New Generation: February 2007

Sunday, February 25, 2007

Financial Ratios (BUSINESS PLANNING)

There are many ratios that can be determined from the balance sheet. They are used by bankers, investors and venture capitalists as indicators of the strength and health of your enterprise. Some of the more popular ratios are:

Cash Ratio - a measure of the amount of cash available to offset current debt (Cash / Total Current Liabilities). A ratio below .5 may mean you are having cash flow problems, possibly because of a significant backlog in accounts receivable.

Quick Ratio - a measure of the amount of liquid assets available to offset current debt (Cash + Accounts Receivable / Current Liabilities). A healthy enterprise will always keep this ratio at 1.0 or higher.

Current Ratio - a measure of the degree to which current assets cover current liabilities (Current Assets / Current Liabilities). A high ratio indicates a good probability the enterprise can retire current debts. A ratio of 2.0 or higher is a comfortable financial position for most enterprises.

Current Liabilities to Net Worth - a measure of the extent to which the enterprise is using creditor funds versus their own investment to finance the business (Current Liabilities / Liabilities + Equity). A ratio of .5 or higher may indicate inadequate owner investment or an extended accounts payable period. Care should be taken not to offend your vendors (creditors) to the extent it affects your ability to conduct day to day business.

Total Liabilities to Net Worth - a measure of the extent that the net worth of the enterprise can offset the liabilities (Total Liabilities / Liabilities + Equity). A ratio greater than 1.0 should be avoided, since it indicates the creditor's have a greater stake in the business than the owners.

Fixed Assets to Net Worth - a measure of the extent of an enterprise's investment in non-liquid and often over valued fixed assets (Fixed Assets / Liabilities + Equity). A ratio of .75 or higher is usually undesirable as it indicates possible over-investment and causes a large annual depreciation charge that will be deducted from the income statement.

Fixed Assets to Total Assets - a measure of the extent to which fixed assets are financed with owners equity (capital) (Fixed Assets / Total Assets). A high ratio, .5 or higher, indicates an inefficient use of working capital which reduces the enterprise's ability to carry accounts receivable and maintain inventory and usually means a low cash reserve. This will often limit your ability to respond to increased demand for your products or services.

posted by azwan.fatahsz @ 9:06 PM 0 comments

Thursday, February 22, 2007

Market Segmentation (BUSINESS PLANNING)

The purpose for segmenting a market is to allow your marketing/sales program to focus on the subset of prospects that are "most likely" to purchase your offering. If done properly this will help to insure the highest return for your marketing/sales expenditures. Depending on whether you are selling your offering to individual consumers or a business, there are definite differences in what you will consider when defining market segments.

Category of Need
The first thing you can establish is a category of need that your offering satisfies. The following classifications may help.

For businesses:

Strategic - your offering is in some way important to the enterprise mission, objectives and operational oversight. For example, a service that helped evaluate capital investment opportunities would fall into this domain of influence. The purchase decision for this category of offering will be made by the prospect's top level executive management.
Operations - your offering affects the general operating policies and procedures. Examples might be, an employee insurance plan or a corporate wide communications system. This purchase decision will be made by the prospect's top level operations management.
Functional - your offering deals with a specific function within the enterprise such as data processing, accounting, human resources, plant maintenance, engineering design, manufacturing, inventory control, etc. This is the most likely domain for a product or service, but you must recognize that the other domains may also get involved if the purchase of the product or service becomes a high profile decision. This purchase decision will be made by the prospect's functional management.

For the individual consumer:

Social Esteem or Pleasure - your offering satisfies a purely emotional need in the consumer. Examples are a mink coat or a diamond ring. There are some products that are on the boundary between this category and the Functional category such as a Rolex watch (a Timex would satisfy the functional requirement and probably keep time just as well).
Functional - your offering meets a functional requirement of the consumer such as a broom, breakfast cereal or lawnmower.

Segmentation of Needs
Then you should establish what the need is and who is most likely to experience that need. Your segmentation will be determined by a match between the benefits offered by your offering and the need of the prospect. Some "need" categories for segmentation include:

Reduction in expenses: Prospects might be businesses that are downsizing (right sizing), businesses that have products in the mature stage of their life cycle or individuals with credit rating problems.
Improved cash flow: Prospects might be businesses that have traditionally low profit margins, businesses that have traditionally high inventory costs or individuals that live in expensive urban areas.
Improved productivity: Prospects might be businesses that have traditionally low profit margins, businesses that have recently experienced depressed earnings or individuals with large families.
Improved manufacturing quality: Prospects might be businesses with complex, multi-discipline manufacturing processes.
Improved service delivery: Prospects might be service businesses in highly competitive markets, product businesses requiring considerable post-sale support or individuals in remote or rural areas.
Improved employee working conditions/benefits: Prospects might be businesses where potential employees are in short supply.
Improvement in market share/competitive position: Prospects might be new entrants to a competitive market.
Need for education: Prospects might be businesses or individuals looking for books on business planning, or seminars on Total Quality Management.
Involvement with social trends: Prospects might be businesses concerned with environmental protection, employee security, etc. or individuals who believe in say 'no' to drugs, anti-crime, etc.
Specific - relating to product/service characteristics: Prospects might be businesses or individuals interested in safety, security, economy, comfort, speed, quality, durability, etc.

Factors that segment prospects
Having determined the more general segmentation characteristics you can proceed to a more detailed analysis of the market. There are literally thousands of ways to segment a market, but the following are some of the more typical segmentation categories.

For businesses:

Industry by SIC code: This is especially beneficial for vertical market offerings.
Size - revenues, # employees, # locations: In general if your offering is highly sophisticated, requires significant resources or provides greater value based on volume, then the target should be the larger enterprises.
Job position/responsibility: Examples of offerings might be planning software for managers or cleaning agents for maintenance managers.
Climate: Examples of offerings might be dehumidifiers in areas near the ocean or snow plows in northern areas.
Time related factors: Some services in this category are vacation related industries in summer and tax planners in the spring.
Language: An example of a language specific service is a Spanish TV channel.
Status in the industry: You might want to target businesses that are the technology leader or revenue leader or employee satisfaction leader, etc.
Accessibility: To minimize promotion and sales expense you may want to target urban rather than rural or local rather than national prospects.
Future potential: A good example is how Apple Computer supplied products to schools at all levels to condition students graduating into the marketplace.
Ability to make a quick purchase decision: Targeting individual purchasers versus business committees can significantly reduce marketing expense and increase the probability of a quick close.
Access (or lack of access) to competitive offerings: Cable TV business's significant investment in their service delivery system has allowed a near monopoly for some time. IBM's service reputation insured minimal competition during the mainframe days.
Need for customization: Offerings such as police cars, busses for municipalities and specialized computer systems fall into this category.
Product or service application to a business function: Examples are data processing, accounting, human resources and plant maintenance.

For Individual Consumers:

Physical Size: Offerings might be big men's clothing, golf clubs for shorter players, etc.
Creation of or response to a fad: Examples are hula hoops, Jurassic Park T-shirts, pet rock, physical fitness, etc.
Geographic location: Marketers take advantage of location by selling suntan lotion in Hawaii, fur coats in Alaska, etc.
Time related factors: You may be able to target vacationers in summer, impulse buyers during the holidays or commuters at 7AM.
Demographics/culture/religion: Ethnic products would fall into this category.
Gender: Product examples are scarves for women, ties for men, etc.
Age: Product examples are toys for children, jewelry for women, etc.
Social status: This could include country club memberships, philanthropic contributions, etc.
Education: Product and service examples are encyclopedias, scientific calculators, learning to read tools and financial counseling.
Avocation: This could include products for hunting, fishing, golf, art work, knitting, etc.
Special Interests: You could target cat lovers, science fiction readers, jazz music collectors, etc.
Accessibility: Because the individual is more difficult to reach you may want to segment by urban versus rural, train commuters, people who read Wall Street Journal, etc.
Access (or lack of access) to competitive offerings: Due to high investment capital requirements or timing of market entry you may be able to capture a significant market share in a specific geographical area. Examples might be a trash service, emergency medical support, etc.
Need for specific information: Based on features or content of your offering you can target a market segment. A product might be books on how to start a business or a service might be seminars on how to quit smoking.
Need for customization: Product/service examples are home decoration, fashion wear, personal portraits, etc.
Need for quality, durability, etc.: Product examples are mountain climbing gear, carpenter's tools, etc.
Degree of a product/service ingredient: Segmentation based on prospect preferences is common. An example is dark chocolate for some tastes, light chocolate for others.

Purchase decision influencers
Once you have isolated a specific segment of the market on which to focus, then you can consider more subtle influences on the purchase decision. Some of these are:

Preference for channel of distribution: Many prospects prefer to buy through a specific distributor or wholesaler. For individuals this may be due to subtle, as well as, economic reasons. For example, an individual prospect may immediately think of Wal-Mart or Home Depot when considering an offering like yours. A business often has a preference so they can have a single communication point for all purchases. This also often results in lower purchase prices.
Number of decision makers: When selling to consumers or businesses, the more individuals or groups involved in the purchase decision, the more difficult the sale. Marketing costs for selling bread can stay low because one person normally makes the purchase decision. Car purchases are more complex because the purchase decision normally involves a husband and wife. Business sales to committees often require months to achieve a decision.
Financial strength of the prospect: Less affluent prospects may desire time payments versus a cash purchase and Chevrolets instead of Cadillacs.
Quantity/volume requirements: Restaurants will want large jars of pickles while individuals want small jars. Businesses use large amounts of electricity at predictable times.
Ability to use the offering: Trying to sell to a prospect who lacks either the knowledge or resources to properly benefit from your offering will result in a 'no sale' situation or an unhappy customer. The prospect should have knowledge and resources such as time, equipment, facilities, personnel and complementary products/services.
Commitment required: If the offering requires a high commitment in terms of time, resources or money by the customer then the target should be prospects who 'really need' the offering rather than prospects who get some, but not a lot, of benefits.
Brand awareness/users: Examples are prospects who ask for IBM compatible PC's or Pitney Bowes mailing machines or Winnebago R.V.s
Attitude toward a personality or enterprise: Reputation helps sell AT&T long distance service, IBM computers, Michael Jordan tennis shoes, etc.
Attitude toward price versus value: For example, purchasers of collectors items aren't price sensitive while purchasers of commodity items are price sensitive.
Experience with other products/services your enterprise has offered: You are looking for a reaction like "I liked your first product so I'll try your second."
Prospect bias: Examples are, 'Buy USA', I want a car with a 'solid' feel, fast cars, sweet wines, large print playing cards, etc.
Affiliation with other organizations: Such as the U.S. Chamber of Commerce, AMA, IEEE, doctors, attorneys, pastors, franchisors, entrepreneurs, etc.
After sale support expectations: It is often beneficial to target prospects who have enough expertise that they will require a minimum of after sale support.

Seller Characteristics that can influence purchase decision:
Another form of influence is how the prospect perceives your offering and/or enterprise. If you can determine the characteristics your prospects most value in an enterprise they purchase from, you can identify those your organization possesses and promote them to the prospect.

Unique employee skills, knowledge: Extensive experience with a specific market segment or field of scientific inquiry can be a powerful promotional tool. For example if an enterprise could sat, "Our scientists knows more about corn silk genetic structures than anyone in the world" they would have a strong sales statement.
Special relationships with distribution channels: Product or service accessibility is a critical factor in sales success. If an enterprise could say, "Due to a unique relationship, the XYZ video stores give us more shelf space than any competitor" prospects will likely respond positively.
Customer service capabilities: Prospects like to know that they can depend on post sale support from the product or service provider. A statement like, "We have more service outlets in New Hampshire than any competitor" will help secure sales.
Unique product forms: Credible uniqueness such as, "Our product is the only one that offers dynamic digi-whirling" is appealing to the market.
Manufacturing expertise: The market is always interested in purchasing from the "best". If an enterprise can confidently state, "We are the only enterprise that can manufacture molecular engineered widgets", they have created an image of being the "best".
Longevity: Reliability is important. A statement like, "We have been in business for 50 years, so you can count on us to be there when you need us" is usually a strong selling point.

Purchase Decision Makers
Finally, a point to consider is, given the characteristics of your offering, what type of decision maker will most likely be interested in purchasing from you. It may be beneficial to rank your prospects based on the following classifications. While you may not be able to make this classification of the prospect prior to the first contact, if your sales personnel are sensitive to these characteristics it can strongly influence your sales strategy.

Ultra Conservative - don't rock the boat, whatever they purchase must be consistent with their current way of doing things.

They are most likely interested in products/services that are improvements to existing offerings rather than something new.
Once established as a customer they are seldom inclined to review alternatives.
Very negative to technically complex offerings or offerings requiring extensive user education.
Cost effective offerings are only of interest if they don't disturb the status quo.
They are likely to react positively to any volume purchasing opportunities.

Conservatives - are willing to change, but only in small increments and only in a very cost effective manner.

Will consider new products/services but only if related concept has been proven to be effective. More likely to purchase improvements to existing offerings.
Will probably want to review competitive offerings, but will gravitate to best known offering with lowest risk decision.
Negative to neutral when considering technically complex offerings or offerings requiring extensive user education.
Strongly influenced by cost effective offerings and/or 'best price' opportunities

Liberals - regularly looking for new solutions, willing to make change (even major change) if the benefit can be shown.

Will usually consider new products/services even if the related concept has not yet been proven to be effective, but only if the potential benefits can be specified and understood.
Wants offerings that make effective use of technology, but is not interested in offerings just because they use a certain technology.
Will always want to review competitive offerings, but will usually choose the one offering the greatest benefit, even if there is some risk involved.
Neutral to positive when considering technically complex offerings or offerings requiring extensive user education.
Usually concerned with keeping employees informed and educated, so will often consider educational offerings.
Strongly influenced by offerings that most closely deliver the 'end results' desired, even if they are not the most cost effective.
Often are on social trend bandwagons so react positively to offerings that address these needs.

Technical Liberals - enamored with the benefits provided by high tech solutions and any purchase decision will be biased by the technical content of the offering.

Usually consider new products/services even if the related concept has not yet been proven to be effective.
Often consider just because they use a certain technology.
Will always want to review competitive offerings, but will usually choose the one offering the most hi-tech features, even if there is some risk involved.
Consider themselves technically competent and will expect leading edge use of technology.
Positive to fanatic when considering technically complex offerings even when requiring extensive user education.
Conversion costs usually not a major concern if technical benefits are there.
Not particularly concerned with keeping employees informed and educated, so educational offerings are not of great interest.
Strongly influenced by offerings that most closely deliver the 'end results' desired, even if they are not the most cost effective.

Self Helpers - consistently defines/designs solutions to their problems, likes to acquire tools that help in the innovation process.

Will usually consider new products/services, but the related concept must have been proven to be effective.
Often consider just because they use a certain technology that is relevant to the development program they have underway.
Will always want to review competitive offerings, but will usually choose the one offering the most effective 'do it yourself' features.
Usually consider themselves technically competent and will expect very effective use of proven technology.
Not especially inclined toward technically complex offerings, would rather have user friendly, but thought provoking, offerings.
Conversion costs usually not a major concern if offering promises potential for innovation.
Usually concerned with keeping employees informed and educated, so educational offerings are of interest.

posted by azwan.fatahsz @ 7:03 PM 0 comments

Issues Affecting Price (BUSINESS PLANNING)

This article addresses a variety of factors that should be considered when establishing a price for your product or service. These include pricing methods, the impact of your enterprise objectives, the effects of competition, the influence of the prospect's perception, characteristics of your product or service, your enterprise resources and environmental influences.

The concept of a 'price' is a worldwide concept. In fact, there are many ways to express the concept of 'price'. Some of the terms are; assessment, bill, charge, cost, dues, duty, expense, fare, fee, honorarium, interest, levy, premium, rate, retainer, salary, wage, tariff, tax, tithe, toll and tuition. I'm sure if you spend a little time you can think of several more. No matter what you choose to call the 'price' you will charge for your product or service there are a number of factors to consider when determining exactly how much you should charge.

Types of Pricing
Let's begin with the fact that there are many ways to present the 'price' for a product or service to the customer. Some of the more well known methods are described below.

Cost plus a percentage of the cost. (usually service oriented)
Breakeven, that is, whatever it costs to produce the product or provide the service. (usually non-profit organizations, but not necessarily)
Target profit (eg: make a 20% profit before tax. This implies that you understand all of your operating costs very well.)
Perceived value (price to the consumer's expectation)
Competitive related (price using competitive price as a base)
Sealed bid (usually construction projects)
Two part pricing (fixed fee plus variable usage rate eg: telephone service)
Bundled pricing that combines multiple products and/or services under one price.
Discounts for cash payment (when cash flow is important)
Quantity discounts (when volume is important)
Trade-in price (when there is some residual value for a trade-in item)
Update price for an improvement to an existing product (this allows you to benefit from current customer base)
Discounted price to a reseller (to expand volume through channels of distribution)
Seasonal discount (to even out volume which allows a consistent production process)
Sales price(to promote demand, with volume hopefully offsetting reduced price)
Psychological pricing (eg: to create an impression of a lower price, $199.95 vs $200)
Geographical/sales site location (eg: varying prices for fuel in different geographical locations)
Price plus shipping (catalog/mail order type of sales)

Your Objectives
The objectives that you have set for your enterprise and/or a particular product or service will have a significant impact on your decisions related to the prices you set. Some examples of objectives and their influence on pricing decisions are:

Does this offering require a short term or a long term commitment? IE: Is it a "pet rock" sort of offering or is it something you can build a business around?
Do you need to maximize cash flow? If so, are you willing to set your price high to get the greatest return from each sale at the cost of limiting market share? If not, are you willing to significantly under-price the competition to sell in volume, generating some cash but destroying future market potential by lowering price expectations?
Is it your intent to capture maximum market share or attract customers for sale of other offerings? if so, are you prepared to take a loss on the sales of your current offering to build a customer base that will purchase a follow on (potentially much more lucrative) offering in the future?
Do you want to price at some point relative to competition (higher, lower or equal) with an intent of creating a image relative to (different than) the competition?
Do you have excess inventory? If so, is break even or even a loss on each sale of an offering more cost effective than having the offering sitting in inventory due to interest payments, storage costs or time sensitive materials?
Is it important to attract attention to the product/service? Will volume sales establish a brand recognition and if so is this more important in the short term than concern for whether any profit is realized?
Do you want to price to attract distributors? If so, are you willing to accept significantly lower profit margins to establish relationships with one or more distributors who will likely carry future offerings once a relationship has been established?
Do you want to price to set entry barriers? If so, you must decide whether a low price (that still makes you some profit) will discourage the entry of new competitors.
Do you want to price to hurt competition? If so, are you willing (or able) to lower prices enough to insure that you will increase your market share?
Are certain price levels necessary to retain customer base, channels of distribution? This may be a factor if it is your intent to remain in the market over a long period of time with numerous offerings. In this case, it may be prudent to maintain low prices which will encourage relationships with distributors and repeat purchases from your customer base.
Do you want to establish an image of high value, thus high price? If so, do you have the resources to have your offering considered the "top of the line" in quality, reliability and durability and thus a justifiably high price?
Do you want to establish an image of high value but a low price? If so, do you have the resources to have your offering considered the "top of the line" in quality, reliability and durability and still price it at a comparable or lower price than the competition?
Do you want to maximize profit? Are immediate profit margins more important to you than building a customer base and creating an image (enterprise, product or service) that will sustain you in the long run?

Competition
If you are not the market leader in your industry, competitive prices will influence the pricing of your product or service. Market leaders have often created a "pricing standard" against which other product/service prices are compared. So if your product or service is reasonably competitive with the market leader's offering you can set a price that is near the "standard". If you have the ability to price lower than the competition and still be profitable, you may be able to capture a greater market share which can benefit you over time as you offer new or complementary products or services to your customer base.

Your decision to compete with a lower price should not be made lightly. If the competitor perceives that your low pricing has the potential of reducing their market share or impacting their influence in the industry, they may respond with an even lower price. Then, instead of increasing your market share, you could be faced with no opportunity to profitably penetrate the market at all. It is always of value to know the capabilities and tendencies of your competitors.

A different form of competition is the 'alternative solution'. The prospect's first alternative is always, if the price is too high, a decision that they really don't need your offering or any of your direct competitor's offerings. There may also be a variety of ways for the prospect to solve their problem. For example, if you offer an airline service, you are really in the business of transportation. So your prospect has the option of your service versus trains, busses, rental vehicles, personal vehicles, hitchhiking, bicycles, walking or (back to the first alternative) staying at home. The availability of numerous alternative solutions will usually limit your pricing flexibility.

The Market/Prospect
Understanding the characteristics of the marketplace is an essential factor in establishing a price for your offering. You should first try to identify the general type of market you will be selling to.

Type of market

commodity (many buyers/competitors, non-unique products) - minimal pricing flexibility
uncontrolled (many buyers/competitors, unique products) - maximum pricing flexibility
controlled (many buyers, few competitors, unique products) - some pricing flexibility
vertical-low (limited # of buyers, many competitors)
vertical-high (limited # of buyers, few competitors)

Prospect Characteristics
Then you should learn as many details as possible about the 'typical' prospect in the market you have targeted. Examples of the kind of detail you should look for are:

Prospect's perception of your product (positive perception = higher price)
Prospect's awareness of your product (lack of awareness raises promotion costs)
Whether product is for a captive audience (eg: razor blades, minimizes marketing costs)
The criticality of the offering to the consumer (more critical = higher price)
The ability of the consumer to pay (greater ability = higher price)
Demand due to seasonal considerations (snow shovels priced lower in the summer)
Demand due to geographic considerations (snow shovels in Tahiti are unlikely to sell no matter how low the price)
Market trends, fads or changing consumer interests

The Product or Service
There are, of course, many characteristics of your product or service that will influence the price.

Does your offering provide tangible versus intangible benefits/differences? Offerings with immediate and tangible benefits will usually support higher prices.
The uniqueness of your offering versus the competition. Uniqueness usually supports a higher price if the offering has credibility.
Whether your offering is one of several in a product/service line. Pricing must be consistent with the rest of the line.
Whether your offering is a complement to another product/service. Sales to existing customers usually reduces marketing costs thus giving greater pricing flexibility.

Your Enterprise
A variety of factors within your enterprise will influence the pricing decision. Some examples are:

Your cost to produce the offering is clearly the first factor in setting the price.
The potential for learning curve benefits. That is, will sales volume and time result in lower production costs thus creating the potential for lower prices?
Your ability to meet demand. If you have a limited production capacity, you should price high enough to insure that you don't create more demand than you can satisfy.
Your cost to deliver, including shipping, warehousing and installing.
Your cost to promote, including press releases, press tours, ads, literature, demos, etc.
Your financial resources, giving you the ability to sustain a start-up period of losses.
The quality and speed of your product/service delivery. If you can deliver quickly and "how quick can I get it?" is the most critical factor to the prospect then high pricing is likely.

The Environment
In addition to characteristics of your competitors, your prospects and your enterprise there are more general, environmental factors that can influence your pricing.

At what point in market life cycle of your offering are you selling? If it is early in the life cycle you can usually charge a higher price.
What is the availability, quality and cost of channels of distribution?
What is the status of the economy (inflation, deflation, varying interest rates)?
What is the potential for government intervention? Is your enterprise verging on a monopoly? is your offering important to national stability?
Are market characteristics such that a lower price will generate a higher demand? (Elasticity of demand)

Other
There are many other factors that can influence pricing that are difficult to place in any of the above categories. Some of these are:

The method of payment you want to extend to the customer. (cash, invoice for 30 day payment, time payments, no payments until ...)
The cost for the prospect to switch to your offering from their current solution. Does a high switching cost imply that you need to price low to offset the switching costs or should you price high because the prospect has already committed to a high dollar solution?
What image is most appropriate for your offering to achieve maximum market penetration? (often higher prices imply higher quality and vice versa)
Are you able to define price thresholds, upper & lower, where the prospect will consider the price unreasonable?
Is it reasonable to segment the market for different prices? eg: first class vs tourist air fares, branded vs unbranded offerings, first time buyer vs existing customer.
Are there special conditions (atmosphere/ambiance) at the time of purchase? For example, the price for a cup of coffee in a deli is likely to be much lower than for a similar cup in a Hilton hotel.
How reliably can you project sales volumes? Reliable volume forecasts typically allows for better pricing determination.

posted by azwan.fatahsz @ 7:02 PM 0 comments

Wednesday, February 21, 2007

Marketing Plan (BUSINESS PLANNING)

The information for this article was derived from many sources, including Michael Porter's book Competitive Advantage and the works of Philip Kotler. Concepts addressed include 'generic' strategies and strategies for pricing, distribution, promotion, advertising and market segmentation. Factors such as market penetration, market share, profit margins, budgets, financial analysis, capital investment, government actions, demographic changes, emerging technology and cultural trends are also addressed.

There are two major components to your marketing strategy:

how your enterprise will address the competitive marketplace
how you will implement and support your day to day operations.

In today's very competitive marketplace a strategy that insures a consistent approach to offering your product or service in a way that will outsell the competition is critical. However, in concert with defining the marketing strategy you must also have a well defined methodology for the day to day process of implementing it. It is of little value to have a strategy if you lack either the resources or the expertise to implement it.

In the process of creating a marketing strategy you must consider many factors. Of those many factors, some are more important than others. Because each strategy must address some unique considerations, it is not reasonable to identify 'every' important factor at a generic level. However, many are common to all marketing strategies. Some of the more critical are described below.

You begin the creation of your strategy by deciding what the overall objective of your enterprise should be. In general this falls into one of four categories:

If the market is very attractive and your enterprise is one of the strongest in the industry you will want to invest your best resources in support of your offering.
If the market is very attractive but your enterprise is one of the weaker ones in the industry you must concentrate on strengthening the enterprise, using your offering as a stepping stone toward this objective.
If the market is not especially attractive, but your enterprise is one of the strongest in the industry then an effective marketing and sales effort for your offering will be good for generating near term profits.
If the market is not especially attractive and your enterprise is one of the weaker ones in the industry you should promote this offering only if it supports a more profitable part of your business (for instance, if this segment completes a product line range) or if it absorbs some of the overhead costs of a more profitable segment. Otherwise, you should determine the most cost effective way to divest your enterprise of this offering.

Having selected the direction most beneficial for the overall interests of the enterprise, the next step is to choose a strategy for the offering that will be most effective in the market. This means choosing one of the following 'generic' strategies (first described by Michael Porter in his work, Competitive Advantage).

A COST LEADERSHIP STRATEGY is based on the concept that you can produce and market a good quality product or service at a lower cost than your competitors. These low costs should translate to profit margins that are higher than the industry average. Some of the conditions that should exist to support a cost leadership strategy include an on-going availability of operating capital, good process engineering skills, close management of labor, products designed for ease of manufacturing and low cost distribution.
A DIFFERENTIATION STRATEGY is one of creating a product or service that is perceived as being unique "throughout the industry". The emphasis can be on brand image, proprietary technology, special features, superior service, a strong distributor network or other aspects that might be specific to your industry. This uniqueness should also translate to profit margins that are higher than the industry average. In addition, some of the conditions that should exist to support a differentiation strategy include strong marketing abilities, effective product engineering, creative personnel, the ability to perform basic research and a good reputation.
A FOCUS STRATEGY may be the most sophisticated of the generic strategies, in that it is a more 'intense' form of either the cost leadership or differentiation strategy. It is designed to address a "focused" segment of the marketplace, product form or cost management process and is usually employed when it isn't appropriate to attempt an 'across the board' application of cost leadership or differentiation. It is based on the concept of serving a particular target in such an exceptional manner, that others cannot compete. Usually this means addressing a substantially smaller market segment than others in the industry, but because of minimal competition, profit margins can be very high.

Pricing
Having defined the overall offering objective and selecting the generic strategy you must then decide on a variety of closely related operational strategies. One of these is how you will price the offering. A pricing strategy is mostly influenced by your requirement for net income and your objectives for long term market control. There are three basic strategies you can consider.

A SKIMMING STRATEGY
If your offering has enough differentiation to justify a high price and you desire quick cash and have minimal desires for significant market penetration and control, then you set your prices very high.
A MARKET PENETRATION STRATEGY
If near term income is not so critical and rapid market penetration for eventual market control is desired, then you set your prices very low.
A COMPARABLE PRICING STRATEGY
If you are not the market leader in your industry then the leaders will most likely have created a 'price expectation' in the minds of the marketplace. In this case you can price your offering comparably to those of your competitors.

Promotion
To sell an offering you must effectively promote and advertise it. There are two basic promotion strategies, PUSH and PULL.

The PUSH STRATEGY maximizes the use of all available channels of distribution to "push" the offering into the marketplace. This usually requires generous discounts to achieve the objective of giving the channels incentive to promote the offering, thus minimizing your need for advertising.
The PULL STRATEGY requires direct interface with the end user of the offering. Use of channels of distribution is minimized during the first stages of promotion and a major commitment to advertising is required. The objective is to "pull" the prospects into the various channel outlets creating a demand the channels cannot ignore.

There are many strategies for advertising an offering. Some of these include:

Product Comparison advertising
In a market where your offering is one of several providing similar capabilities, if your offering stacks up well when comparing features then a product comparison ad can be beneficial.
Product Benefits advertising
When you want to promote your offering without comparison to competitors, the product benefits ad is the correct approach. This is especially beneficial when you have introduced a new approach to solving a user need and comparison to the old approaches is inappropriate.
Product Family advertising
If your offering is part of a group or family of offerings that can be of benefit to the customer as a set, then the product family ad can be of benefit.
Corporate advertising
When you have a variety of offerings and your audience is fairly broad, it is often beneficial to promote your enterprise identity rather than a specific offering.

Distribution
You must also select the distribution method(s) you will use to get the offering into the hands of the customer. These include:

On-premise Sales involves the sale of your offering using a field sales organization that visits the prospect's facilities to make the sale.
Direct Sales involves the sale of your offering using a direct, in-house sales organization that does all selling through the Internet, telephone or mail order contact.
Wholesale Sales involves the sale of your offering using intermediaries or "middle-men" to distribute your product or service to the retailers.
Self-service Retail Sales involves the sale of your offering using self service retail methods of distribution.
Full-service Retail Sales involves the sale of your offering through a full service retail distribution channel.

Of course, making a decision about pricing, promotion and distribution is heavily influenced by some key factors in the industry and marketplace. These factors should be analyzed initially to create the strategy and then regularly monitored for changes. If any of them change substantially the strategy should be reevaluated.

The Environment
Environmental factors positively or negatively impact the industry and the market growth potential of your product/service. Factors to consider include:

Government actions - Government actions (current or under consideration) can support or detract from your strategy. Consider subsidies, safety, efficacy and operational regulations, licensing requirements, materials access restrictions and price controls.
Demographic changes - Anticipated demographic changes may support or negatively impact the growth potential of your industry and market. This includes factors such as education, age, income and geographic location.
Emerging technology - Technological changes that are occurring may or may not favor the actions of your enterprise.
Cultural trends - Cultural changes such as fashion trends and life style trends may or may not support your offering's penetration of the market

The Prospect
It is essential to understand the market segment(s) as defined by the prospect characteristics you have selected as the target for your offering. Factors to consider include:

The potential for market penetration involves whether you are selling to past customers or a new prospect, how aware the prospects are of what you are offering, competition, growth rate of the industry and demographics.
The prospect's willingness to pay higher price because your offering provides a better solution to their problem.
The amount of time it will take the prospect to make a purchase decision is affected by the prospects confidence in your offering, the number and quality of competitive offerings, the number of people involved in the decision, the urgency of the need for your offering and the risk involved in making the purchase decision.
The prospect's willingness to pay for product value is determined by their knowledge of competitive pricing, their ability to pay and their need for characteristics such as quality, durability, reliability, ease of use, uniformity and dependability.
Likelihood of adoption by the prospect is based on the criticality of the prospect's need, their attitude about change, the significance of the benefits, barriers that exist to incorporating the offering into daily usage and the credibility of the offering.

The Product/Service
You should be thoroughly familiar with the factors that establish products/services as strong contenders in the marketplace. Factors to consider include:

Whether some or all of the technology for the offering is proprietary to the enterprise.
The benefits the prospect will derive from use of the offering.
The extent to which the offering is differentiated from the competition.
The extent to which common introduction problems can be avoided such as lack of adherence to industry standards, unavailability of materials, poor quality control, regulatory problems and the inability to explain the benefits of the offering to the prospect.
The potential for product obsolescence as affected by the enterprise's commitment to product development, the product's proximity to physical limits, the ongoing potential for product improvements, the ability of the enterprise to react to technological change and the likelihood of substitute solutions to the prospect's needs.
Impact on customer's business as measured by costs of trying out your offering, how quickly the customer can realize a return from their investment in your offering, how disruptive the introduction of your offering is to the customer's operations and the costs to switch to your offering.
The complexity of your offering as measured by the existence of standard interfaces, difficulty of installation, number of options, requirement for support devices, training and technical support and the requirement for complementary product interface.

The Competition
It is essential to know who the competition is and to understand their strengths and weaknesses. Factors to consider include:

Each of your competitor's experience, staying power, market position, strength, predictability and freedom to abandon the market must be evaluated.

Your Enterprise
An honest appraisal of the strength of your enterprise is a critical factor in the development of your strategy. Factors to consider include:

Enterprise capacity to be leader in low-cost production considering cost control infrastructure, cost of materials, economies of scale, management skills, availability of personnel and compatibility of manufacturing resources with offering requirements.
The enterprise's ability to construct entry barriers to competition such as the creation of high switching costs, gaining substantial benefit from economies of scale, exclusive access to or clogging of distribution channels and the ability to clearly differentiate your offering from the competition.
The enterprise's ability to sustain its market position is determined by the potential for competitive imitation, resistance to inflation, ability to maintain high prices, the potential for product obsolescence and the 'learning curve' faced by the prospect.
The prominence of the enterprise.
The competence of the management team.
The adequacy of the enterprise's infrastructure in terms of organization, recruiting capabilities, employee benefit programs, customer support facilities and logistical capabilities.
The freedom of the enterprise to make critical business decisions without undue influence from distributors, suppliers, unions, creditors, investors and other outside influences.
Freedom from having to deal with legal problems.

Development
A review of the strength and viability of the product/service development program will heavily influence the direction of your strategy. Factors to consider include:

The strength of the development manager including experience with personnel management, current and new technologies, complex projects and the equipment and tools used by the development personnel.
Personnel who understand the relevant technologies and are able to perform the tasks necessary to meet the development objectives.
Adequacy and appropriateness of the development tools and equipment.
The necessary funding to achieve the development objectives.
Design specifications that are manageable.

Production
You should review your enterprise's production organization with respect to their ability to cost effectively produce products/services. The following factors are considered:

The strength of production manager including experience with personnel management, current and new technologies, complex projects and the equipment and tools used by the manufacturing personnel.
Economies of scale allowing the sharing of operations, sharing of production and the potential for vertical integration.
Technology and production experience
The necessary production personnel skill level and/or the enterprise's ability to hire or train qualified personnel.
The ability of the enterprise to limit suppliers bargaining power.
The ability of the enterprise to control the quality of raw materials and production.
Adequate access to raw materials and sub-assembly production.

Marketing/Sales
The marketing and sales organization is analyzed for its strengths and current activities. Factors to consider include:

Experience of Marketing/Sales manager including contacts in the industry (prospects, distribution channels, media), familiarity with advertising and promotion, personal selling capabilities, general management skills and a history of profit and loss responsibilities.
The ability to generate good publicity as measured by past successes, contacts in the press, quality of promotional literature and market education capabilities.
Sales promotion techniques such as trade allowances, special pricing and contests.
The effectiveness of your distribution channels as measured by history of relations, the extent of channel utilization, financial stability, reputation, access to prospects and familiarity with your offering.
Advertising capabilities including media relationships, advertising budget, past experience, how easily the offering can be advertised and commitment to advertising.
Sales capabilities including availability of personnel, quality of personnel, location of sales outlets, ability to generate sales leads, relationship with distributors, ability to demonstrate the benefits of the offering and necessary sales support capabilities.
The appropriateness of the pricing of your offering as it relates to competition, price sensitivity of the prospect, prospect's familiarity with the offering and the current market life cycle stage.

Customer Services
The strength of the customer service function has a strong influence on long term market success. Factors to consider include:

Experience of the Customer Service manager in the areas of similar offerings and customers, quality control, technical support, product documentation, sales and marketing.
The availability of technical support to service your offering after it is purchased.
One or more factors that causes your customer support to stand out as unique in the eyes of the customer.
Accessibility of service outlets for the customer.
The reputation of the enterprise for customer service.

Conclusion
After defining your strategy you must use the information you have gathered to determine whether this strategy will achieve the objective of making your enterprise competitive in the marketplace. Two of the most important assessments are described below.
Cost To Enter Market
This is an analysis of the factors that will influence your costs to achieve significant market penetration. Factors to consider include:

Your marketing strength.
Access to low cost materials and effective production.
The experience of your enterprise.
The complexity of introduction problems such as lack of adherence to industry standards, unavailability of materials, poor quality control, regulatory problems and the inability to explain the benefits of the offering to the prospect.
The effectiveness of the enterprise infrastructure in terms of organization, recruiting capabilities, employee benefit programs, customer support facilities and logistical capabilities.
Distribution effectiveness as measured by history of relations, the extent of channel utilization, financial stability, reputation, access to prospects and familiarity with your offering.
Technological efforts likely to be successful as measured by the strength of the development organization.
The availability of adequate operating capital.

Profit Potential
This is an analysis of the factors that could influence the potential for generating and maintaining profits over an extended period. Factors to consider include:

Potential for competitive retaliation is based on the competitors resources, commitment to the industry, cash position and predictability as well as the status of the market.
The enterprise's ability to construct entry barriers to competition such as the creation of high switching costs, gaining substantial benefit from economies of scale, exclusive access to or clogging of distribution channels and the ability to clearly differentiate your offering from the competition.
The intensity of competitive rivalry as measured by the size and number of competitors, limitations on exiting the market, differentiation between offerings and the rapidity of market growth.
The ability of the enterprise to limit suppliers bargaining power.
The enterprise's ability to sustain its market position is determined by the potential for competitive imitation, resistance to inflation, ability to maintain high prices, the potential for product obsolescence and the 'learning curve' faced by the prospect.
The availability of substitute solutions to the prospect's need.
The prospect's bargaining power as measured by the ease of switching to an alternative, the cost to look at alternatives, the cost of the offering, the differentiation between your offering and the competition and the degree of the prospect's need.
Market potential for new products considering market growth, prospect's need for your offering, the benefits of the offering, the number of barriers to immediate use, the credibility of the offering and the impact on the customer's daily operations.
The freedom of the enterprise to make critical business decisions without undue influence from distributors, suppliers, unions, investors and other outside influences.

posted by azwan.fatahsz @ 8:47 PM 0 comments

Mission Statement (BUSINESS PLANNING)

The mission statement should be a clear and succinct representation of the enterprise's purpose for existence. It should incorporate socially meaningful and measurable criteria addressing concepts such as the moral/ethical position of the enterprise, public image, the target market, products/services, the geographic domain and expectations of growth and profitability.

The intent of the Mission Statement should be the first consideration for any employee who is evaluating a strategic decision. The statement can range from a very simple to a very complex set of ideas.

How Specific Should You Be?
Normally, the Mission Statement should represent the broadest perspective of the enterprise's mission.

You may want to take the approach of being very specific. For instance, a Mission Statement for a fictitious airline could be worded as follows:

Airco, Inc. will be the 'guaranteed' on-time airline. Maintaining the most efficient equipment in the industry, we will target a customer base of mainly young businessmen and offer them the lowest cost service on the west coast, with an objective of a 20% profit before tax and a 30% per year revenue growth.

Or, you may want to say the same thing, but with more room for management interpretation. A more general way of stating Airco's Mission Statement could be:

Airco, Inc. will be recognized as the most progressive enterprise in the transportation business. We will offer our customers cost effective transportation service within geographical areas and market segments that can benefit from our services and will insure a return on investment and growth rate consistent with current management guidelines.

Mission Statements of Well Known Enterprises
The following are some examples of mission statements from real enterprises.
3M
"To solve unsolved problems innovatively"
Mary Kay Cosmetics
"To give unlimited opportunity to women."
Merck
"To preserve and improve human life."
Wal-Mart
"To give ordinary folk the chance to buy the same thing as rich people."
Walt Disney
"To make people happy."

These are the 'one-liners', but each is supported by a set of values that set the performance standards and direct the implementation of the mission.

For example, Merck, a company that produces pharmaceutical products and provides insurance for pharmacy benefits, publicly states the following values.

Corporate social responsibility
Unequivocal excellence in all aspects of the company
Science-based innovation
Honesty & integrity
Profit, but profit from work that benefits humanity

And Walt Disney, an entertainment business states their values as follows.

No cynicism
Nurturing and promulgation of "wholesome American values"
Creativity, dreams and imagination
Fanatical attention to consistency and detail
Preservation and control of the Disney "magic"

Should Your Grasp Exceed Your Reach?
Many believe that the Mission Statement should have a grand scale, be socially meaningful and be measurable. The following are some examples of historical Mission Statements that were truly grand in scale.

Ford Motor Company (early 1900's)
"Ford will democratize the automobile"
Sony (early 1950's)
"Become the company most known for changing the worldwide poor-quality image of Japanese products"
Boeing (1950)
"Become the dominant player in commercial aircraft and bring the world into the jet age"
Wal-Mart (1990)
"Become a $125 billion company by the year 2000"

Conclusion
So, when you are preparing your Mission Statement remember to make it clear and succinct, incorporating socially meaningful and measurable criteria and consider approaching it from a grand scale. As you create your Mission Statement consider including some or all of the following concepts.

The moral/ethical position of the enterprise
The desired public image
The key strategic influence for the business
A description of the target market
A description of the products/services
The geographic domain
Expectations of growth and profitability

posted by azwan.fatahsz @ 8:39 PM 0 comments

ABOUT ME

Name: azwan.fatahsz
Home: shah alam, selangor, Malaysia
About Me: I'm also human
See my complete profile