The marketing section of your business plan is made up of two separate components: one being a wide, long-term look at the business (strategic plan) and the other being an action plan for the next 12 months (tactical plan).
Strategic planning is one of the most important aspects of your business. It ensures that you are still in business when your competitors may not be. Strategic planning sets up future profit streams and allows you to negotiate a fluctuating, unreliable and unstable market.
However, few small businesses plan strategically. Strategic planning is sometimes difficult to explain and hard to implement, which is why it is often not completed. Also, the marketplace changes so fast that what you thought was a good idea two years ago is now out of date. It is all too easy to say to yourself, “Long-term strategic thinking is not going to improve my profit next year, so why bother?”
But you must consider that ongoing change creates opportunities that can be used by you as a small business operator. The most successful business people are those that sense or foresee future trends and adapt their businesses to exploit these coming changes.
There are many definitions of strategic planning. Our definition is this: ‘strategic planning is concerned with what to change in your business to survive the future market changes beyond your control’.
- Strategy versus tactics
People often ask, “What’s the difference between a strategy and a tactic?”
Strategy involves your future vision for your business and tactics involve the actual steps you need to take to achieve that vision.
For example, if you run a motel, a marketing strategy might be to target travel agents, and develop a business package for them, which includes an e-commerce solution.
Tactics are the practical steps you need to take now to implement the strategy. For example, the tactics for the travel agents’ strategy might be to:
- build a list of local travel agents
- prepare a business incentive scheme
- outline how they can use your website to order from you and keep up to date
- personally visit the agents and follow up
- monitor the response to determine if the sales target is met.
You can see from this that the strategy always comes first, then come the tactics.
Check that your strategy and the tactics used to implement it are consistent with your business values. For example, a value based commitment to environmentally responsible hospitality could be reflected strategically by working towards Green Globe certification, and tactically, incorporating energy efficient appliances in the motel fit-out.
How to complete a strategic plan
The strategic plan looks at the overall viability of the business. It answers questions like:
- Who will buy or use my products or services?
- What price should I charge?
- Is there any demand for my products or services?
- What may happen or change in the future that will affect my business?
- What should I sell or provide?
- What is the best way to distribute our products or services?
- Are we in the right location?
- Can we make and sell sufficient products to produce a profit?
If you are already in business these topics still need to be addressed to ensure you stay competitive. The biggest threat to existing business is ‘change’. Luckily the biggest opportunity for existing businesses is also change!
Any business that does not think long term runs the risk of the market or the industry changing to such a degree that the business becomes no longer competitive. So it is advisable to revisit the strategic issues of your business at least once every year (more often if you are in a rapidly changing industry).
The first step is to collect customer feedback.
You must get information from your current or potential customers. No amount of discussing with professionals, friends or colleagues will ever replace the information from a real customer. Market research using your customers is one of the most important aspects of being in a small business—and probably one of the least likely things ever to be completed!
What do they like, what do they dislike? How can things be improved? How much will they pay for something? Is convenience important? Should items be packaged together? Do you need EFTPOS? Is after-sales service critical? If you cannot answer any of these questions, then you will not be in business very long. The easiest methods to get this information are:
- Ask them
When you are dealing with existing or potential customers, strike up a conversation with them and informally ask them.
- Focus groups
This involves you gathering a number of customers, sitting them down and discussing a range of issues relevant to your business. The advantage of using this method over a questionnaire is that you will get more detailed information and feedback, rather than ‘tick the box’ style responses from a questionnaire.
Ring them and ask a couple of questions over the phone.
The point is, never assume anything—especially how your customers feel about your business.
You could distribute one-page questionnaires that ask some key questions and encourage customers to fill them out.
Questionnaires are used to survey customers and potential customers, and are the most common form of gathering business feedback. Because collecting market research is crucial but often overlooked by small businesses, we have included a section on how to design an effective questionnaire.
Questionnaires can be used to answer questions such as:
- Would your customers use a toll-free phone service?
- Do customers find it easy to park in your area?
- Would customers mind if you were closed on Mondays?
- How many times a year do your customers take a holiday?
- What do the customers like about your business?
- What do customers think could be improved?
- Would your customers shop via your website if you had one?
- Are they more likely to buy a product or service that is environmentally preferable than one that is not?
- Are they more likely to buy from a business that is socially and/or environmentally responsible?
- Be as brief as possible
You are asking people to give up their free time. Tell them how long the questions will take to answer. You may have to offer them an incentive (for example, a prize draw).
- Be sensitive when asking for personal details
For example, name, address, age range, income range. Only ask for these details if they are going to provide you useful information and make sure you store such information in a secure manner. You will need to assure the respondent regarding confidentiality.
- Know exactly what you want to find out
So the answers people give can be used in a meaningful way.
- Choose the correct type of question
According to what type of information you want (qualitative or quantitative). Be aware of the difference between:
- Open ended questions
‘Write here your impressions of our after-hours service.’
- Closed questions
‘How would you rate our after-hours service?’ a) excellent b) very good c) good d) quite bad e) very bad
- Use normal language
Avoid technical jargon or slang. Be careful to avoid ambiguity.
- Avoid using words that indicate bias
For example: ‘What don’t you like about this particular product?’
This automatically suggests there is something wrong with the product, which may influence the answer. Try to avoid words such as ‘like’ and ‘dislike’. A better way to ask this question would be ‘please write what you think about this particular product’.
- Do not ask more than one question at a time
For example, ‘Do you think the sales person was friendly and honest?’ Split this into two questions.
- Who to survey?
If possible try to screen people in your target market first.
- How many people should you survey?
Generally speaking a sample of 100 people should be adequate for a small geographical area. Professional market research companies generally use samples of between 300 and 1,000 people. A sample size of 300 will give a maximum error range of about five percent.
You must know some of the fundamentals in your particular industry. If you are in business then this information comes from your existing records. If you are starting a new business then you need to find this information from Statistics New Zealand, an accountant, bank manager or business adviser who will provide some rules of thumb.
Information you need to collect will include the following.
- 1. Critical success factors
What must happen in your business to make it work? Get right down to the basics. For example, a business may have only four critical success factors:
- Customers are aware of your business and contact you
- Customers see your products or services as value for money
- Customers are happy to pay the price you are asking
- Customers remain happy after they have given you money to the extent that they are likely to repurchase.
List what you will do to make sure each of these happen.
Alternative critical success factors can take the form of specific actions, such as calculating what the average customer spends and then attempting to increase it. For example, if the average sum spent per person is $10, then an increase to $11 does not seem so hard, yet it has the same effect as increasing sales by 10 percent, which may seem more difficult.
- 2. Key ratios
What are the key financial ratios for your business area or industry, and what are the typical figures for these ratios? For example, you should know what the average net profit percentage and gross profit percentage are for your business.
If you do not know then you are not in a position to make good decisions. For example, let’s say you want to spend $1,000 on advertising. How much do you need in sales to cover the cost of this $1,000? If you do not know your gross profit percentage then this exercise is impossible (See Industry Sector Influences, Chapter 11 for a discussion of key performance indicators you might need to consider).
Let’s assume you know your gross profit percentage is 40 percent. Now you can work out that $1,000 divided by 40 percent = $2,500. So you would need an extra $2,500 in sales just to recover the cost of the advert.
- 3. Who are your best customers?
The well-tested 80/20 rule will always apply. This states that 20 percent of your customers provide 80 percent of your sales. So make sure you concentrate on delighting this 20 percent, and then find more people like them. Can you describe this ‘20 percent customer’? Make sure you know who they are so you can target your promotions to them.
- 4. Other influences
There are many other influences on a business that should also be taken into account. For example, if your location, lease, staff turnover, prices, relationships, or morale are likely to impact seriously on the business then they must be identified and discussed.
What is happening in the market place that is beyond your control? There will always be activity and change in a small business; it is something that you must learn to live with and not waste too much time worrying about. People who constantly react to the competition are not really concentrating on their own business. You should, however, keep tabs on the following:
- 1. Threats
Try to identify potential threats early. For example, new technology that you cannot afford is changing the industry, a large competitor is considering diversifying into your market, environmental concerns could impact sales or the local council is introducing new regulations that might stop you from operating.
- 2. Opportunities
Identify the factors that keep enthusiasm, drive and excitement levels high in your business, like being able to sell in other markets, or realising you have the potential to export.
- 3. Trends 10
You must be aware of what is happening locally and internationally in your business area. What is the latest trend? Will it last? Is the way people buy from your industry about to change? Will the Internet and other technology make a difference to buying habits? What about the growing importance of economic and environmental issues such as the Kyoto Agreement or the New Zealand Packaging Accord? Search the Ministry for the Environment’s website www.mfe.govt.nz for more information on how these changes might affect your business and how you can gain from them (for example, by showing customers that your business is environmentally responsible).
A ‘PEST’ analysis can be useful when you’re trying to identify what might possibly happen. This is where you analyse your external environment based on:
- technological impacts.
How will any changes in these areas affect your business?
- 4. Customer base
What is happening to your customers? People change over time: the population is aging, there is a more diverse ethnic mix, tastes and preferences alter, people are staying in education longer and people are mobile. Never assume your customers are the same as they were two years ago. You need regular market research to ensure you know your predominant type of customer.
- 5. Competitor action
The final, but probably most important, market analysis question to ask is what is the competition doing? You should not be spending too much time on the competition, as you should be flat out forging your own destiny.
However, a quick look over your shoulder can be beneficial. Are there any new entrants waiting to start up? If you start to compete more aggressively with the competition how will they react? What are they better at, and should you leave them to this or tackle them head on?
All customers will compare you and the competition at some stage, so as a minimum you should be aware of competitors’ prices, positioning in the market, location and who owns the business.
Much of your competitor analysis can be completed by observation, so remember to:
- read newspapers, follow the news and ads on TV and radio
- read trade magazines and subscribe to business publications
- search competitors websites and subscribe to their email newsletters and mailing lists
- attend conferences or trade shows where they might exhibit
- join industry associations
- read other companies’ annual reports
- visit competitors’ businesses
- listen to customers and suppliers
- listen to business associates and friends
- listen to your own sales people.
- And lastly, remember the power of the internet!
An increasingly important aspect of market research and collecting data can be completed over the internet. For example, competitors tend to place much of their information on their websites, including products and services offered and pricing. Additionally, by surfing the websites of overseas companies and their products you can collect some great ideas that you can adapt for your own business, and be up to date with trends and new initiatives that may impact on your industry.
Once you have gathered all this information, you can then see which direction you should be taking. Questions you should be able to answer include:
- How can you sell more to your existing customers?
- Should you be aiming at new markets?
- Who else can you sell your products or services to?
- Are there any other products or services that you can provide to complement what you already do?
- Are there any other businesses you should be getting into? 11
Once these three steps have been taken (customer feedback, business analysis and market analysis) you will have an excellent idea of how you are strategically placed in the market. The information you have collected will help you to complete the tactical plan, especially in the selection of your targets.
As you gather strategic information you can meet the challenge of positioning.
Defined simply, positioning is where your business fits into the market compared to the competition. Positioning is very important because the message you give out to consumers will impact on their decision to use your business rather than another.
It is the customer (not you) who usually decides your position in the marketplace. Further, it is extremely difficult to change the perception people have of your products or services.
- How customers position your business
Once a customer has the perception that you are expensive, then this is the position you have, regardless of any other evidence you have to defend yourself.
It is likely that this customer will now believe that everything you provide and sell is over the average price. Hence the danger of positioning: a certain position on one product can spread to other products and services that may, in fact, be cheaper than the competition.
Every consumer ‘positions’ a business without even thinking about it. So once you have decided where you want to be positioned in comparison to the competition, you must:
- If necessary, change any aspect of the business so that you fulfil the promise of your positioning statements.
- Constantly remind staff and customers about each of your competitive advantages and publicise each differentiation point.
Remember that your brand will also convey a sense of market position. A piece of jewellery from Tiffany’s will command a premium price because of the brand, where a similar piece from your local jewellery store will not (and will probably be just a fraction of the price). Be careful you protect your brand position.
How to complete a tactical plan
The tactical plan answers questions like:
- Do you need a direct mail campaign?
- How do you get existing customers to come back?
- Which is the best type of advertising?
- How do you approach people for referrals?
Consequently the tactical plan covers only 12 months and it focuses on what you are actually going to do in your business during that period. It usually concentrates on promotional tactics, and is a short-term action plan aimed at providing specific results. To begin, you will need to select your target markets.
- Select targets for the coming year
The most important task is to select the right targets. The first target is always existing customers. You should split existing customers into a number of subgroups, for example:
- ‘Gold’ customers: your best customers, or those who could potentially grow into best customers
- Key people who create word-of-mouth business for you
- People who refer business to you.
Then other targets such as potential or new customers. For example:
- Potential customers you have not yet approached in your region that are similar to the above list of existing customers
- Potential customers of a similar profile in other regions
- New targets such as hospitals, kindergartens
- New targets such as the retired section of the population, or teenagers.
The idea is to split your market into subgroups because it is more cost effective to target these with specific promotional activities than broad coverage. For example, if your main target is large companies in your local region, then broad newspaper or radio advertising would probably be irrelevant. The best tactic would be to obtain a list of such companies and personally visit them.
Target only the biggest or most viable groups first, and remember your business limitations. Do not target large corporates and then find you cannot deliver what you promised. You only get one chance.
Once you have selected your targets (you could have between three and five groups) the idea is to develop specific tactics for each.
The key point to note is that you should not approach your promotional planning by thinking vaguely: “we must do some promotion, so how about some newspaper and radio adverts, a couple of flyers, a few visits, and business card circulation?”
You need to be a lot more specific. A better approach is to say: “right, we want to target existing customers, so we’ll start a newsletter, post them all a discount card, and run a special sales evening just for them.”
There are a number of steps to take before you launch into your promotional brainstorming.
- 1. Select one target from your list
For example, let us assume you want to target students as a specific group.
- 2. Consider adjustments
Do you need to adjust any parts of your business for this target market? Namely:
- The price? In this example you might give a student discount.
- The product or service? In this example you might want to repackage.
- How you deliver or distribute? In this example you might offer free delivery.
Adjust these three variables of price, product and place (distribution or location) only if appropriate.
- 3. Promotions 12
Create promotional tactics especially for this target.
In our example, promotional tactics for the student target market might include:
- contacting clubs the target group might belong to (such as rugby or netball clubs) and offering their members a discount
- mailing out promotional material with their club newsletter by offering to contribute towards postage costs
- advertising in magazines or newspapers they are most likely to read, or on radio stations they are most likely to listen to
- sponsoring a charity and getting some coverage in their mailouts
- finding a database of students and mailing to them (for example another business that has student customers, where you can jointly mail, without breaching the Privacy Act)
- promoting your business on a website that students are interested in (such as music or travel).
You get the idea. The point is the promotional tactics developed are relevant only to the target you are aiming at. By reducing promotional wastage you are saving considerable marketing money.
And remember, there is no such thing as ‘everyone is my market’ as it simply is not true.
- 4. Repeat the steps for other targets
When you have completed this exercise you may end up with a total promotional cost larger than your planned budget. In this case you will have to set priorities from the ‘must do’s’ to the ‘would be nice’ and ‘not crucial to success’ ideas.
Did the tactical plan work?
Did the plan work, or did only certain parts of it work? To answer this question we have to monitor what happened (without spending too much time collecting data).
Continually measure and fine-tune your marketing tactics, deleting any idea that performs poorly. Some ideas you may keep for other reasons, for example, the web page. Although the page may not yet be providing new customers it might be fundamental in keeping the ones you have and be necessary to your future plans.
- Break-even calculation
Another way of deciding if the tactic worked is to calculate a simple break-even point. Let us take advertising as an example:
If you spend $1,000 on an advert and your gross profit is around 50 percent, you will need $2,000 in sales just to cover the cost of the advert.
The gross profit may be lower, however, because advertising often promotes a sale or special, reducing the margin. So if the $1,000 advert promotes products where the gross profit is only 35 percent, for example, suddenly you now need $2,858 in sales to cover the cost.
When it comes to marketing budgets ,often there’s never enough money to cover all that you want to do. The biggest problem is over-capitalising. In other words, spending $5,000 on marketing might bring in the same amount of business as spending $20,000.
Most businesses spend from 0 to 6 percent on marketing. Zero percent may apply if you are clever enough and word of mouth has built to such an extent that you have the luxury of not needing to promote (the ideal situation). Six percent is likely to apply if you have just started your business and need some awareness, or you are in a very competitive industry.
How should the promotional budget be split among the different methods of promotion? Here’s our guideline for a retailer in a good location:
% Promotional budget split
5 Personal selling
20 Direct mail/e-commerce
5 Public relations
10 Word of mouth
35 Sales promotions/merchandising
5 Monitoring impact of results
100 TOTAL percent
Always have some contingency funds available as there will be times when even the best planning will not foresee events that you can take advantage of (a competitor going bust, or some event like your local sports team winning the competition).
Building your credibility
It is much more difficult to convince people to do business with you when you have little or no established credibility. This does not mean that you have poor credibility, but rather that those customers who have never heard of, or dealt with, you will perceive you as having limited credibility. This is likely for new businesses.
People are naturally apprehensive about switching to any new company. They perceive that there is a risk associated with the change: for example, the risk of being overcharged, of encountering rudeness or of experiencing poor work habits. Few customers will switch to your company simply because they are looking for a change.
So assuming this, you must be prepared to convince them or be the next best choice.
- The need for a credibility strategy
Before seeking new customers, a proactive step is to develop a credibility strategy. The strategy attempts to offset and address as many of the customer’s apprehensions as possible. If this strategy is implemented properly, it will give the customer confidence in dealing with you and consequently it should be much easier to gain new customers,.
Remember that customers will do business with a company or person who is credible, expert and trustworthy.
Therefore when developing your credibility strategy, your aim is always to:
- increase your credibility
- reduce the level of risk and apprehension the customer may have about dealing with your business.
Get these elements right and you will find it much easier to promote to new customers and retain the ones you already have.
Your competitive advantage
Finally, it is crucial that you emphasis your competitive advantage at an early stage in your business plan, this way the reader will understand the concept of your enterprise as they continue to work through your information.
A competitive advantage is what you are better at doing than anyone else, or, in other words, how you manage to stay in business against the competition.
- Could you list your key advantages?
- Could your staff?
- Could your customers?
A competitive advantage is only relevant when a customer (not you) thinks it is an advantage.
Remember that your competitors include other businesses competing for the consumer’s discretionary spending dollar, not just those in your industry. So to survive you need as many of the following as possible. If you are lacking some, then go and get them.
Competitive advantages include the following:
- Unique or exclusive product
You can gain an advantage if you are able to source product or deliver services that the competition cannot. From your strategic thinking you will have highlighted services that customers may need, but no one is currently offering a cost-effective solution.
- Customer service
How you and your team deliver your product or service is a key factor in customer satisfaction. Never underestimate the value of excellent service, starting with the first point of contact – how does your phone get answered? Regularly phone (or ask a friend to call) your business to check on the telephone welcome.
- You and your image
Yes, believe it or not, you are also a competitive advantage. No one else has your particular mix of skills.
You must have better knowledge than the other businesses around you. Information today is power and you need to gain the advantage over your competition in this regard.
- Better supplier relationships
Being on good terms with your suppliers is an overlooked competitive advantage. Perhaps you have a strategic alliance or contract with them that the competition cannot match.
- Large supplier backup
Being linked to a large well-known supplier will help. They conduct all of the market research, develop new products and services, undertake customer analysis and provide nationwide branding and advertising that all helps to enhance your credibility. A contract where you have exclusivity of supply is even better.
The quicker you can deliver the product or service at a consistent quality the better.
Being the cheapest is the easiest tactic to implement, but be careful as long-term survival in business often requires high margins. Generally businesses that compete on low price do so because they have a cost advantage: they can get stock or materials cheaper. They still might have high margins!
But being cheapest is the hardest point of difference to defend, even with a lower buying price advantage.
- Strategic alliances
Building a strategic alliance with a customer, a supplier or a business that sells complementary products or services is an advantage. You might even consider an alliance with a competitor, preferably through a formal contract or agreement that locks in work for a period of time.
Owning unique technology that no one can access, or will have difficulty copying, can be a great advantage.
E-commerce is becoming more and more of a competitive advantage for many small businesses. You must mention how you intend to use e-commerce within your business. For example, e-commerce has enabled you to lower costs, improve customer relations, speed up delivery, communicate more easily with customers—or maybe even provided you with a new business model which has created new income streams.
Environmental and social issues offer a number of opportunities for you to gain a competitive advantage. For example, the way you design, manufacture and package your product using environmentally responsible, sustainable or recyclable materials may make it better for the environment than competitors’ products. If you can add an environmental or fair trade label such as Environmental Choice or Enviromark, so much the better.
Quality means conforming to customer requirements: the right product at the right time at the right price. Meeting the competitive advantages above will give you a quality product and a quality service.
It is important to briefly outline key achievements to date—you may be pleasantly surprised! This exercise provides you with an indication of the momentum you may currently have.