Chapter 5

Marketing and Financial Plan

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Chapter Outline
 Introduction
 Market Analysis
 Marketing Mix
 Financial Plan

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 Introduction
• Some entrepreneurs concentrate on the cart & neglect the
horse - emphasizing the idea behind the product or service
while overlooking the marketing activities that will carry
the idea to the customers.
• Engineers do not want to invest to the product that is well
engineered or programmed but unwanted by customers.
• This chapter describes market analysis, marketing mix
(marketing strategy)& financial plan.
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 Definition: Market
• “Marketing is the activity, set of institutions, and
processes for creating, communicating, delivering, and
exchanging offerings (products or services) that have
value for customers, clients, partners, and society at
large. ”

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 Cont…
• Market may refer to :
– A physical location where buying & selling take place
or
– A selling efforts or
– A group of customers or potential customers who
have purchasing power and unsatisfied need.

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 Cont…
♣Marketing is a product or service selling related overall
activities.
♣It generates the strategy that underlies sales
techniques, business communication, and business
developments.

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 Cont…
• Marketing is used to:
– Identify the customer,
– Satisfy the customer, and
– Keep the customer.

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 Market Analysis
• It is an evaluation process that encompasses:
1. Marketing research
2. Market segmentation
3. Sales forecasting

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 1. Marketing Research
• Is the process by which information about the
market environment is
– gathered,
– analyzed,
– interpreted &
– reported for use as an aid to marketing decision making.

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 Cont…
• Remember! Marketing Research does not
forecast with certainty what will happen in the
future

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 Cont…

• Before conducting a marketing research ask:

– Is the research really necessary?
– Will the data obtained justify the expense?
– Can I do the research myself?

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 Steps in Marketing Research Process
• Step 1: The Informational Need
• Step 2: Searching for the Secondary Data
• Step 3: Collecting Primary Data
• Step 4: Interpreting the Data

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 Cont…
Step 1: the Informational Need:
for a car -wash owner who wanted to ascertain customer satisfaction, the
informational need is: determine the level of customers’ satisfaction with
the car- cleaning experience
Step 2:Searching For The Secondary Data:
• Be sure the trustworthy, reliability of the data.
• It may be outdated.
Step 3: Collecting Primary Data:
• a firm itself conducts the research. techniques are: observational
methods, questioning methods
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 Cont…
E.G. Observation Methods: observe customers’ reaction to
your sample product on others super market; observe
competitors & customers on trade shows
Questioning Methods:
• involve contact with the respondents.
• It can be conducted by: telephone, personal interview or mail
• The survey can also be paper or web based or online via
internet

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 Cont…
Step 4: Interpreting the data
 Without interpretation, large amounts of data are meaningless.
 Summarize & simplify information through tables, charts &
other graphics.
 Interpret data in terms of mean, mode, median etc using
software to calculate & generate quality graphics

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 2. Market Segmentation

• It is the division of a market into several smaller

groups with similar needs.
• Segmentation variables: the parameters used to
distinguish one form of market behavior from
another.

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 Cont…
• The choice of segmentation criteria is up to you, as
long as you are certain that the number of customers
in each segment – as well as their behavior can be
determined, and that customers within each segment
can be reached by means of the same marketing
strategy.

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 Cont…
• There three major Segmentation variables are:
1. Benefit variables:: distinguish market segments according to the benefits
needed by customers . e.g. toothpaste may have two different
segments
i. Cavity prevention to young children
ii. Fresh breath to teenagers
2. Demographic variables:
 Age, Gender, Race, Ethnicity, Income, Education, Occupation, Family size,
Family life cycle, Religion, Social class
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 Cont…
3. Psychographic variables:
 Personality, Attitude, interests, Motives, Lifestyles and
opinions, These may be socio-cultural, religious,
philosophical, ethical, political, economic,
technological etc…

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 Cont…
4.Geographic segmentation: Urban/rural, Suburban, Market
density, Climate, Terrain (land, topography), City size, Country size,
State size
5. Lifestyle: e.g. Techies, Active seniors, Crazy Kids
6.Buying habits: e.g. Vegetarians, price conscious shoppers
7.Situational factor: Urgency of need, convenience, order size
8.Behavioral segmentation:- Volume usage, End use, Benefit,
Expectations, Brand loyalty, Price sensitivity.

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 Target Market
• A target market is a group of customers that the
business has decided to aim its marketing efforts
and ultimately its merchandise towards.

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 Cont…
• A well-defined target market is the first element
to a marketing strategy.
• Once these distinct customers have been
defined, a marketing mix strategy can be built
by the business to satisfy the target market.

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 3. Sales Forecasting
• It is a prediction of how much of products or services
will be purchased within a given market in a specified
time period.
• It can be in terms of dollars and /or units.

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 Marketing Mix
• Is a set of controllable variables to satisfy the target
market and achieve organizational objectives.
• These controllable variables are usually classified to
four major decision areas (four P’s):
1. Product,
2. Price,
3. Place, and
4. Promotion
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 1. Product
• Product differentiation is the most essential factor to
marketing promoters.
• You must differentiate your product in the following
ways:
– Quality: the product requires reliability and lifetime
– Quantity: You need to produce the product as much as the market desires
– IP protection: Is your product protected from imitation manufacturing by
other companies?

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 2. Price
• Price is what the customer pays for the product.
• Five pricing schemes are introduced here:
1. Cost-plus pricing,
2. Fair pricing,
3. Skimming pricing,
4. Penetration pricing, and
5. Psychological Pricing
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 Cont…
1. Cost-Plus Pricing
– The product should not be sold for less than the cost. The concept of
cost-plus pricing involves setting a price that factors into a given profit
margin (e.g., cost plus 25% profit).
2. Fair/Competitor/Market Pricing
– Set based on customer-oriented market research. This pricing involves
setting a price that roughly matches that of competing brands within
the product class.

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 Cont…
3. Skimming / Premium Price
☂This option involves charging a high price relative to other brands
within the product class.
☂The success depends on the high product quality and differentiated
performance. (E.g. Samsung's products sell well even when the price is
25% higher than other brand products.)

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 Cont…
4. Penetration Price
– This scheme involves charging a low price on the assumption of selling the
brand in enormous quantities. It is used in order to:
– Attract more customers & increase brand awareness
– Make the customer switch from current brands existing in the market
– capture the market share
The main target group is price sensitive customers. Once the market share is
captured the price is increased by the firm. If it doesn’t sell in enormous
quantities it does not survive.
This strategy does not create brand loyalty in the mind of customers.
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 Cont…
5. Psychological Pricing:
a very small incentive But that can make a huge impact
psychologically on customers. Customers are more willing to buy
the necessary products at $9.99 than $10.

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 3. Place
• Place means the product’s channels of distribution or
how it is conveyed from the producer to the end user.
• Its functions include
– manufacturing,
– transportation,
– warehousing,
– wholesaling, and
– retailing.
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 4. Promotion
• Promotion involves communication of the product attributes
and the corporate image in the most favorable light possible
to intermediary sellers (i.e., trade advertising and trade
promotion) and to end users (i.e., consumer advertising and
consumer promotion).

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 Financial Plan
• Financial planning Is the process of wisely managing
your finances so you can achieve your goals and
dreams.
• This plan allocates future income to various types of
expenses, such as rent or utilities, and also reserves
some income for short-term and long-term savings.

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 Cont…
• Common mistake among business owners:
“Failing to collect and analyze basic financial data.”
• One-third of entrepreneurs run their companies
without any kind of financial plan.

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 Cont…

• Only 11 percent of business owners analyze

their companies’ financial statements as part
of the managerial planning process.
• Financial planning is essential to running a
successful business and is not that difficult!

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 Financial Statements
• Financial statements include:
1. Income Statement,
2. Cash-flow Statement, and
3. Balance Sheet .
• These financial statements should be prepared
according to Generally Accepted Accounting Principles
(GAAP).
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 1. Income Statement
• Income Statement compares the firm’s expenses
against its revenue over a period of time to show its
net income (or loss):
• Net Income = Sales Revenue - Expenses
• It represents the profitability of a business over a
period of time.

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 2. Cash Flows Statement

• It is the most important from all financial statements.

• It describes the cash into & out of business.
• Shows the change in the firm's working capital over a period
of time.
• The cash-flow statement exhibits sources and uses of cash
over a given period of time.
• The focus is on generating income and honoring obligations
(e.g., loans and debts).
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 Cash Flow Statement Projection 1st 6months($)
1 2 3 4 5 6

Cash receipts(Cash inflow) 7500 8600 9500 12500 13000 14000

Disbursements
(Cash outflow)

Cost of goods sold 4875 5590 5130 6750 7020 7560

Equipment lease 100 100 100 100 100 100

Selling payments 1000 1000 1000 2000 2000 2000

Salaries 850 850 850 850 850 850

Advertising 200 200 300 600 600 600

Office supplies 100 100 100 100 100 100

Rent 750 750 750 750 750 750

Utilities 75 100 100 100 100 100

Insurance 50 50 50 50 50 50

Taxes 80 80 80 80 80 80

Total Disbursements 8080 8820 8460 11380 11650 12190

(Cash outflows)

NET CASH FLOW -580 -220 1040 1120 1350 1810

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 3. Balance Sheet
• The balance sheet is a “snapshot” of a business at a
particular point in time.
• It reveals financial resources the company owns
(assets), debts it owes to the others (liabilities)
• Built on the accounting equation:
• Assets = Liabilities + Owner’s Equity

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 Fit of the Income Statement and the Balance Sheet
Income statement reports the profits from
Jan 1,2017 through Dec 31, 2017
Jan 1 Dec 31

Balance sheet Balance sheet

reports a firm’s financial reports a firm’s financial
position at beginning of 2017 position at end of 2017
(end of 2016) (beginning of 2018)

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 End of
Chapter Five

Are you ready to be an entrepreneur?

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