Chapter 11 Marketing Issues and Confronting New Ventures

Chapter 11: Unique Marketing Issues Confronting New Ventures
CHAPTER 11
UNIQUE MARKETING ISSUES CONFRONTING NEW VENTURES
LEARNING OBJECTIVES
1. Explain the purpose of market segmentation.

2. Describe the importance of selecting a target market.
3. Explain why it’s important for a start-up to establish a unique position in its target
market.
4. Describe the importance of the ability to position a company’s products on
benefits rather than features.
5. Illustrate the two major ways in which a company builds a brand.
6. Identify the four components of the marketing mix.
7. Explain the difference between a core product and an actual product.
8. Contrast cost-based pricing and value-based pricing.
9. Explain the differences between advertising and public relations.
10. Weigh the advantages and disadvantages of selling direct versus selling through
intermediaries.
CHAPTER OVERVIEW
This chapter focuses on the marketing issues facing entrepreneurial firms. The chapter
begins by discussing how firms define and select their target markets. Next, we discuss
two issues that are particularly important for new firms: selling benefits rather than
features and establishing a brand.
The chapter concludes by discussing the four key facets of marketing as they relate to
young entrepreneurial firms. The four facets, commonly referred to as the “four Ps” of
marketing, are product, price, promotion, and place (or distribution).
CHAPTER OUTLINE
I. Selecting a Market and Establishing a Position

A. Segmenting the Market
B. Selecting a Target Market
C. Establishing a Unique Position
II. Key Marketing Issues for New Ventures

A. Selling Benefits Rather Than Features
B. Establishing a Brand
III. The Four Ps for New Ventures

A. Product
273
Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall
B. Price
C. Promotion
D. Place (or Distribution)
CHAPTER NOTES
I. Selecting a Market and Establishing a Position
1. In order to succeed, a new firm must address this important question: Who are
the customers, and how will we appeal to them?
2. A well-managed start-up approaches this query by following a three-step

process: segmenting the market, selecting or developing a niche within a
target market, and establishing a unique position in the target market.
A. Segmenting the Market
1. The first step in selecting a target market is to study the industry in which
the firm intends to compete and determine the different potential target
markets in that industry.
2. This process is called market segmentation and is important because a new

firm typically only has enough resources to target one market segment, at
least initially.
3. Markets can be segmented in a number of different ways, including

product type, price point, and customers served.
4. There are several important objectives a new firm should try to accomplish
as part of its market segmentation process:
a. The process should identify one or more relatively homogeneous groups

of prospective buyers within the industry the firm plans to enter in
regard to their wants and needs.
b. Differences within the segment the firm chooses should be small

compared to differences across segments.
c. The segment should be distinct enough so that its members can be easily
identified.
d. It should be possible to determine the size of the segment so that a firm

knows how large its potential market is before it aggressively moves
forward.
274
B. Selecting a Target Market
1. Once a firm has segmented the market, the next step is to select a target
market.
2. Typically, a firm (especially a start-up venture) doesn’t target an entire

segment of a market because many market segments are too large to target
successfully.
3. Instead, most firms target a niche with the segment.
a. A niche market is a place within a market segment that represents a

narrower group of customers with similar interests.
b. In most cases, the secret to appealing to a niche market is to understand

the market and meet its customers’ needs. By focusing on a clearly
defined target market, a firm can become an expert in that market and
then be able to provide its customers with high levels of value
and service.
C. Establishing a Unique Position
1. After selecting a target market, the firm’s next step is to establish a

“position” within it that differentiates it from its competitors.
2. As we discussed in Chapter 5, position is concerned with how the

firm is situated relative to its competitors. In a sense, a position is the
part of a market or of a segment of the market the firm is claiming as its
own.
3. Once a company has identified its position and primary points of

differentiation, a helpful technique is to develop a product attribute map,
which illustrates a firm’s positioning strategy relative to its major rivals.
4. A firm establishes a unique position in its customers’ minds by consistently

drawing attention to two or three of its product’s attributes that define the
essence of what the product is and what separates it from its competitors.
a. Firms often develop a tagline to reinforce the position they have staked
out in their market, or a phrase that is used consistently in a company’s
literature, advertisements, promotions, stationery, and even invoices
and thus becomes associated with the company. An example is Nike’s
familiar tagline, “Just do it.”
275
II. Key Marketing Issues for New Ventures
A. Selling Benefits Rather Than Features
1. Many entrepreneurs make the mistake of positioning their company’s

products or services on features rather than benefits.
2. A positioning or marketing strategy that focuses on the features of a

product, such as its technical merits, is usually much less effective than
a campaign focusing on what the merits of the product can do.
B. Establishing a Brand
1. A brand is the set of attributes – positive or negative – that people associate

with a company.
2. Some companies monitor the integrity of their brands through a program of

brand management, or protecting the image and value of an organization’s
brand in consumers’ minds.
3. Table 11.2 lists the different ways people think about the meaning of a
brand.
4. The difference between a company’s brand and its positioning strategy is

this: the brand is all about the attributes and promises that people associate
with a company, and the position is all about the details.
5. Start-ups must build a brand from scratch. One of the keys is to create a
strong personality for the firm that appeals to the chosen target market.
a. So how does a new firm develop a brand? On a philosophical level, a

firm must have meaning in its customers’ lives. It must create value.
b. On a more practical level, brands are built through a number of

techniques, including advertising, public relations, sponsorships,
support of social causes, and good performance.
c. Ultimately, a strong brand can be a very powerful asset for a firm.
i. Brand equity is the term that denotes the set of attributes and
liabilities that are linked to a brand and enable it to raise a firm’s
valuation.
ii. Cobranding refers to a relationship between two or more firms

where the firms’ brands promote each other.
276
III. The Four Ps of Marketing For New Ventures
1. Once a company decides on its target market, establishes a position within that
market, and establishes a brand, it is ready to begin planning the details of its
marketing mix.
2. A firm’s marketing mix is the set of controllable, tactical marketing tools that
it uses to product the response it wants in the target market.
3. Most marketers organize their marketing mix into four categories: product,
price, promotion, and place (or distribution)
A. Product
1. A firm’s product, in the context of its marketing mix, is the good or service
it offers to its target market.
2. Determining the product or products to be sold is central to the firm’s entire

marketing effort.
3. As the firm prepares to sell its product, an important distinction should be

made between the core product and the actual product.
i. While the core product may be a CD that contains an antivirus software

program, the actual product, which is what the customer buys, may have
as many as five characteristics: a quality level, features, design, a brand
name, and packaging.
B. Price
1. Price is the amount of money consumers pay to buy a product. It is the

only element of the marketing mix that produces revenue; all other
elements represent costs.
2. Most entrepreneurs use one of two methods to set the price for their
products: cost-based pricing or value-based pricing.
a. In cost-based pricing, the list price is determined by adding a markup

percentage to a product’s cost.
b. In value-based pricing, the list price is determined by estimating what

consumers are willing to pay for a product and then backing off a bit
to provide a cushion.
3. Regardless of the method of pricing, a company can’t charge a premium
277
price without delivering on its positioning and branding promises and

unless circumstances are right.
4. To charge a premium price, one or more of the following circumstances

must be present:
- Demand for the product is strong relative to supply

- Demand for the product is inelastic
- The product is patent protected and has a clearly defined target market
- The product offers additional features that are valued
- A new technology is being introduced
- The product is positioned as a luxury product
C. Promotion
1. Promotion refers to the activities the firm takes to communicate the merits
of its product to its target market. Ultimately, the goal of these activities
is to persuade people to buy the product.
2. The two most common activities entrepreneurs use to promote their firms
are advertising and public relations.
a. Advertising is making people aware of a product or service in hopes of

persuading them to buy it. Advertising major goals are to do the
following:
- Raise customer awareness of a product

- Explain a product’s comparative benefits
- Create associations between a product and a certain lifestyle
b. Public relations refers to efforts to establish and maintain a company’s

image with the public. There are a number of techniques that fit the
definition of public relations. These include:
- Press releases
- Media coverage
- Articles in industry press and periodicals
- Blogging
- Monthly newsletter
- News conference
- Civic, social, and community involvement
c. Other product related activities.
- Viral marketing facilitates and encourages people to pass along a

marketing message about a particular product
278
- Guerrilla marketing is a low-budget approach to marketing that relies

on ingenuity, cleverness, and surprise rather than traditional
techniques
D. Place (or Distribution)
1. Place, or distribution, encompasses all the activities that move a firm’s

product from its place of origin to the consumer. A distribution channel
is the route a product takes from the place it is made to the customer who
is the end user.
2. The first choice a firm has to make regarding distribution is whether to

sell its products directly to consumers or through intermediaries (such
as wholesalers and retailers.
a. Selling Direct. Many firms sell direct to customers. Being able to

control the process of moving their products from their place of
origin to the end user instead of relying on third parties is a major
advantage of selling direct. The disadvantage of selling direct is
that a firm has more of its capital tied up in fixed assets because
it must own or rent retail outlets or must field a sales force to sell
its products.
b. Selling Through Intermediaries. Firms that sell through intermediaries

typically pass off their products to wholesalers who place them in
retail outlets to be sold. An advantage of this approach is that the firm
does not need to own as much of the distribution channel. The
disadvantage of selling through intermediaries is that a firm loses
control of its product. There is no guarantee that Best Buy or Circuit
City will talk up the firm’s product as much as the manufacturer would
if it had its own stores.
BOXED FEATURES: QUESTIONS FOR CRITICAL THINKING
What Went Wrong?

Quaker Oats’ Botched Acquisition of Snapple: The Price of Failing to Understand the
Real Meaning of a Company’s Brand
1. Why do you think Snapple was successful prior to its acquisition by Quaker Oats?
Answer: Snapple has a rich heritage, and there are many reasons it was successful
prior to the Quaker Oats acquisition. It was positioned as a “wellness” beverage,
which turned out to be the hottest sector in the alternative beverage market. It has
also been marketed and promoted in a very innovative manner, as illustrated in the
feature, and become somewhat of a cult brand—garnering a distinct following and
279
a lot of repeat customers.
2. Why do you think Quaker Oats didn’t work harder to more fully understand the
nature of Snapple’s brand before it made the changes described here?
Answer: One can only speculate—we’ll probably never know the correct answer
to this question. Quaker Oats probably saw Snapple as just “one more product” to
be pushed through its distribution channels, rather than something unique and
special. There may also have been some managerial hubris, or arrogance,
involved. Quaker had managed brands successfully so many time before, the
company may have thought that Snapple would be successful too, without
stopping to fully appreciate and understand the uniqueness of its brand.
3. How would you describe Snapple’s positioning strategy before the Quaker Oats’
acquisition? How would you describe the way that Quaker Oats tried to position
Snapple?
Answer: As illustrated in the feature, before the acquisition, Snapple was

positioned as quirky, fashionable alternative to standard soft-drink brands. It was
also positioned as a “wellness” brand, meaning that it appealed to people who
wanted a wholesome, healthy drink. After the acquisition, its positioning strategy
was unclear (which was one of its biggest problems). It became just another drink
on the grocery store shelf, with no clear position in the marketplace.
4. Provide an example of what you think is a very cleverly branded product. What
has the company that makes the product done to make its branding distinctive and
effective?
Answer: This is a good question for an individual or group assignment.
Savvy Entrepreneurial Firm

Utilizing Guerrilla Marketing Techniques to Create Product Awareness in Entertaining,
Cleaver, and Effective Ways
1. Look at the Web site of Steve Spangler Science at www.stevespanglerscience.com.

Do you think Steve Spangler Science would be generating more than $5 million in
annual sales if the Mentos geyser video had never been made? How much money
would Spangler have had to spend on print and media advertising to create the
same level of name recognition that he created through the Mentos geyser videos?
Answer: Most students will say that there’s not a chance that Steven Spangler
Science would be generating more than $5 million in annual sales if it wasn’t for
the Mentos geyser video. Spangler would have had to spend a tremendous amount
of money to achieve the visibility and name recognition that the Mentos video has
accomplished.
280
2. Aside from its corny appeal, do you think the Blendtec videos are effective? In
other words, do the videos convince you that buying a Blendtec blender would be
a good choice?
Answer: Most students will say yes—the Blendtec videos are effective. They
demonstrate that the Blendtec machines not only do the job, but are very durable.
3. Relate an example of a guerilla marketing technique that you’ve observed.

Explain the purpose and effectiveness of the campaign. If you’re not familiar with
a guerilla marketing campaign, do some Internet or library research to become
familiar with one.
Answer: This is a good question for an individual or group assignment. If you’d

like examples for class, simply type “Guerilla Marketing Blogs” into the Google
search engines and there are several blogs that provide examples of guerilla
marketing techniques.
4. The “You Be the VC 11.1” feature focuses on First Flavor, a company that is
creating print ads that can be licked by consumers so they can get a sense of a
product’s taste. Suggest a guerilla marketing campaign to raise First Flavor’s
awareness.
Answer: This is a good question for an individual or group assignment. Urge your
students to be as creative as possible in formulating their suggestions.
Partnering for Success

Dogster: Driving Traffic to Its Web Site by Fashioning a Hybrid Promotional Campaign
1. Why do you think CBS didn’t elect to direct viewers to its own Web site to obtain
more information about the dogs on Greatest American Dog, rather than partnering
with Dogster.com and letting the company direct viewers to its Web site?
Answer: There are most likely two reasons that CBS partnered with Dogster and
allowed the traffic to be directed to Dogster’s Web site rather than its own. First,
Dogster already has a “dog-focused” Web site and infrastructure in place. By
partnering with Dogster, CBS didn’t have to create a unique destination on its own
site, and maintain it if viewers kept coming back. Second, Dogster could give
CBS’s viewers a more satisfying experience (because of the robustness of its Web
site) that CBS could.
2. Assume WebVet, the subject of the “You be the VC 11.2 feature, partnered with
CBS to promote Greatest American Dog instead of Dogster. Could WebVet have
done the same things that Dogster did? Is there anything that WebVet could have
done that Dogster couldn’t have accomplished?
281
Answer: Yes, WebVet could have done the same thing that Dogster did. One
thing that WebVet could have done that would have been more difficult for
Dogster to pull off, would have been to offer tips and advice for each type of dog
featured on Greatest American Dog regarding preventative health care, proper
grooming, diseases to watch out for, and similar types of information.
3. Look at the advantages and disadvantages of advertising listed in the chapter.

Which of the advantages of advertising did Dogster capture through its approach
to promoting Greatest American Dog, and which of the disadvantages of
advertising did it minimize or avoid?
Answer: See below:
Advantages of advertising Dogster captured:
• Raise customer awareness of a product
Disadvantages of advertising Dogster avoided:
• The possibility that a high percentage of the people who see the ad will not
be interested
• The perception that advertising is intrusive
4. What can start-up firms that operate in completely different industries than
Dogster learn from this feature?
Answer: To think carefully about whether a specific advertising campaign will

actually motivate people to take action—whether its logging on a Web site for
further information or whether its clipping a coupon to use to buy a specific
product.
REVIEW QUESTIONS
1. What is a target market? Why is it important for a firm to choose its target market
early in the process of launching its venture?
Answer: A target market is the limited group of individuals or businesses that a

firm goes after or tries to appeal to. It is important that a firm first choose its target
market and position itself within its target market because virtually all its
marketing decisions hinge on these critical initial choices.
2. Explain the importance of market segmentation. Describe several ways in which

markets can be segmented.
282
Answer: The first step in selecting a target market is to study the industry in which
the firm intends to compete and determine the different potential target markets in
that industry. This process is called market segmentation and is important because
a new firm typically only has enough resources to target one market segment, at
lease initially.
3. How should a firm go about constructing a product attribute map?
Answer: A product attribute map, like the map shows for Curves International in
the chapter, illustrates a firm’s positioning strategy relative to its major rivals. The
map is based on the two primary attributes that are the most important for a firm
and its major competitors. A firm plots itself and its competitors on the map to see
how it compares to its competitors. See Figure 11.2 in the chapter for an example.
4. What is a niche market? Provide examples of niche markets in the women’s

clothing industry.
Answer: A niche market is a place within a market segment that represents a

narrower group of customers with similar interests. A company that sells
educational toys to children ages 5-9 is a niche market.
5. Describe what is meant by a firm’s “positioning” strategy?
Answer: After selecting a target market, the firm’s next step is to establish a
“position” within the market that differentiates it from its competitors. A firm’s
position is concerned with how it is situated relative to its competitors. A firm’s
position is the part of the market or the segment of the market it is claiming as its
own.
6. What is a tagline? What is your favorite tagline? Why?
A tag line is a phrase that is used consistent in a company’s literature and

promotional material. An example of a tag line is Nike’s familiar tagline, “Just do
it.”
7. Why is it important for firms to sell the “benefits” of its products rather than the
“features?”
Answer: Many entrepreneurs make the mistake of position their company’s

products or services on features rather than benefits. A positioning or marketing
strategy that focuses on the features of a product, such as its technical merits, is
usually much less effective than a campaign focusing on what the merits (or the
benefits) of what the product can do.
8. What is a brand? Provide an example of a brand that you buy frequently and
describe the mental image that pops into your mind when you hear or see the
283
brand’s name.
Answer: A brand is the set of attributes – positive or negative – that people

associate with a company. These attributes can be positive, such as trustworthy,
innovative, or easy to deal with, or they can be negative, such as cheap, unreliable,
or difficult to deal with.
9. What is the purpose of brand management?
Answer: Some companies monitor the integrity of their brands through a program
of brand management, or protecting the image and value of an organization’s
brand in consumers’ minds.
10. What is meant by creating “buzz? for a company? Provide an example of a firm
that has created effective buzz for its product or service.
Answer: Creating buzz means creating awareness and a sense of anticipation about
a company and its offerings. The firms in the Savvy Entrepreneurial Firm feature
in this chapter has created effective buzz for their products and services.
11. What is meant by the term brand equity?
Answer: Brand equity is the term that denotes the set of assets and liabilities that
are linked to a brand and enable it to raise a firm’s valuation.
12. Identify and briefly describe the four elements of a firm’s “marketing mix.”
Answer: See below:
• Product—is the good or service that a firm offers to its target market.
• Price—is the amount of money a firm charges its customers for its product
or service.
• Promotion—refer to the activities a firm takes to communicate the merits
of its product to its target market
• Place (or distribution)—encompasses all the activities that move a firm’s
product from its place of origin to the consumer.
13. Describe the difference between a core product and an actual product.
Answer: The core product is the product itself, like a CD that contains an antivirus
program. The actual product, which is what the customer buys, may have as many
as five characteristics: a quality level, features, design, a brand name, and
packaging. When first introducing a product to the market, an entrepreneur needs
to make sure that more than the core product is right. Attention also needs to be
paid to the actual product that constitutes the collection of benefits that the
customer ultimately buys.
284
14. What is a reference account? How can having a reference account help a new
firm?
Answer: A reference account is an early user of a firm’s product who is willing to

give a testimonial regarding his or her experience with the product.
15. Contrast cost-based pricing and value-based pricing.
Answer: In cost-based pricing, the list price is determined by adding a markup

percentage to a product’s cost. The markup percentage may be standard for the
industry or may be arbitrarily determined by the entrepreneur. In value-based
pricing, the list price is determined by estimating what consumers are willing to
pay for a product and then backing off a bit to provide a cushion. What a
consumer is willing to pay is determined by his or her perceived value of the
product and by the number of choices available in the marketplace.
16. What is meant by the phrase “price-quality attribution”? How does an

understanding of this phrase help an entrepreneur know how to price a product?
Answer: The concept of price-quality attribution means that consumers naturally

assume that the higher-priced product is also the better-quality product. What this
concepts help an entrepreneur realize, is that if a firm charges a low price for its
products it sends a signal to its customers that the product is low quality regardless
of whether it really is.
17. What is meant by the term guerilla marketing? Provide an example of guerilla
marketing not provided in the chapter?
Answer: Guerrilla marketing is a low-budget approach to marketing that relies on

ingenuity, cleverness, and surprise rather than traditional techniques.
18. Contrast the roles of advertising and public relations in promoting a firm and its
products.
Answer: Advertising is making people aware of a product or service in hopes of

persuading them to buy it. It is something that a company pays for – like a
newspaper ad, a television ad, or a billboard. Public relations refer to efforts to
establish and maintain a company’s image with the public. A firm doesn’t pay for
public relations – at least directly (i.e., a firm may employ an individual to manage
its public relationship, so that individual’s salary would represent an indirect cost).
Examples of public relations initiatives are press releases, new conferences, and
media coverage.
19. What is the purpose of a press release?
285
Answer: A press release is an announcement made by a firm that is circulated to

the press. Firms typically circulate press a release when something positive
happens, such as the launch of a new product or the hiring of a new executive.
20. Contrast the advantages of selling direct vs. the advantages of selling through an
intermediary.
Answer: The advantage of selling direct is being able to control the process of
moving a firm’s products from their place of origin to the end user instead of
relying on third parties. The disadvantage of selling direct is that a firm has more
of its capital tied up in fixed assets because it must own or rent retail outlets or
must field a sales force to sell its products. It must also find buyers rather than
have distributors that are constantly looking for new outlets for the firm’s
products.
In contrast, an advantage of selling through intermediaries is that the firm does not
need to own as much of the distribution channel. For example, a firm can sell its
products through an established retailer like Wal-Mart or CompUSA. It can also
rely on its wholesalers to manage its relationships with its retailers. The
disadvantage of selling through intermediaries is that a firm loses control of its
product. There is no guarantee that Wal-Mart of CompUSA will talk up the firm’s
product as much as the manufacturer would if it had its own stores.
APPLICATION QUESTIONS
1. Reread the Opening Profile. After doing this, make a list of all the things that you
think that Misa Chin has done right in building Miss Misa’s marketing program?
Answer: The following is a list of the things that Misa Chin did right (and is still
doing right) in building Miss Misa’s marketing program:
• Uses eBay as a testing ground for finding out what’s likely to sell and what
isn’t likely to sell on her Web site.
• Advertises via Facebook (which she has found is more cost-effective in
reaching her target audience than more traditional forms of advertising)
• Asks (and sometimes incents) people to list her Web site as one of their
“favorite” Web sites on the front page of their Facebook page.
• Established a partnership with Shopflick.com to carry her products.
• Utilizes a Chinese manufacturer to manufacture her product, which enables
her to sell at a lower price-point.
• Assembled a press kit and has distributed the kit to magazines that cover the
jewelry industry.
2. Paul Bustamante is in the process of opening a music store in Tallahassee, Florida.

After touring the store, a friend asked him, “Who’s your target market?” Paul
286
shrugged and said, “Kids that go to Florida State I guess, but I haven’t given it
much thought.” What could Paul gain by thinking more carefully about his target
market and how important would those insights be?
Answer: A target market is the limited group of individuals or businesses that a

firm goes after or tries to appeal to. It is important that a firm first choose its target
market and position itself within its target market because virtually all its
marketing decisions hinge on these critical initial choices. There are undoubtedly
a number of different potential target markets in Tallahassee, Florida. Examples
might include: college kids that are into hiphop, local residents that are into
country western, or baby boomers that are into easy listening music. By not trying
to identify a target market, Paul runs the risk of trying to be all things to all people,
which is typically less effective than zeroing in on a target market, and serving it
well.
3. If you decided to start a small business consulting service in Columbus, Ohio, how
would you approach the following topics: market segmentation, selecting a target
market, and developing a positioning strategy?
Answer: The following is one approach for answering this question.
• Market segmentation: The market for small business consulting services can
be segmented in a number of ways, including product type, price point, and
customers served. I would segment the market by product type (or industry
type in this case). There would be three segments: technology firm, consumer
or retail firm, and non high-tech manufacturing firm.
• Target market. Once the market has been segmented, the next step is to select
a target market. By focusing on a clearly defined target market, a firm can
become an expert in that market and then be able to provide its customers with
high levels of value and service. I would select technology firms as my target
market.
• Positioning strategy. After selecting a target market, the firm’s next step is to
establish a “position” within it that differentiates it from its competitors. In a
sense, a position is the part of a market or of a segment the firm is claiming for
its own. The position I would select is to be the consulting firm that helps
small technology firms plan their advertising and public relations strategies.
Point out to your students that the value of going through this process is that it
helps a firm (1) clearly define itself in the marketplace and (2) develop core
competencies that are consistent with its position.
4. Reread the “You Be the VC 2.2” feature, which focuses on Mariah Power. How
do you think Mariah Power segmented the wind-generated power industry?
Describe Mariah Power’s positioning strategy.
Answer: Mariah Power most likely segmented the wind-generated power industry
287
by customer served. Segments likely included:
• Large power companies

• Small to mid-sized power companies
• Large businesses and government buildings
• Small businesses
• Homeowners living in residential areas
• Homeowners living in rural areas
Mariah Power’s positioning and differentiation is that it is building a product for

small businesses and homeowners living in rural areas, and underserved segment
in the wind-generated power industry.
5. Image you’re opening a new pizza, sub, and sandwich restaurant near the campus
or the college or university you are attending. Suggest six ways to market your
restaurant that don’t include newspaper, radio, or television advertising.
Answer: This is a good thought question for students. Suggestions will range from
placing flyers on bulletin boards to dressing someone in a sandwich board and
walking up and down the sidewalk near where the business is located.
6. Assume that you just invented a new type of computer printer that can be easily
folded up and carried like a laptop computer. You have decided to start a
company to produce the computer. Select a name and a tag line for your new
company.
Answer: This is an excellent question for an individual or group assignment or just

to throw out in class. Make sure the tag line is distinct and makes sense given the
nature of the product.
7. Derek Smith just opened a new restaurant that focuses on healthy food, such as
salads, soups and smoothie drinks made from natural ingredients. He named the
restaurant Derek’s Health Escape. The jingle that Derek wrote for his first ad is
“Fiber, nutrition, vitamins, and low-fat, that’s what Derek’s Health Escape is all
about.” Do you like Derek’s jingle? If so, explain why. If not, suggest an
alternative and explain why your jingle is better than Derek’s.
Answer: Most students will say that they don’t like Derek’s jingle. Derek is
making the classic mistake of talking about the features of his product (the contain
fiber, nutrition, vitamins, and are low-fat) rather than benefits (which is what the
customer is really interested in). A better jingle might be something like, “Fun,
nutritious, and makes-you-feel great, that’s what Derek’s Health Escape is all
about.”
8. Suggest some guerilla marketing that Derek Smith could utilize to create
awareness about Derek’s Health Escape.
288
Answer: This is a good question for an individual or group assignment. To get

suggestions, urge your students to look at the many blogs and Web sites that focus
on guerilla marketing techniques.
9. Spend some time looking at Red Bull’s Web site (the U.S. site). Comment on
each element of Red Bull’s marketing mix (product, price, promotion, and place).
If you need additional information, conduct Internet or library research to obtain it.
On a scale of 1 to 10 (10 is high), rate the strength of Red Bull’s overall marketing
plans. Justify your ratings.
Answer: Most students will be very impressed with Red Bull’s marketing mix and
will have plenty to say about each element. In terms of product, Red Bull does not
have a complicated line of products. Its products include Red Bull Energy Drink,
Red Bull Cola, and Red Bull Energy Shot. In terms of price, the company clearly
pursues value-based pricing, which most students will see as appropriate. In terms
of promotion, Red Bull is exemplary in its efforts. It utilizes a number of
innovation marketing techniques and sponsorships, as illustrated on the Web site.
In terms of distribution, Red Bull has done a good job getting shelf space for its
products in specialty stores and well as mainstream convenience and grocery
stores.
10. The “You be the VC 11.1” feature focuses on First Flavor, a company that is
creating print ads that can be licked by consumers so they get a sense of a
product’s taste. Consider each of the 4Ps and comment on the most important
issues for First Flavor to consider in each area.
Answer: See below.
Product—the product must live up to expectations.

Price—it must be priced at a price-point that is equivalent to alternative forms of
advertising
Promotion—potential customers (advertisers) must become aware of the product
and its benefits
Place—it must determine whether to sell direct (to advertisers) or via an
intermediary like an advertising agency
11. Shannon has developed a new type of space heater that is quieter and safer than
previous generations of space heaters and is particularly geared to people who live
in small spaces, such as apartments or dorm rooms. Shannon doesn’t know how to
price this product. Describe to Shannon the two most common methods of pricing,
and give her your recommendation for how to price the product?
Answer: Shannon has two choices.
• In cost-based pricing, the list price is determined by adding a markup
289
percentage to a product’s cost. The markup percentage may be standard

for the industry or may be arbitrarily determined by the entrepreneur.
• In value-based pricing, the list price is determined by estimating what
consumers are willing to pay for a product and then backing off a bit to
provide a cushion.
12. Skip ahead to Case 15.1, which focuses on Snap Fitness. Snap Fitness is a
franchise organization that is opening neighborhood fitness clubs across the
country that are open 24/7 so people can exercise at the time of day that works best
for them. Make a list of the types of public relations activities that the owners of
Snap Fitness and their franchisees could engage in to promote the company.
Answer: This is a good question for an individual or group assignment. Examples

include:
• Press release
• Media coverage
• Articles in local press and periodicals
• Articles in industry press and periodicals
• Talk up the company and its concept in fitness-related blogs
• Monthly newsletter to customers and potential customers
• New conference
• Sponsor free seminars on fitness
• Contribute expert “how-to” advice in local newspapers
13. Kelly Andrews has developed a new line of jewelry, which has created some
positive buzz among friends and some business stores in her local community.
When asked by a reporter, “Where do you plan to sell your jewelry?” Kelly said,
“Hopefully everywhere—jewelry stores, Target, Wal-Mart, gift shops, online,
through catalogs, and a dozen other places.” Write a critique of Kelly’s approach.
Answer: Kelly is not following a sensible approach. What Kelly wants to do is to

establish a brand for her jewelry, which is consistent in her customer’s mind. A
brand is the set of attributes that people associate with a company – such as high
quality (or low quality), attractive (or plain), expensive (or cheap). Once Kelly
determines the brand she wants to establish, then she has to sell her product
through a retail outlet that supports, rather than diminishes, the strength of the
brand. For example, if Kelly wants to appeal to the top end of the market (and her
product is good enough to achieve that goal), she’ll want people to associate words
like quality, expensive, rich, attractive, striking, and beautiful with her jewelry
products. To support this image, Kelly will want to sell her jewelry through stores
like Nordstrom’s, Sacks, and Macys. If the same jewelry is sold at Nordstroms
and Wal-Mart, consumers will get confused (is this high quality, or isn’t it?).
14. Peter Sanders is interested in iPods and for some time has supported a Web site
that provides information for iPod enthusiasts. Although Peter thoroughly enjoys
290
running the site, it has become a financial burden and he is thinking about shutting
it down. Provide some suggestions to Peter for ways to avoid shutting down the
site for financial reasons.
Answer: Most students will say that Peter’s best bet is to ad advertising to his site.
He can do this via a pay-per-click program. All the major search engines sponsor
pay-per click programs. Examples include Google AdSense, Yahoo? Search
Marketing, and MSN Adcenter. He can also sell banner ads. There are many
companies, such as Tribal Fusion and BurseMedia, which help other companies
arrange banner ad sales. There might also be affiliate programs that Peter can
participate in. Again, there are companies, such as Link Share and ShareASale,
that help other companies identify appropriate affiliate programs.
15. Nate Jones, a friend of yours, is in the early stages of conducting a feasibility
analysis for an ecommerce Web site, which will focus on the sale of products for
extreme sports, such as snowboarding, rock climbing, mountain biking, and hang
gliding. Nate is familiar with the concept of branding, and knows that because his
company is new he’ll have to build a brand from scratch. Compose a 100- to 200-
word e-mail message to Nate providing him suggestions for how to approach this
task.
YOU BE THE VC 11.1
Company: First Flavor (www.firstflavor.com)
Business Idea: Create ads that can be licked by consumers so they get a sense of a
product’s taste.
You Be the VC Scorecard

First Flavor
(www.firstflavor.com)
Item Score/Comments
Strength of New Venture 1 2 3 4 5

Team
First Flavor is led by CEO Jeff Minkoff and Founder
and Executive VP Adnan Aziz. Minkoff is a serial
entrepreneur, and was the founder of Home Marketing
Solutions which co-created the HomeBuild.com national
listing site. Aziz is the company’s founder, and is a
recent graduate from Penn with dual degrees in
291
bioengineering and political science. He developed the

concept for First Flavor from a grant her received from
the Weiss Technology House while a student at Penn.
Strength of the Opportunity 1 2 3 4 5
It’s hard to assess. There does seem to be positive buzz

about the company, as evidence by a Google search. It
also offers an innovative new way to advertise products
that have a “taste” element to them. Scent ads have
been around for some time (like scratch ads to
experience the smell of a perfume), but First Flavor’s
“lickable” ad is new.
Strength of the Industry 1 2 3 4 5
The advertising industry is losing ground as the result of

the recession, and is only expected to achieve modest
growth (less than 1%) for the foreseeable future once the
recession is over. It’s hard to know whether First
Flavor’s unique niche will outperform the industry.
Strength of Business Model 1 2 3 4 5
First Flavor will earn revenue by helping clients

incorporate its lickable strips into their advertising
campaigns. It already has several partnership deals in
place, including a partnership with US Ink to bring
“Taste-it-Notes” to the newspaper industry.
Average Score 3.5/5.0
Decision: We would not fund this firm. There are just too many unknowns, and being
part of the advertising industry is not a plus. We do applaud First Flavor for its
innovative product. It will be interesting to see if the company gains momentum in the
industry over the next couple of years.
YOU BE THE VC 11.2
Company: WebVet (www.webvet.com)
Business Idea: Create a Web site that provides pet owners a one-stop destination for
information regarding pet health issues.
292
You Be the VC Scorecard

WebVet
(www.webvet.com)
Item Score/Comments
Strength of New Venture 1 2 3 4 5

Team
WebVet is led by founders Hope Schultz and Bill
Zaccheo. The two are longtime friends and business
associates. Schultz has a depth of marketing and
branding experience, with companies like Westin Hotels
and Marriott. Her introduction of the Heavenly Bed at
Westin Hotels help change the entire hotel industry.
Zaccheo is an Internet industry veteran and has more
than 25 years of senior management experience with
global media companies. Both founders are passionate
about animals and pets.
Strength of the Opportunity 1 2 3 4 5
The opportunity appears to be strong, given the

popularity of pets and the fact that people are becoming
increasingly accustomed to searching online for health-
related information, whether it’s for humans or pets.
The trick will be to fight through the clutter of the
Internet to get noticed.
Strength of the Industry 1 2 3 4 5
The pet industry remains steady, despite the economic

recession. Americans love their pets, and while the
industry isn’t completely invulnerable, most pet owners
won’t give up their pets and quit buying pet food,
accessories, veterinary care, etc. as the result of an
economic downturn. IBISWorld predicts small growth
in the industry during the recession and renewed growth
following.
Strength of Business Model 1 2 3 4 5
Appears to have a conventional ad and affiliate

supported Internet business model. WebVet has landed
some high quality advertisers, like PetSmart. It’s
293
wouldn’t be surprising to see similar advertisers follow.
Average Score 4.25/5.0
Decision: This one is a tough call. Ultimately we give it thumbs up. The founders,
although they do not have pet industry experience, have extremely impressive resumes.
They’re the type of resumes that after you’ve read them, you think to yourself, “I bet
these people will pull it off.” The industry is also a plus. Although not completely
recession proof, it’s about as close as it gets. The challenge for WebVet will be to fight
through the clutter of the Internet and get noticed, and be “sticky” enough to keep visitors
coming back. It also needs to establish a viral component—and get opinion leaders like
vets and pet store personnel talking about the site.
CASES
Case 11.1
eBags: The 4Ps of a Successful Online Retailer
DISCUSSION QUESTIONS
1. Describe eBags’ positioning strategy. Do you think the strategy is effective? Why
or why not?
Answer: eBags has positioned itself as an online store that sells (1) a wide variety
of bags, (2) provides a ton of information and customer feedback on each bag it
sells, which allows customers to make informed decisions, (3) is price competitive
and (3) supports a Web site that is easy to navigate.
2. In a short paragraph, describe eBags’ brand. Comment on the strengths and/or

weaknesses of the brand.
Answer: This is good question for an individual or group assignment. eBags’

brand exemplifies the four aspects of its positioning strategy identified above. It
occupies a position in its customers’ mind that says eBags is the place to go to buy
a bag because the company offers a wide selection, information an individual
needs to make an informed decision, and a fair price.
3. What steps has eBags taken to energize its customers? How has eBags turned its
customers into advocates for eBags and the products it sells?
Answer: eBags has done a good job of building a “community” of users by

allowing them to provide candid (eBags does not screen out negative reviews) and
informed feedback about the products it sells. It also features videos of new
handbag designers pitching their products and describing why they’re passionate
294
about bags and how they got in the business. This feature gives eBags users the
opportunity to tell their friends to go to eBags to watch a specific video of a
product that they might be interested in.
4. What is the difference between eBags’ core product and its actual product?
Describe its actual product and your assessment of whether the actual product
provides and attractive or an unattractive mix of characteristics.
Answer: The core product is the bag you buy. The actual product is the selection
that you have to choose from, the ability to read customer feedback , an easy to
navigate Web site, and a fair price.
1. Draw a product attribute map for eBags.
2. Compare and contrast eBags and Zappos (the subject of Case 9.2). Why do you
think Zappos doesn’t drop ship like eBags does? What would eBags gain and what
would it lose if it adopted Zappos’s approach to warehousing and distributing
products?
Answer: eBags and Zappos have two different strategies. eBags offers a wide
selection of bags but does not take physical possession (or warehouse) them.
Instead, it utilizes a technique called drop shipping, and relies on manufacturers
and wholesalers to ship a bag once it’s ordered. In contrast, Zappos takes physical
possession of the bags its sells, and ships them directly from Zappos’ warehouses.
What eBags would gain if its adopted Zappos’ approach would be quicker
shipment of bags and more control over the shipment process. It also wouldn’t
have to share sales revenues with the manufacturers and wholesalers who ship the
bags. What it would lose is breadth of selection. The amount of selection that
eBags offers is vast because it doesn’t have to warehouse the bags its sells. It also
doesn’t get stuck with merchandise that doesn’t sell.
Case 11.2
Proactiv: How Three Critical Marketing Decisions Shaped a New Venture’s Future
DISCUSSION QUESTIONS
1. Does Proactiv sell features or benefits? Provide evidence from the case to support
your conclusion.
Answer: Proactiv sells benefits. Rather than focusing on the technical merits of
295
the product, the company likes to show “before” and “after” pictures of people
who have used Proactiv to rid themselves of acne. This was one of the reasons
that informercials worked so well for the company—the before and after pictures,
along with testimonials from people who used the products, could be visually
shown to the target audience. On its Web site, Proactive does talk about the
features of their products, but directly ties the features to benefits. For example,
here is Proactiv’s description of its Revitalizing Toner:
Revitalizing Toner
This refreshing, alcohol-free toner removes dead skin cells, unplugs pores and
helps remove excess oil so your skin looks and feels refreshed. Soothing
botanical agents gently balance your skin tone.
Note that the description tells exactly what the product does (“removes dead skin
cells, unplugs pores and helps remove excess oil”) which are akin to features, but
then goes on to describe the benefit that are achieved (“…so, your skin looks and
feels refreshed.”). What people really care about is that their skin will look and
feel refreshed. How this is accomplished, as long as the consumer trusts the
company and knows its products are safe, is less important.
2. Discuss the things that Rodan and Fields learned, prior to the time that they met
Guthy Renker, that persuaded them that infomercials were the best way to sell
Proactiv. If Proactiv hadn’t developed infomercials in partnership with Guthy
Renker, do you think Proactiv would be in existence today? Describe why
infomercials were a better choice than print or media advertising for Proactiv when
the company was first being introduced.
Answer: Prior to meeting the folks at Guthy Renker, Roan and Fields realized that
infomercials might be the best way to educate people about their product. The
reasons are laid out in the table in the feature. Most students will say that if
Proactiv hadn’t gone the infomercial route with Guthy Renker, it would only be a
shadow of the company it is today. Infomercials were a better choice than print or
traditional media advertising for the reasons mentioned in the table.
3. Describe Proactiv’s positioning strategy. To what extend did the three critical
marketing decisions discussed in the case shape the evolution of Proactiv’s
positioning strategy?
Answer: Proactiv is positioned as a high quality acne treatment product that is sold
online, through a subscription service, and through upscale boutiques. It does not
compete directly with low cost acne products that can be purchased over the
counter at Walgreens, Target or similar retailers. It is positioned as an upscale
products that can only be acquired through the methods described above.
4. What is the difference between Proactiv’s core product and its actual product?
Describe its actual product and your assessment of whether the actual product
provides an attractive mix of characteristics.
296
Answer: The core product is the physical product that is used to treat acne. The
actual product is the packaging, the way the product is sold and distributed, the
ease of mind that it provides people who rely on it to rid themselves of acne, and
its affiliation with celebrity endorsers. Most students will say that the actual
product provides an attractive mix of characteristics.
1. In your judgment, why doesn’t Proactiv sell through mainline retail stores along
with the direct-to-consumers’ channel? Make your answer as thoughtful and
substantive as possible.
Answer: There primary reason that Proactiv doesn’t sell through retail stores is
that it doesn’t want to share its profits on its produfts.
2. Use materials included in Chapter 1 to identify the characteristics of successful

entrepreneurs you see in Katie Rodan and Kathy Fields. To what extent do you
believe these characteristics have contributed to Proactiv’s success?
Answer: This is a good question for an individual or a group assignment.
297
298

Chapter 11 Marketing Issues and Confronting New Ventures

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 11 Marketing Issues and Confronting New Ventures

Uploaded by

Copyright:

Available Formats

Chapter 11: Unique Marketing Issues Confronting New Ventures

UNIQUE MARKETING ISSUES CONFRONTING NEW VENTURES

1. Explain the purpose of market segmentation.

I. Selecting a Market and Establishing a Position

II. Key Marketing Issues for New Ventures

III. The Four Ps for New Ventures

I. Selecting a Market and Establishing a Position

2. A well-managed start-up approaches this query by following a three-step

A. Segmenting the Market

2. This process is called market segmentation and is important because a new

3. Markets can be segmented in a number of different ways, including

a. The process should identify one or more relatively homogeneous groups

b. Differences within the segment the firm chooses should be small

d. It should be possible to determine the size of the segment so that a firm

B. Selecting a Target Market

2. Typically, a firm (especially a start-up venture) doesn’t target an entire

3. Instead, most firms target a niche with the segment.

a. A niche market is a place within a market segment that represents a

b. In most cases, the secret to appealing to a niche market is to understand

C. Establishing a Unique Position

1. After selecting a target market, the firm’s next step is to establish a

2. As we discussed in Chapter 5, position is concerned with how the

3. Once a company has identified its position and primary points of

4. A firm establishes a unique position in its customers’ minds by consistently

II. Key Marketing Issues for New Ventures

A. Selling Benefits Rather Than Features

1. Many entrepreneurs make the mistake of positioning their company’s

2. A positioning or marketing strategy that focuses on the features of a

1. A brand is the set of attributes – positive or negative – that people associate

2. Some companies monitor the integrity of their brands through a program of

4. The difference between a company’s brand and its positioning strategy is

a. So how does a new firm develop a brand? On a philosophical level, a

b. On a more practical level, brands are built through a number of

c. Ultimately, a strong brand can be a very powerful asset for a firm.

ii. Cobranding refers to a relationship between two or more firms

III. The Four Ps of Marketing For New Ventures

2. Determining the product or products to be sold is central to the firm’s entire

3. As the firm prepares to sell its product, an important distinction should be

i. While the core product may be a CD that contains an antivirus software

1. Price is the amount of money consumers pay to buy a product. It is the

a. In cost-based pricing, the list price is determined by adding a markup

b. In value-based pricing, the list price is determined by estimating what

3. Regardless of the method of pricing, a company can’t charge a premium

price without delivering on its positioning and branding promises and

4. To charge a premium price, one or more of the following circumstances

- Demand for the product is strong relative to supply

a. Advertising is making people aware of a product or service in hopes of

- Raise customer awareness of a product

b. Public relations refers to efforts to establish and maintain a company’s

c. Other product related activities.

- Viral marketing facilitates and encourages people to pass along a

- Guerrilla marketing is a low-budget approach to marketing that relies

D. Place (or Distribution)

1. Place, or distribution, encompasses all the activities that move a firm’s

2. The first choice a firm has to make regarding distribution is whether to

a. Selling Direct. Many firms sell direct to customers. Being able to

b. Selling Through Intermediaries. Firms that sell through intermediaries

BOXED FEATURES: QUESTIONS FOR CRITICAL THINKING

What Went Wrong?

a lot of repeat customers.

Answer: As illustrated in the feature, before the acquisition, Snapple was

Answer: This is a good question for an individual or group assignment.

Savvy Entrepreneurial Firm