strengths; minimize possible weaknesses; take advantage of opportunities and prepare for possible threats. b. What are MVM’s internal strengths and weaknesses, and external threats and opportunities? (To learn more about SWOT analysis, you might want to link onto Mind Tools, “SWOT Analysis” at: http://www.mindtools.com/pages/article/newTMC_05.htm#business) Answer: Possible internal strengths • entrepreneurial leadership (persistent, opportunity seeking, and passionate) • compelling personal and business vision • committed ownership—a partnership with complementary skill sets and temperaments • strong communication skills • motivated management team • unique product • unique technology • sound business-to-business customer base • strong business partnerships Possible internal weaknesses • reliance on one product/technology • high cost of product development • heavy reliance on the leadership and management skills of the two owners • high cost of R&D and technology • potential lack of investor funding required to expand rapidly and develop new products • potential lack of intrapreneurial skills needed to grow quickly • a revenue model that has not yet lead to profitability • lack of internal profits to generate required R&D Possible external opportunities • export growth potential • high barriers to entry (high cost for potential competitors to enter the market) • potential to develop new products (e.g., cosmetics and plastic surgery) • strong interest by B2B customers in other industry sectors (e.g., health and entertainment) • expected growth in Internet and online sales Possible external threats • too much reliance on a few key strategic corporate customers (e.g., Lands’ End) • lack of external research funding • lack of further financial support by current investors. • new well-financed market entrants (invisible competitors such as IBM, Wal-Mart) • cost cutting by corporate partners Internal Strengths: Advanced virtual modeling technology and strong partnerships with major brands like Lands’ End and Adidas. Internal Weaknesses: Limited control over product inventory and potential high development costs. External Opportunities: Growing demand for personalized online shopping experiences and expansion into new markets. External Threats: Intense competition in the virtual modeling and e-commerce sectors and rapid technological changes. Chapter 6: Marketing: Pricing and Promoting Your Product or Service I. Business Plan Building Block (SLIDE 6-2) This chapter will help you to develop the first draft of the marketing strategy. You will learn how to price your product or service; develop and refine your marketing strategy; refine your product features and benefits; and develop a cost-effective promotional strategy. II. CHAPTER LEARNING OUTCOMES (SLIDE 6-3 and SLIDE 6-4) After completing this chapter, students should be able to: • Understand how to price your product or service. • Develop a pricing strategy. • Understand how to communicate with target customers, using both conventional and guerrilla marketing techniques. • Get free publicity. • Maximize economy in advertising and promotion. • Understand the value of personal selling. • Use creative techniques to arrive at the right promotional mix. • Promote through networking. • Build your own network. • Attach price tags to your promotional strategies. III. LECTURE OUTLINE 1. Marketing Strategy (SLIDE 6-5 & SLIDE 6-6) Explain to students that their business plan marketing strategy (SLIDE 6-5) will include an analysis of four major elements: 1. external market and trends, 2. your target market, 3. product uniqueness and competitive advantage, and 4. the marketing mix. Explain how we have addressed the first three elements in Chapters 1 to 5. In Chapters 6 and 7 we are now ready to turn our attention to the fourth element of your marketing strategy, traditionally called the marketing mix (SLIDE 6-6)—a blend of product offering, pricing, promotion, and place (location). Some refer to this marketing mix as the four “Ps.” We begin with pricing considerations and strategy—a topic we first addressed in relation to competition (Chapter 5 and Action Step 30, page 118). 2. Pricing Your Product or Service (SLIDE 6-7) Explain to students that in principle, the price(s) they charge for their product or service must be acceptable both to them the seller and their customer. In most cases, they will be trying to maximize their sales revenue and profits. Explain that new businesses often make the mistake of either charging too little or too much for their product or service. To help your students avoid making one of these mistakes, we outline four basic methods for determining their price. These are the most common methods for small businesses. But caution your students, the process for setting a price can become quite complicated and technical. Explain to your students that Box 6.1, page 132, provides more detailed information to help them price their specific product or service. Four common methods of pricing for small business are: 1. Competitor-based pricing. Many new business owners begin their pricing strategy by first determining what prices or price range the target market will accept, relative to the competition. This is often referred to as competitor-based pricing (sometimes referred to market-based pricing or pricing to market). The price of your product or service will of course depend on your competitors’ prices, but you must also make sure that the price you charge is enough to yield a profit. This leads us to a second approach called profit-based or cost plus pricing. 2. Profit-based (cost plus) pricing. The price that you charge must take into consideration your costs and profit expectations. Profit-based or cost plus pricing is setting a price that covers all costs plus a profit. One simple and common formula for estimating price (per unit) is: Selling price = total costs per unit + estimated dollar profit per unit. According to many industry analysts, pricing based on costs and profit establishes an estimate of the lowest price or floor price for your product or service. Secondly, in the final analysis, the price you will be able to charge will be determined by the demand for your product/services and your competition. 3. Industry norm or “keystone” pricing. Some types of businesses charge prices according to certain generally accepted or industry standards. This is called industry norm or keystone pricing. Here the marketing concept of mark-ups may also help you determine your price. You can estimate a selling price if you know what the standard or industry mark-up is for your product or service. A mark-up is a percentage of your cost of sales (sometimes the selling price is used), which you add to the cost in order to determine your selling price. You do not include overhead costs in your mark-up calculation. In some cases, mark-ups are calculated as a percentage of costs and in other cases as a percentage of the selling price. 4. Ceiling, or premium, pricing. This is setting the highest price target consumers will pay for a product or service, given their needs and values and the competitive options. This is a pricing strategy recommended for most small business start-ups. Some pricing analysts refer to this ceiling price as the “highest price the market will bear.” Your ultimate goal or strategy is to try to focus on a specific market segment, create uniqueness, and differentiate your product or service as perceived by the customer. Remember, however, you must also be able to justify that this ceiling or premium price more than covers your costs and yields the desired profit. Other pricing methods, mainly used by larger firms, include penetration pricing, economy (limit) pricing, and price skimming, page 131. 3. Your Pricing Strategy (SLIDE 6-8) Explain to students that in principle, the price that they will charge must be acceptable to both them the seller and their customer. Their price will also depend on a number of factors such as costs of production, market considerations, competitive forces, geography, size of business, the product, service distribution channel, and promotional considerations. Additional information on pricing strategies can be found in Box 6.1, page 132. Also encourage them to learn more about pricing by completing the E-exercises in Box 6.2, page 139. Suggest to students that they begin their pricing analysis by considering the ceiling price strategy. Then encourage them to follow up by making sure that this price will cover their costs and lead to a profit. This is the approach used by many successful small businesses like 1-800-GOT-JUNK? in the opening vignette, page 127. Encourage your students to complete Action Step 32—calculate and justify their product/service price, page 132. 4. Promotion—your way of connecting with the customer (SLIDE 6-9 and SLIDE 6-10) Promotion is the art or science of moving the image of your business into the forefront of a prospective customer’s mind. Promotional efforts should be consistent with your overall image, your target market, and business mission. The key to connecting with customers is considering a wide variety of promotional strategies and then choosing the right ones. The key to connecting with your customer is your promotional mix—all the elements you blend to maximize communication with your customer. 5. Guerrilla Marketing, Service and Quality (SLIDE 6-11, SLIDE 6-12 and SLIDE 6-13) Explain to students that an important part of the promotional mix will be their “guerrilla marketing” promotional strategies—unconventional methods of getting the customer’s attention at minimal cost. Guerrilla marketing was a key promotional strategy of the GOT-JUNK team in the opening caption, page 127. For example, “waves” and “junk motorcades” were common guerrilla tactics. Explain to students that as they learned from the GOT-JUNK opening vignette, customer service and quality are the cornerstones of any marketing or promotional strategy. Numerous studies and surveys have shown that improved customer service and quality are key factors to business profit and growth. A customer who is happy because of quality service will promote your business by word-of-mouth. Customer service begins with treating people with genuine care and respect. 6. Other Marketing Strategies (SLIDE 6-14) 1. Paid Media Advertising • Advantages: A good ad can immediately reach the target customer and create the desire to buy the product or service. • Drawbacks: It is expensive to create; more money is needed for more exposure; and preferred placement goes to big spenders. • Advice: Know what your target customer reads, watches, and listens to. Your best ad is yourself—stay visible. Check vendors for cooperative advertising, tear sheets, copy, etc., and get advice and help from media departments at newspapers, radio, and TV. Remember, start small and test, test, test. 2. Business Cards • Basic information. Make sure your business card contains the basic information. • Image. Be professional. • Keep track. When you hand out your card get the recipient’s information. • Logo. Think about designing a logo to go on the card • Use both sides of the card. • Your picture. If you want a picture of yourself on the card, make sure it is not your ego needs you are trying to satisfy. • Promote. Use your business cards to get customers and actively promote your word-of-mouth campaign. • Be creative. 1-800-GOT-JUNK? in the opening vignette has a “cool” idea — free refrigerator magnets. It’s a business card their customers see every day (www.1800gotjunk.com/). • Web site. Use your Web site to promote your card. 3. Point-of-Purchase Displays • Advantages: They encourage impulse buying and are your silent salesperson. They can improve your image and customer education. • Drawbacks: You can’t sell large items, and the display must sell itself as well as the product. • Advice: Do weekly evaluations of all P-O-Ps. 4. Packaging • Advise: Consider environmental, safety, hygiene, and legal issues as well as customer requirements. 5. Catalogues • Advantages: They are an ideal sales tool for isolated shoppers and shoppers who are in a hurry. • Drawbacks: Catalogues are expensive to print and mail, and the products featured in them are limited by the catalogue size. • Advice: Take advantage of video catalogues. Let major catalogue houses do your promotion and try a few major houses with product description plus photographs. Think about putting your catalogue on the Internet. 6. Direct Mail • Advantages: It lets you aim your brochures and fliers where they will do the most good. • Drawbacks: You must thoroughly define your target market so that you don’t waste money as they are expensive to produce (in cost per thousand). • Advice: Define your target market and develop customer lists. 7. Money-Back Guarantees • Advantages: You can reach security-minded customers with this form of promotion. • Drawbacks: You must back up your guarantee with time and money. • Advice: You should figure 5 percent into your pricing to cover returned goods. 8. Free Ink and Free Air • Advantages: These give you free publicity through reviews, features, interview shows, press releases, newspaper columns, and the Internet. • Drawbacks: Getting media people to agree that your business is newsworthy is difficult. • Advice: Dig to find newsworthy information for your business. Know the media people and their target readers. Make your press kit visible, and present it in an attractive folder 9. Freebies • A giveaway, or “freebie,” can attract your target customer’s attention, get you in the news, stimulate interest in a new product, or help you gather market research. 10. Personal Selling • Advantages: You are the best salesperson for your business—stay visible. • Drawbacks: Personal selling is expensive—it increases your overhead. • Advice: Make everyone in your business a salesperson. If they don’t help, then nothing will sell and nobody will have a job. Use outside sales representatives, join or lead clubs and trade associations, and don’t lose touch with your customers. Always spend time talking to them. 11. Trade Shows • Advantages: They display your product or service in a high-intensity way. • Drawbacks: A lot of time is spent travelling to trade shows, and booths are expensive. • Advice: Share booth space, position yourself in a high-traffic area, and do market research while at the show. 12. Industry Literature • Advantages: Communicating in writing can be more powerful than the spoken word. Producing literature, such as brochures and newsletters, allows you to become a source of information. • Drawbacks: You may not have adequate practice or resources for producing well-written, high-quality material. • Advice: Hire a writer. Don’t be afraid of audacity—it creates excitement. 13. Working Visibility • Advantages: This helps you maintain a presence. • Drawbacks: If the presence is unattractive or if it doesn’t sell itself, you will lose potential customers. • Advice: Exploit your public activities. Review your displays weekly to make sure your message is working. Be unique and professional. 14. Discount Coupons • Advantages: Discount coupons provide positive feedback on your promotion. They are good for introducing a product and for slow periods. • Drawbacks: They can be costly and ineffective if not properly planned. • Advice: Test them in small quantities, at the beginning. Consider giving away “freebies” that will catch the customer's attention (see Box 6.6, page 143). 15. Branding • Advantages: You create uniqueness and add value both for you and your business. • Drawbacks: It is time consuming and requires a total passion and commitment. • Advice: Start by asking the following questions: What is it that I can add to my product or service that makes it different? What will I do to make myself and my business stand out? 16. Online marketing-CampusCrow.com (see Box 6.4, page 164) • Advantages: It provides an expanded customer base by connecting you and your business to potential customers from around the world. • Drawbacks: It can be costly, time consuming, and difficult to get the attention of cyber-surfers • Advice: Promote your Web site offline and get it listed with search engines. Your site should be compelling, action-oriented, and distinctive. 7. Sales Reps as Connectors (SLIDE 6-15) Suggest to students to carefully select their reps. • Interview potential buyers of your goods and ask them to recommend reps that have impressed them. • Ask them the right kinds of questions about their customers, geographic area, lines they carry, sales meetings, etc. • Provide encouragement and support to your reps. • Insist on sales call reports. • Write monthly sales letters and encourage feedback from both your reps and their customers. 8. Courtesy as Promotion (SLIDE 6- 15) Explain to your students to impress upon their employees that they mean business when it comes to customer courtesy. Have a sales retreat that stresses the importance of potential customers. Establish incentive programs that reward employees for exceptional courtesy. 9. Networking (SLIDE 6-16, SLIDE 6-17 and SLIDE 6-18) Networking is communicating through person-to-person channels in an attempt to sell or gain information—talking to people with the purpose of doing business. It carries the image of the business to a support group of non-competitive helpers. People cluster together to gain information, to solve problems, and to help each other. Explain that they can network their way to a number of new customer connections. Build core groups—clusters of influential, key individuals who share a common area of interest. Suggest to students to complete Action Step 33, page 147, which will help them to build a network of interpersonal contacts and associates. Box 6.5, page 147, provides some major networking sources. Explain that in Chapter 12, you will ask them to return to these networking sources when we encourage them to look for a mentor. Ten handy rules for networking are contained on SLIDE 6-18. Note: This additional information is not contained in the text. 10. Planning Ahead (SLIDE 6-19) • Don’t keep your business a secret. Plan for your opening now. • If you fail to plan your promotion, you’re planning to keep your business a secret. • Brainstorm an ideal promotional campaign (Action Step 34, page 148). • Be creative. Don’t discard any ideas. 11. Promotion and Market Research (SLIDE 6-20 and SLIDE 6-21) Suggest to students that as they gain experience in promoting their small business, they’ll see for themselves just how much their promotional strategy and the target customer are interlocked. Suggest to your students that that’s why they can’t plan their promotional strategy without building on their market research. This helps them develop your core benefit proposition—a statement about the benefits of their product or service to their target market. Suggest to them that their TCs are interested in what their product or service will do for their customers. Explain that they are selling benefits, not features. Suggest to the students that they do primary research. This research will help them clarify the benefits of their product or service. Ask customers questions. Suggest to your students that they find out how customers perceive their business. Listen to the answers and value the information. 12. Attach Price Tags to Your Promotion Strategies (SLIDE 6- 22) Explain to your students that they are ready now to make a decision about their promotional mix. Look at the ideal promotional strategies you came up with in Action Step 34, page 148. Then determine the price of each. Explain that Action Step 35, page 149, walks them through the process. Table 6.1, page 149, provides a sample pricing strategy for a flower warehouse. 13. Think Points for Success Review the following think points with your students: √ Be distinctive and you can charge a ceiling or premium price. √ Be unique with your promotions. Instead of Christmas cards, send Thanksgiving cards or April Fool’s Day cards. √ Stand in your target customer’s shoes. Think like your TC. Find the need. Find the “ladder” in the TC’s mind. √ Maintain a visual presence. √ A world in transition means opportunities for entrepreneurship. Fast footwork can keep you in the game. √ To start your own mailing list, give away something for free. In return, potential customers will give you their names. √ Rent a Santa. Rent a robot. Rent a hot-air balloon. Rent a talking dolphin. √ Brand yourself. Create some excitement, because excitement sells. √ When you think you have it made, keep connecting with that customer anyway. You will never be so big that you can afford to disconnect. Remember this and it will make you rich. √ Remember to promote the benefits and value of your product or service. √ Use the Internet to promote your business. 14. Checklist Questions and Actions to Develop Your Business Plan (SLIDE 6-24 and SLIDE 6-25) Review the following Checklist Questions and Actions to Develop Your Business: √ What is your marketing strategy? √ What prices will you charge? √ What is your pricing strategy? √ What are the promotional mix, goals, and objectives? √ What stimulates your target market to buy or use your product or service? √ What has the primary and secondary market research told you about promoting your business? √ Develop a promotional strategy for your business. √ What percentage and what amount of your promotional budget will be spent on each of the components of a promotional mix, and why? √ Does your business have a unique twist for a possible publicity story? √ Why did you select the business name you are using? IV. SUGGESTIONS FOR GUEST SPEAKERS Some guest speakers to consider include: 1. An editor of a local publication. Have the editor talk about news releases; receptivity; how much advertising space is available per publication at different days, weeks, months; various costs involved; and how a press release should be written. 2. An advertising agent from a local ad agency. Invite the agent to talk about advertising strategies for small businesses as well as costs, targeting, and market research. 3. A contact person for a network or sales leads club. Ask the contact to talk about what he or she does as well as membership, how to join, and leads. 4. An organizer of a trade show or a convention centre. Have the organizer talk about traffic, booth location, fees, sharing a booth, etc. 5. An Internet expert. Invite this person to talk about the future of e- commerce. V. CLASS PROJECTS 1. Brainstorm promotional strategies for a particular business. By now, some students will have chosen a business. They will know the answer to the question: What business are you really in?”(Chapter 2, page 49). Choose some of these businesses and brainstorm strategies for promotion. 2. Take a field trip to an ad agency or a trade show. Have students diagram traffic flow, exciting booths, etc., at the trade show. 3. Clip ads from national magazines. Analyze them. Estimate the costs to the customer. Clip ads from local newspapers. Estimate costs, then phone the ad departments to find out the true costs. 4. Have the students write a copy ad for: • a press release • an ad in the local newspaper • an ad on the radio (30 seconds or 1 minute) 5. Brainstorm ways to get free ink/free air for specific small businesses. VI. INTERNET EXERCISES 1. Pricing strategies i. Marketing Teacher: www.marketingteacher.com/Lessons/lesson_pricing.htm Learn about different kinds of pricing strategies on the lesson link. Test your understanding of four of the better-known strategies by clicking on to the “exercise” link. Find out how you did. Click the answer button. ii. Click on to Biz/ed Pricing Strategies – Activity: www.bized.ac.uk/educators/1619/business/marketing/activity/pricingstrat.htm Here you will find two case studies where you will learn more about pricing strategies and the factors influencing how firms decide on setting prices for their products and services. 2. Personal selling Click on to Marketing Teacher: http://www.marketingteacher.com/Lessons/exercise_personal_selling.htm Read the lesson on personal selling. What are the five stages of the personal selling process? Test your understanding of personal selling by clicking on to the “exercise” link. Find out how you did. Click the answer button. 3. Online Marketing (Case study, Question #5, page 154) 1-800-GOT-JUNK? made heavy use of promoting in cyberspace. Link on to the Building an Effective Web site: www.e-future.ca/manitoba/en_CA/pdf/building_an_effective_website.pdf. Go to page 6: “What Should You Have on Your Website?” a. Evaluate the 1-800-GOT-JUNK? home page based on the criteria provided. b. Do you think this Web site is an effective promotional tool? Give four reasons. VII. SUGGESTED LESSON PLAN VIII. SUGGESTED ACTIVITIES ACTIVITY 1: Review and Overview 1. Review Chapter 5 and answer any questions (Show SLIDE 5-2, SLIDE 5-3 and SLIDE 5-4 and SLIDE 5-24 of Chapter 5 if necessary.) 2. Introduce Chapter 6 and show and explain SLIDE 6-2, SLIDE 6-3, and SLIDE 6-4. Activity 2: Marketing Strategy Show and briefly explain SLIDE 6-5 and SLIDE 6-6. Activity 3: Pricing Your Product or Service Show and briefly explain SLIDE 6-7. Optional class discussion exercise (15–25 minutes) After you have discussed SLIDE 6-7, you may wish to ask students to turn their attention to the 1-800-GOT-JUNK? Case study in the opening caption on page 128. Ask students the following questions: 1. Which of the four pricing strategies do you think was used by 1-800-GOT-JUNK? Briefly explain why? 2. A major marketing strategy of 1-800-GOT-JUNK? was to focus on a specific market segment, create uniqueness, and differentiate its service as perceived by the customer. Does this strategy lead to a more elastic or inelastic demand for company services? How does this marketing strategy affect GOT-JUNK’s pricing policy? Answers are provided in Section IX below, case study answer #3. Activity 4: Your Pricing Strategy Show and briefly explain SLIDE 6-8. You may wish to refer to the ceiling price strategy used by GOT-JUNK in the opening caption (optional exercise, Activity #3 above). Encourage students to complete Action Step 32—Calculate and justify your product or service price, page 132. Activity 5: Promotion Show and briefly explain SLIDE 6-9 and SLIDE 6-10. Activity 6: Customer Service and Quality 1. Show SLIDE 6-11 and SLIDE 6-12 2. Emphasize that guerrilla marketing should be an important part of a small business promotional strategy. Guerrilla marketing was a key promotional strategy of the GOT-JUNK team in the opening caption, pages 127. For example, “waves” and “junk motorcades” were common guerrilla tactics. 3. Explain that superior service and quality will allow a small business to charge more, sell more, maintain and grow a customer base, and promote a business. The point to emphasize here is that service and quality should be part of their plan to promote their small business. Briefly explain that an important promotional tool for all businesses—big or small—is word-of-mouth. Customers will only promote and sell a product or service when they have experienced superior quality and service. Two key questions that students will have to address are: •. How will they provide superior quality and service in the eyes of the customer? •. How will they get the customer to evaluate and help improve the performance of the business? 4. You may want to refer again to the GOT-JUNK case in the opening vignette. Here customer service and quality were an important part of the GOT-JUNK marketing and promotional strategy. Activity 7: Networking Break Encourage students to network and learn more about each other during the break. Activity 8: Promotional Mix See NETA Lesson Plan #1 Activity 9: Promotional Strategy—Two Important Considerations Show and briefly explain SLIDE 6-14 and SLIDE 15. Activity 10: Networking—Another Source of Promotional Power See NETA Lesson Plan #2 Activity 11: Plan Ahead Show and briefly explain SLIDE 6-19. You may want to encourage students to complete Action Step 34, page 148—Brainstorm a winning promotional campaign for your business. Activity 12: Promotion and Market Research Show and briefly explain SLIDE 6-20 and SLIDE 6-21. Activity 13: Your Promotional Plan—Attach a Price Tag Show and explain SLIDE 6-22. This is a template for a promotional plan (based on Table 6.1, page 149. Encourage students to fill out a short plan such as this. Action Step 35, page 149, walks you through the pricing process. Activity 14: Summary, Q&A, and Preparing for Chapter 7 1. Recap the key points for each objective (using SLIDE 6-2, SLIDE 6-3, and SLIDE 6-4 if necessary). 2. Encourage students to complete the Business Plan Building Block on page 150. 3. Show SLIDE 6-24 and SLIDE 6-25 and encourage students to complete the Checklist Questions and Actions to Develop Your Business Plan, page 150. You may also want to briefly review the Think Points for Success, page 150. 4. Show SLIDE 6-26 and encourage students to complete the case study questions. Answers to the case study questions are contained below in Section IX. 5. Respond to any questions that students may have. 6. Encourage students to go to the Nelson Small business site: www.knowlescastillo6e.nelson.com. Click on to the Test Yourself link and complete the true or false/multiple choice, short answer, and matching exercise for Chapter 6. 7. Have students read Chapter 7 in preparation for the next lesson. Some instructors may want to encourage students to also prepare a mind map of key points contained in the Chapter 7. IX. CASE STUDY Case Background At the beginning of this chapter we highlighted 1-800-GOT-JUNK?—a Canadian franchise organization that has experienced meteoric growth. To a large degree, the success of this company can be attributed to its marketing and promotions strategies. GOT-JUNK has put in place a successful pricing and promotions strategy, leading to healthy profits for the franchise system. Below are additional sources of information and case study questions to help you understand why GOT-JUNK has been so successful and to reinforce the major marketing, pricing, and promotional themes of this chapter. Case Resources Refresh your memory and reread the GOT-JUNK vignette at the beginning of this chapter. We also want you to link on to the sites provided below: • 1-800-GOT-JUNK? home page: http://www.1800gotjunk.com—Be sure to link on to “Media News” and “Web Casting” links. • Fortune Magazine, “Cash for Trash”: http://www.1800gotjunk.com/content/tf/blue.asp?action=viewArticle&a=228&z=236&n=Fortune-Magazine-2003 (accessed July 2006). • Entrepreneur.com, “1-800-Got-Junk?, Company Background”: http://www.entrepreneur. com/franchises/1800gotjunk/293278-0.html (accessed July 2006). • Canadian Business Online, “One Deadly Obsession”: http://www.canadianbusiness.com/entrepreneur/columnists/brian_scudamore/article.jsp?content=20060210_122709_2608 (Accessed July 2006), Case Questions 1. Marketing strategies a. At the beginning of this chapter, we discussed the four key elements of the marketing strategy. What are these four elements? Answer: Four key elements of a marketing strategy are (page 128): 1. external market and trends 2. target market 3. product/service uniqueness and competitive advantage 4. the marketing mix. b. In Chapter 2 we explained how market trends create opportunities. The 1-800-GOT-JUNK? franchise system has linked on to a number of market trends. List five major trends that 1-800-GOT-JUNK? Has taken advantage of. Answer: Eight possible trends are: • technology. “As much as we haul junk, we're very much a technology-driven company,” says Cameron Herold, vice president of operations and franchise support. The backbone of the company's business model is its in-house developed intranet application system called Junknet. The Web-based solution handles all booking and dispatching tasks. The application is also the central storage of customers' personal information and histories. “If you’re not comfortable using the Internet, we don’t want you as a franchisee,” says Herold. In 1995, GOT-JUNK partnered with Microsoft and Sprint adding new technological advances to better manage their operations. • environment. Recycling and the environment is a key strategy of GOT-JUNK. Any items that can be recycled, will be. This includes paper, wood, metal, plastic, or e-waste. Other items may be donated to local charities. Leftover waste is taken to a transfer station or landfill. Over 60 percent of what GOT-JUNK collects winds up getting donated or recycled. • globalization/exporting. GOT-JUNK has over 130 franchisees (2005) in the US and is now franchising in Australia (see, for example: 1-800-GOT-JUNK? Announces International Expansion to Australia: http://www.1800gotjunk.com/content/tf/blue.asp?action=viewArticle&a=456&z=469&n=Press-Releases • poverty of time. 1-800-GOT-JUNK? appeals to those who want to get rid of unneeded waste but who don’t have the time to do it themselves. According to Brian Scudamore, “Our service is not just about Junk, it’s about saving time.” (Source: 1-800-GOT-JUNK? Announces International Expansion to Australia: http://www.1800gotjunk.com/content/tf/blue.asp?action=viewArticle&a=456&z=469&n=Press-Releases • downsizing. As boomers begin to downsize and sell their larger homes, this trend will create a growing need for some companies like GOT-JUNK to haul away excess “junk.” • small business start-up and entrepreneurial trend. GOT-JUNK has also taken great steps to create a culture that attracts smart, motivated entrepreneurs both as workers and business franchise partners. • dynamic partnering trend. When GOT-JUNK needs help, in many instances it turns to partnering. (See, for example, the home page of 1-800-GOT-JUNK? press release archive, “Oakleaf Waste Management Joins Forces With 1-800-Got-Junk?”; and ”1-800-GOT-JUNK? Partners With Microsoft and Sprint To Test Software”: www.1800gotjunk.com/content/tf/blue.asp?action=viewArticle&a=456&z=469&n=Press-Releases) • business-to-business trend. GOT-JUNK commercial clients are: homebuilding and remodeling firms, property management firms, real estate companies and retail chains. (See, for example: 1-800-GOT-JUNK? home page, “What we do, Commercial Services”: http://www.1800gotjunk.com/content/tf/blue.asp?action=viewArticle&a=263&z=259&n=Commercial) c. In Chapter 5, we explained the purpose and importance of competitive intelligence. According to Brian Scudamore, the war on Trashbusters—his first direct competitor—represented “an important chapter in the history of 1-800-GOTJUNK?” Return to the opening vignette or link onto Canadian Business Online, “One Deadly Obsession.” Explain what happened in the case of Scudamore’s first direct competitor. What did Brian learn about the purpose of competitive intelligence from this experience? Answer: What happened? As we explained in the opening vignette, in the mid-90s, one of Brian’s employees named, Mike McKee, decided to leave the Rubbish Boys and set up his own trash removal services—called the Trashbusters. Brian’s war-like competitive juices kicked in. He spent two years trying to find ways to “take Trashbusters down.” Reactive competitive bashing became an obsession for Brian and his employees—one incident of which, Scudamore recalls, almost caused him to lose his business. He spent much of his time and effort trying to put Trashbusters out of business instead of focusing on growing his business and satisfying his customer needs. What did Scudamore learn about competitive intelligence? He learned that the purpose of competitive intelligence (CI) is to find new customer needs and opportunities as a result of your competition analysis. The objective is not to eliminate your competitors, but to learn and benefit from them. CI is future oriented. Your competitive analysis helps to develop and improve your specific niche or position in the marketplace. As a result of his renewed thinking about the competition, Scudamore’s business model changed. He latched on to franchising and a number of new growth trends—as we described above (Question 1 b). This is why, according to Scudamore, you will often hear him saying “We need a new competitor.” 2. Guerrilla marketing a. As we explained in the text, guerrilla marketing is a key promotional strategy of 1-800-GOT-JUNK? Explain the meaning of the term guerrilla marketing and give three examples of how GOT-JUNK uses this strategy. Answer: Guerrilla marketing is a key promotional strategy of Scudamore and his franchisees. It’s a promotional strategy, which refers to unconventional methods of getting the customer attention at minimal cost. The idea is to expend energy and creativity rather than money. According to Scudamore, “rather than spend a ton of money on advertising, I believe it is better to get out there and promote.” Examples: • Waves are a common guerrilla tactic. Franchisees, wearing blue clown wigs, stand on busy roads waving to motorists while passing out free lollipops (junk food) or junk bucks. • Junk motorcades are also a common practice. For example, a Toronto franchisee with12 trucks created attention by travelling, in a row, down Young Street in the heart of the city. • Junk patrol is another promotional tactic. When not on a job, some crewmembers go on junk patrol, scouring neighbourhoods for cluttered yards or driveways. The driver knocks or leaves an estimate at the front door. b. GOT-JUNK spent only $1800 in advertising (2004) to reach potential franchisees. Free ink/free press is a key guerrilla marketing strategy for 1-800-GOT-JUNK? Scudamore, the founder, recommends a three-step process to maximize this strategy. Briefly explain Scudamore’s process. Answer: According to Scudamore, getting free press is a three-step process, page 134, and Investors’ Business Daily: (http://www.1800gotjunk.com/content/tf/blue.asp?action=viewArticle&a=356&z=366&n=Newspaper ): 1. Clearly identify your target audience. In the franchise business, it might be franchise business reporters, for example. 2. Develop a hook or angle. Give them the right angle that’s newsworthy—a high profile sporting event or court case, for example. 3. Make calls. Call target reporters and make your pitch. Save your best prospects until the end. By this time you will have honed your pitch. 3. Pricing a. In this chapter, we described four of the more common small business approaches to pricing: competitor-based pricing; profit-based pricing; industry norm, or keystone, pricing; and ceiling, or premium, pricing. Briefly explain each of these strategies Answer: (pages 129–131): 1. Competitor-based pricing. Setting a price range acceptable to your customer, which takes into consideration your competitor(s) price. 2. Profit-based pricing. Setting a price, which covers all costs plus a profit. 3. Industry norm, or keystone, pricing. Setting a price that depends on generally accepted industry standards. 4. Ceiling, or premium, pricing. Setting the highest price target consumers will pay for a product or service, given their needs and values and the competitive options. 1. Competitor-Based Pricing: Setting prices based on competitors' prices to stay competitive within the market. 2. Profit-Based Pricing: Determining prices to achieve a desired profit margin, considering costs and profit goals. 3. Industry Norm (Keystone) Pricing: Setting prices at a standard markup, typically doubling the wholesale cost, which is common in the industry. 4. Ceiling (Premium) Pricing: Charging higher prices to reflect superior quality or brand prestige, targeting customers willing to pay a premium. b. Which of the four strategies in question 3(a) do you think is being used by 1-800-GOT-JUNK?. Briefly explain why? Answer: Ceiling, or premium, pricing. 1-800-GOT-JUNK? uses a premium, or ceiling, price strategy. GOT-JUNK franchisees don’t try to compete with the low priced “two guys in an old truck.” For example, removing a dishwasher can cost upwards of $75. The GOT-JUNK strategy is to differentiate itself through quality and service. Their target customers value service and quality. They are prepared to pay a premium price for cleanliness, quality, and superior service. c. A major marketing strategy of 1-800-GOT-JUNK? is to focus on a specific market segment, create uniqueness, and differentiate its service as perceived by the customer. Does this strategy lead to a more elastic or inelastic demand for company services? How does this marketing strategy affect GOT-JUNK’s pricing policy? Answer: The 1-800-GOT-JUNK? uniqueness and differentiation strategy leads to a more inelastic demand for their junk removal services. When demand for a service is relatively inelastic, it leads to premium pricing and higher revenues. GOT-JUNK customers, on average, are willing to buy the service even if prices are on the high side relative to other competitive options—because their customers value the fact that its service is unique. 4. Promotional strategies A number of promotional strategies were discussed in this chapter. Many of these strategies are being successfully used by GOT-JUNK and are listed below. Give one example showing how GOT-JUNK used each of these promotional tactics. Answer: 5. Promotion in cyberspace The 1-800-GOT-JUNK? franchisor made heavy use of promoting in Cyberspace. Link onto the Manitoba efuture centre’s Building an Effective Website: http://www.efuture.ca/manitoba/en_CA/pdf/building_an_effective_website.pdf (accessed July 2006). Go to Page 6: “What Should You Have on Your Website?” a. Evaluate the 1-800-GOT-JUNK? home page based on the criteria provided. Answer: In our case study, Chapter 2, we also asked students to evaluate the Garrison Guitars home page using these same criteria (page 54, case study question #5). At the time of evaluation, we gave Garrison a “C” rating at best. As we noted in our Garrison Guitars case study (Chapter 2), the main point here is to get students to start thinking about what they would like to see on their Web site. Web sites keep changing, so the answer below may differ from the time your students link on to this site. You might want to encourage students to rank each of the above criteria on a scale of 1–10 (1 = poor and 10 = excellent). We have rated the GOT-JUNK site on this basis and the result was 72 out of 80 (an A to A+ rating). At the time of review, it is our opinion that the site was well done. However, this may change and we will keep you updated. 1. About us Basic requirements: Include a brief overview of the company, what it does, key staff, and a brief history of the company. GOT-JUNK site: Provides an “about us” link containing all the required information (our rating: 9 out of 10). 2. Products and services Basic requirements: Provides information on what the company does including detailed information about each of the company’s products or services (how to order, reasons to buy, client testimonials, etc.) GOT-JUNK site: Yes, this site provides clear information on what they do, how to book a removal, reasons for buying, commercial information, pricing information and client testimonials (our rating: 9 out of 10). 3. Frequently asked questions (FAQ) Basic requirements: A well-developed FAQ page provides answers to clients’ most common questions. GOT-JUNK site: This FAQ link was well done (our rating: 8 out of 10). 4. Customer support Basic requirements: Visitors are informed about product and service support. It’s also a good idea to provide contact information for support staff. GOT-JUNK site: Contains required information on the “What we do” and “contact us” links (our rating: 8.5 out of 10). 5. Contact information Basic requirements: Provide methods of customer contact. This section should contain all relevant contact information (company name, mailing address, phone, fax, e-mails). GOT-JUNK site: This information was provided in the “contact us” link and was well done (our rating: 9 out of 10). 6. Value-added content (news, events, resource information, etc.) Basic requirements: A regularly updated Web site encourages visitors to return often. Common strategies include news articles, press releases, contests, coupons, and events. GOT-JUNK site: Very well done including links such as: • Community ambassador program link • Great jobs link • Leadership • Media news • Join our mailing list • Franchise opportunities • Contests (Hunks of Junk) • Speaking events • Leadership • Refer a friend Well done (our rating: 9.5 out of 10). 7. Site map or search function Basic requirements: A site map that provides links to the major sections in your site. GOT-JUNK site: Well done. (our rating: 9 out of 10) 8. Privacy policy and legal information Basic requirements: Including and abiding by a good privacy policy in your site tells people you care about their privacy. You should also include any relevant legal or “terms of use” information in your site. GOT-JUNK site: Well done. (our rating: 10 out of 10) b. Do you think this Web site is an effective promotional tool? Give four reasons. Answer: Answers will differ among students. It is our opinion that the GOT-JUNK site is an effective promotional tool. You might want to recommend that Web sites should be constantly evaluated in terms of their effectiveness. Is the Web site doing what you intended it to do? Effectiveness depends on what goals have been set for the site. Yes, the website is an effective promotional tool because: 1. User-Friendly Design: It offers a visually appealing and intuitive interface, enhancing the shopping experience. 2. Interactive Features: Advanced virtual modeling technology engages users and demonstrates product benefits effectively. 3. Brand Partnerships: Highlighting collaborations with major brands like Lands’ End builds credibility and attracts customers. 4. Comprehensive Information: Provides detailed product descriptions and customer support options, helping users make informed decisions. Solution Manual for Small Business: An Entrepreneurs Plan Ron Knowles, Chris Castillo 9780176501808, 9780176252403
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