based exclusively on break-even analysis is not advisable, as it ignores other aspects of pricing. If the entrepreneur has found a truly unique niche, he or she may be able to charge a premium price---at least in the short run.
Competitors should be studied to learn what they are charging. To break into a market, an entrepreneur will usually have to price a new product or service within a reasonable range of that or the competition. Many new business owners think their best strategy is to underprice the competition in order to gain market acceptance and boost sales. It is important to keep in mind, however, that existing competitors probably have more resources than you do. If they consider your business to be a threat and engage you in a price war, they can probably outlast you. In addition, do you really want your customer to come to you only because you sell a cheaper product or service? That’s no way to build loyalty; you will lose those customers to the next company that prices lower than you do. (Chapter 16 examines break-even analysis and pricing strategy in more depth.)
The Promotion Section
The promotion section of the marketing plan should describe the entrepreneur’s approach to creating customer awareness of the product or service and explain why customers will be motivated to buy. Among the many promotional options available to the entrepreneur are personal selling (that is, direct person-to-person selling) and advertising. The management team at Mayan Pigments found that their website could be an effective promotional sales tool, encouraging visitors to follow up with contacts.
If personal selling is appropriate, the section should outline how many salespeople will be employed and how they will be compensated. The proposed system for training the sales force should also be mentioned. If advertising is to be used, a list of the specific media to be employed should be included and advertising themes should be described. Often, it is advisable to seek the services of a small advertising agency when developing a marketing strategy. In this case, the name and credentials of the agency should be provided. A brief mention of successful campaigns supervised by the agency can add to the appeal of this section of the marketing plan. (Personal selling and advertising are discussed more extensively in Chapter 17.)
Estimation Market Potential
A small business can be successful only if sufficient market demand exists for its product or service. A sales forecast is the typical indicator of market adequacy, so it is particularly important to complete this assessment prior to writing the marketing plan. An entrepreneur who enters the marketplace without a forecast is much like an enthusiastic swimmer who leaves the diving board without checking the depth of the water---and the results can be nearly as painful! Many types of information from numerous sources are required to gauge market potential. This section discusses these information needs as it examines the forecasting process.
The Sales Forecast
Formally define, a sales forecast is an estimate of how much of a product or service can be sold within a given market in a defined time period. The forecast can be stated in terms of dollars and/or units.
Because a sales forecast revolves around a specific target market, that market should be defined as precisely as possible. The market description forms the forecasting boundary. If the market for desks is described as “all offices,” the sales forecast will be extremely large. A more precise definition, such as “government agencies seeking solid wood desks priced between $800 and $1200,” will result in a much smaller but possibly more useful forecast.
One sales forecast may cover a period of time that is a year or less, while another may extend over several years. Both short-term and long-term forecasts are needed for a well constructed business plan.
A sales forecast is an essential component of the business plan because it is critical to assessing the feasibility of a new venture. If the market is insufficient, the business is destined for failure. A sales forecast is also useful in other areas of business planning. Production schedules, inventory, and personnel decisions all start with a sales forecast. Obviously, a forecast can never be perfect, and entrepreneurs should remember that a forecast can be wrong in either direction---either underestimating potential sales or overestimating potential sales.
Limitations to Forecasting
For a number of practical reasons, forecasting is used less frequently by small firms than by large firms. First, for any new business, forecasting circumstances are unique. Entrepreneurial inexperience, coupled with a new idea, represents the most difficult forecasting situation, as illustrated in Exhibit 7.7. An ongoing business that requires only an updated forecast for its existing product is in the most favorable forecasting position.
based exclusively on break-even analysis is not advisable, as it ignores other aspects of pricing. If the entrepreneur has found a truly unique niche, he or she may be able to charge a premium price---at least in the short run.
Competitors should be studied to learn what they are charging. To break into a market, an entrepreneur will usually have to price a new product or service within a reasonable range of that or the competition. Many new business owners think their best strategy is to underprice the competition in order to gain market acceptance and boost sales. It is important to keep in mind, however, that existing competitors probably have more resources than you do. If they consider your business to be a threat and engage you in a price war, they can probably outlast you. In addition, do you really want your customer to come to you only because you sell a cheaper product or service? That’s no way to build loyalty; you will lose those customers to the next company that prices lower than you do. (Chapter 16 examines break-even analysis and pricing strategy in more depth.)
The Promotion Section
The promotion section of the marketing plan should describe the entrepreneur’s approach to creating customer awareness of the product or service and explain why customers will be motivated to buy. Among the many promotional options available to the entrepreneur are personal selling (that is, direct person-to-person selling) and advertising. The management team at Mayan Pigments found that their website could be an effective promotional sales tool, encouraging visitors to follow up with contacts.
If personal selling is appropriate, the section should outline how many salespeople will be employed and how they will be compensated. The proposed system for training the sales force should also be mentioned. If advertising is to be used, a list of the specific media to be employed should be included and advertising themes should be described. Often, it is advisable to seek the services of a small advertising agency when developing a marketing strategy. In this case, the name and credentials of the agency should be provided. A brief mention of successful campaigns supervised by the agency can add to the appeal of this section of the marketing plan. (Personal selling and advertising are discussed more extensively in Chapter 17.)
Estimation Market Potential
A small business can be successful only if sufficient market demand exists for its product or service. A sales forecast is the typical indicator of market adequacy, so it is particularly important to complete this assessment prior to writing the marketing plan. An entrepreneur who enters the marketplace without a forecast is much like an enthusiastic swimmer who leaves the diving board without checking the depth of the water---and the results can be nearly as painful! Many types of information from numerous sources are required to gauge market potential. This section discusses these information needs as it examines the forecasting process.
The Sales Forecast
Formally define, a sales forecast is an estimate of how much of a product or service can be sold within a given market in a defined time period. The forecast can be stated in terms of dollars and/or units.
Because a sales forecast revolves around a specific target market, that market should be defined as precisely as possible. The market description forms the forecasting boundary. If the market for desks is described as “all offices,” the sales forecast will be extremely large. A more precise definition, such as “government agencies seeking solid wood desks priced between $800 and $1200,” will result in a much smaller but possibly more useful forecast.
One sales forecast may cover a period of time that is a year or less, while another may extend over several years. Both short-term and long-term forecasts are needed for a well constructed business plan.
A sales forecast is an essential component of the business plan because it is critical to assessing the feasibility of a new venture. If the market is insufficient, the business is destined for failure. A sales forecast is also useful in other areas of business planning. Production schedules, inventory, and personnel decisions all start with a sales forecast. Obviously, a forecast can never be perfect, and entrepreneurs should remember that a forecast can be wrong in either direction---either underestimating potential sales or overestimating potential sales.
Limitations to Forecasting
For a number of practical reasons, forecasting is used less frequently by small firms than by large firms. First, for any new business, forecasting circumstances are unique. Entrepreneurial inexperience, coupled with a new idea, represents the most difficult forecasting situation, as illustrated in Exhibit 7.7. An ongoing business that requires only an updated forecast for its existing product is in the most favorable forecasting position.
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