In “The Marketing Plan,” expert William M. Luther emphasizes the importance of a comprehensive marketing strategy. He asserts that this plan should encompass your business objectives for the next five to ten years and the means to achieve them. However, Luther stresses that before defining your destination and the path to it, understanding three critical variables is crucial for success.
Variable #1: Market Size and Market Share – Luther underscores the impact of your target market’s size and the market share you aim to capture. These factors directly affect the potential profits your product or service can generate.
Variable #2: Market Life Cycle and Growth Rate – This variable delves into your target market’s life cycle and growth rate. It explores how these factors influence customer demand and determine the operational processes you should prioritize to maximize profits.
Variable #3: The Competition – Luther addresses the significance of your competitors’ capabilities. These insights inform the strategies you should adopt to position your product or service effectively in the market.
This guide provides a comprehensive overview of these crucial variables and offers additional resources and advice to assist you in crafting a successful marketing plan.
Variable #1: Market Size and Market Share
William M. Luther underscores the critical importance of understanding your target market’s size and market share before developing a product or service. This understanding can help you determine potential demand and profitability. Here’s a detailed look at the correlation between market size, market share, and profits:
Market Size: Luther explains that market size represents the total number of potential customers for your product or service. A larger market size indicates greater profit potential. To determine your market size:
- Identify the benefits your product or service offers.
- Define your target market based on the specific benefits you provide.
- Calculate the number of potential buyers in this target market.
How to Research Market Size: To research market size effectively, gather relevant data on market demand by using SEO tools to analyze search trends and social listening tools to gauge demand for specific benefits.
Market Share: Market share refers to the percentage of total sales in your target market that your business captures. Luther suggests aiming for 30 to 50% market share for long-term profitability. Acquiring less may hinder your competitive position, while trying to acquire more can lead to increased costs without corresponding profits.
Calculate Your Market Share Objective: Determine your current market share by dividing your customer base by the total market size, then multiply by 100. For example, if you serve 1,000 customers in a market of 100,000, your market share is 1%. To achieve Luther’s recommended 30 to 50% market share, calculate the number of customers needed.
Businesses With Low Market Shares Can Succeed: While high market share businesses enjoy advantages, low-share businesses can succeed if certain conditions are met, including a low market growth rate and a focus on standardized products.
Variable #2: Market Life Cycle and Growth Rate
Understanding your target market’s life cycle and growth rate is crucial for predicting demand and tailoring your operational processes. Luther identifies three market stages: introductory, early growth, and late growth to decline. Entering each stage impacts your venture differently:
Introductory Stage: Markets in this stage have limited consumer interest, so demand is uncertain. It’s a high-risk, high-reward phase, and businesses should focus on innovation and product development.
Early Growth Stage: Demand increases rapidly, and competition intensifies. Businesses should establish their position and expand to meet demand.
Late Growth to Decline Stage: Demand levels off, and competition stabilizes or decreases. Businesses should focus on cost-effective operations and customer retention.
By understanding the market’s life cycle and growth rate, you can make informed decisions about when to enter and how to maximize your profits.
Life Cycle Stage #1: Introductory
During the introductory stage, a new product or service enters a market, which is still small due to low consumer awareness. Businesses that venture into this stage face both opportunities and risks. They have the potential to dominate the market as consumer interest grows, but there are costs and uncertainties:
Pros of Entering Early: Early entrants may achieve long-term success due to consumer attachment. They are often perceived as synonymous with the product itself.
Cons of Entering Early: High costs and risks accompany this stage, such as no immediate revenue, high marketing expenses, and uncertain outcomes. These businesses need to invest in research and development and building customer awareness.
Life Cycle Stage #2: Early Growth
Once a product gains traction, consumer demand increases, expanding the market. Entering during a growth rate of 5-25% per year is advantageous as it reduces risks, eliminating the need for extensive research and development. However, latecomers must focus on taking customers away from existing competitors through branding, advertising, and sales.
Latecomers’ Challenge: Late entrants must convince consumers that their product is superior to established competitors, which is challenging due to brand associations. Instead of stealing customers from rivals, they should appeal to untapped customer groups through various strategies.
Life Cycle Stage #3: Late Growth to Decline
In the late growth to decline stage, the market is saturated with strong competitors, making it unprofitable for new entrants. Established businesses are focused on reducing inventory and preparing for the next big thing, often by drastically reducing prices to outcompete potential newcomers. It’s challenging to revive consumer interest and overcome well-established competitors, leading to limited profitability.
Understanding the life cycle stages helps businesses make informed decisions about market entry based on the associated risks and opportunities.
Variable #3: The Competition
In this section, we’ll delve into how competing businesses offering similar products or services influence your market share and profitability. Assessing the number of competitors and their capabilities is crucial for devising effective strategies to surpass them.
Ideal Market Conditions: Luther advocates that an ideal market contains a few competitors with limited substitutes for your offering, a situation often found in the introductory stage of the market’s life cycle. During this phase, customers have fewer options, making it easier for you to gain market share, reduce costs, and fortify your position. Customers perceive your product or service as more valuable when suitable alternatives are scarce, allowing you to increase prices and profits.
Creating a Noncompetitive Market: To establish these favorable conditions, Luther recommends identifying segments in the introductory life cycle stage. This involves segmenting your target market into groups with unmet needs.
Market Segmentation: For instance, consider your tooth whitening product targeting eco-friendly online consumers seeking whiter teeth. If this market is already saturated with competitors, narrow your focus to customers desiring a flavored version of the product, a unique offering. This strategy increases your chances of success.
Catering to Multiple Segments: To maintain market share and profitability over time, Luther advises introducing different products or services into multiple market segments. This approach allows you to sustain a large overall market share, even if interest declines in some segments. For instance, you could enter the dental hygiene market with flavored tooth whitening and bamboo toothbrushes for eco-friendly consumers, acquiring market share in both segments.
Benefits of Segment Diversity: Catering to various segments attracts a broader consumer base, boosts brand awareness, and provides financial stability in the face of demand fluctuations. It secures your position, enhancing your competitiveness in the industry.
Consider the variables covered in this guide when exploring new market segments to increase your chances of success.
Strategies for Success in Competitive Markets
In cases where your ideal market is already teeming with competitors, Luther proposes four strategies to outshine rivals with low market shares and limited resources:
- Enhance Your Offering: Invest in business operations such as manufacturing and quality control to provide a superior product or service.
- Effective Marketing: Create the perception of a better product or service through savvy marketing strategies, making your offering appear more valuable.
- Cost Efficiency: Deliver a more affordable product or service by improving efficiency and reducing costs without compromising quality.
- Customer Service Excellence: Foster customer loyalty and repeat sales through policies that prioritize exceptional customer service.
Analyzing and Outmatching the Competition
To effectively apply these strategies, experts recommend assessing your competitors’ strengths and weaknesses. Here are four approaches to gain insights into the competition:
- Professional Conferences and Trade Shows: Attend industry events to observe competitors’ offerings and customer interactions.
- Website and SEO Analysis: Analyze competitors’ websites, SEO strategies, keywords, site traffic, and rankings.
- Social Media Assessment: Examine competitors’ social media presence, content, engagement, follower count, and responsiveness to customer queries.
- Newsletter Subscription: Sign up for competitors’ newsletters to understand their email marketing strategy and content.
Utilize this information to refine your offering and marketing in alignment with Luther’s methods. For example, incorporate requested features into your product, differentiate benefits in your marketing, optimize costs by eliminating unused features, and enhance customer service, especially in areas where competitors are lacking.
Establishing Your Market Position Through Differentiation
Luther advises against competing with dominant market players, suggesting that their resources and position are challenging to overcome. Instead, he recommends using marketing strategies to establish your unique market position. This involves marketing your business and products differently from competitors to align with customer preferences. Luther identifies two methods:
Method 1: Define and Promote Your Brand’s Personality
Consider how customers should perceive your business and what will make them choose and remain loyal to you. For instance, eco-conscious consumers may favor environmentally friendly practices in your operations and support for environmental initiatives.
Method 2: Target and Reinforce Your Marketing Message
Craft marketing messages that focus on the unique benefits you offer, tailored to your target audience. Conduct demographic and psychographic research to understand customer interests and priorities. Ensure your message is consistent across various media.
Experts recommend focusing on four influential factors to appeal to your target market:
- Individual Factors: Personal characteristics, preferences, and lifestyle.
- Psychological Factors: Emotional needs, susceptibility to influence, knowledge, attitudes, and prior experiences.
- Social Factors: Cultural, social class, religious influences, and the impact of associates’ opinions.
- Cognitive Factors: Willingness to seek new information.
By understanding and addressing these factors, you can create marketing messages that resonate with your audience.
Completing Your Marketing Plan
To develop a comprehensive marketing plan, combine the insights from the three main variables that affect your product’s success. Once you’ve researched how these variables impact your venture, test different strategies for pricing, budgeting, and sales. Calculate profitability and, if possible, create prototypes to gauge customer responses.
Your marketing plan should include:
- An outline of your business goals for the next five to ten years.
- Strategies to achieve these goals.
- Measurable short-term objectives to track your progress.
Setting Goals, Strategies, and Objectives
To establish goals, strategies, and objectives, follow these steps:
- Define your company’s overall goal clearly, specifying where you want to be in the next five years.
- Identify individual objectives for each department and align them with the company’s main goal.
- Define key results as measurable sub-goals with specific outcomes and deadlines.
- Regularly monitor and assess progress, adjusting your strategy as needed to stay on track.
This goal-setting process ensures that your team is focused on a common objective, aligned to achieve it, and accountable for their progress.