Small Business Marketing: Overtaking Your Competitors

Few businesses keep tabs on competitors, yet such knowledge can give you a distinctive competitive edge. Building a file on them, looking at everything from the customer's viewpoint and asking suppliers and employees what they know about them can be worthwhile. Keeping a jump ahead of the competition means knowing precisely what they are up to. Here are some tips to help you stay one, if not several, leaps ahead.

Step 1
Get clear on your marketing mix

You will often here someone on the website refer to the marketing mix. This refers to the five P's of marketing. Product, Place, Price, Promotion and People. Any business who combines the 5 P's effectively will be successful.

Who is Your Customer?
In order to tailor your marketing and advertising strategies to appeal to the tastes and interests of your market, you must first identify your customer. In order to do this, you it is necessary to conduct thorough research of the consumer marketplace. Keep in mind, the more information you have about your target market, the better able you will be to develop a successful marketing plan.

A market profile typically uses primary and secondary sources to answer key questions about a potential market. A profile is a picture or an outline. Information that makes up the social profiles of the people in your target market is called demographic information, and includes:

age, usually given in a range (20-35 years)
sex
marriage/partner status
location of household
family size and description
income, especially disposable income (money available to spend)
education level, usually to last level completed
occupation
interests, purchasing profile (what are consumers known to want?)
cultural, ethnic, racial background

A clothing manufacturer may consider a number of possible target markets--toddlers, athletes, grandparents (for grandchildren), teenagers, and tourists. A general profile of each of these possible markets will reveal which ones are more realistic, pose less risk, and which are more likely to show a profit. A test market survey of the most likely market groups, or those who buy for them, such as parents for babies and toddlers, can help you separate real target markets from unlikely possibilities.

The Right Product
What are your customer's needs? What do they expect to get when they buy your product or use your service? The right product is the one that best fits their requirements.

People who eat in restaurants want more than a good meal. They might expect quick service, a reasonable price, a vegetarian menu, a children's menu, entertainment, a drive through window, or to be identified with a trendy crowd. It becomes a difficult and probably an unprofitable venture trying to satisfy everyone's needs.

If you have identified your customer and listed their expectations, you can design your product or service around their requirements.

The more you fulfil your customer's expectations, the better the quality of your product. Think of your product or service as more than just what the customers pays for. When you are planning your business consider how the whole transaction meets the customer's needs.

It is important to note that developing the product or service COMES AFTER you have identified the customer and their need. If you have an idea you think might be worth pursuing, develop the concept only when you have determined a genuine need and interest in the product.

Then let the market help you develop it and strengthen it. Most small businesses fail because the market was not enthusiastic about their idea and the entrepreneur was too vested to listen to the market early in the process.

Positioning your Business
Positioning refers to the image customers have of your business. The goal is to create a business image that enables you to position your business in such a way that, in essence, it acts as a natural magnet for your intended customers. A number of factors that customers often look for include:

price (i.e. cheapest price, fair price, price for quality, etc.)
assortment
parking
service
sales personnel
quality
fashion
convenience
location
atmosphere

Your overall position should emphasize those areas that your customers value most, and those which make you different from your competition.

Pricing Techniques
The importance of pricing can not be underestimated as incorrect pricing can often result in the failure of a business. New businesses often make the mistake of either charging too little or too much for their product or service. So to help you avoid making one of these mistakes, the following section will outline some of the guiding principles of price determination. Price is a key part of marketing. Setting prices is called pricing.

Pricing to the Market
Compare prices with your competitors for similar products and services. Set the price range that customers will expect. You can use that market price range--what is acceptable to the market--as a guide to set your prices. Businesses or people to whom you sell may also price to the market by telling you what they will pay for your product or service. As you keep records of actual costs, the cost approach to pricing will help you make sure all your costs are covered, which may not be true in a market approach to pricing.

NOTE: Be careful about under pricing in order to compete or make sales. Use competitor's prices to establish the price range for similar products or services but don't under price; if your true costs are higher, your final prices will have to be higher.

Cost Approach to Pricing
Price must cover all costs of goods/services sold, including production costs of supplies, materials, fixed overhead, and time/labour, plus a profit. Costs should include costs of production, labour and non-labour, including overhead or fixed costs as well as supplies and materials. Use this simple formula in setting a price (per unit): Total Costs of Production Per Unit + Desired Dollar Profit Per Unit.

Businesses can set different profit rates, for example 15% profit on supplies and materials, 20% profit on labour/time, and 25% profit on overhead. These more complicated approaches to pricing usually emerge in response to the special needs of a particular business.

If your research reveals that similar products or services are available on the market at a cost much lower than what you could offer, you may have to either adjust your profit margin, the return you expect, or decide to provide enough specialized service or selection that the market will pay the extra. Alternatively, you may be forced to conclude that you cannot afford to make this item or provide this service and look for something else to do.

NOTE: Remember to cost materials at the level it costs to replace them - NOT at original prices; include salaries as a business expense; include interest in your business cost calculations -- interest that could have been accrued had the money used in the company been invested elsewhere (i.e. a bank); make allowances for future refunds, servicing, bad debts, amortization of capital costs of equipment or machinery.

"Rules of Thumb" in Setting Prices
Some types of businesses charge prices according to certain "rules of thumb": For example: price is always twice labour plus materials, or twice materials plus labour depending on which is higher; price is always materials and labour plus 20% for fixed costs, plus 25% for profits.

Calculating actual costs is the only proven way to make sure your prices cover your costs. Labour/time charges are to be covered partly in the costs of production and partly as a salary in the fixed/operating or overhead costs.

In summary, key points to consider in setting prices are: marketing strategy and your immediate goals competitors' prices, and the market market demand for the product and consumer buying trends need to cover costs and provide an adequate profit.

Step 2
Build a profile of your competitors

Ask yourself what products and services they offer. Do they overlap with yours? What customer needs and wants are they satisfying? What is their unique selling proposition? How do they position themselves? Are they the Savoy or a McDonald's? Is their mind-set corner shop, high street franchise or old establishment? Are they exclusive and high-priced or a dime-a-dozen? Are they as passionate and knowledgeable as you? How do they market themselves? Where do they advertise? What sales channels do they use ? retail, direct mail, Internet, wholesale? What is their sales literature like? How good are their employees? Should you be considering enticing them over to you? Are they growing, level pegging or declining? If so, why? Use the Internet to get hold of credit reports on them. Find out how many employees they have, and what they do.

Step 3
Develop a strategy

Develop a strategy through which you can stand out from the rest. Two effective strategies are:

Specialization, differentiation, segmentation, concentration

Specialization is your area of excellence or core business. Differentiation is your competitive advantage, i.e. the reason why customers buy the product or service from you. Segmentation involves identifying your customers or market niche. Concentration means focusing all the resources of the business, hitting your market niche with your competitive advantage in your area of excellence. Many of us start out believing that business is about selling rubbish products to idiots who do not really need or want them, but are still persuaded to buy them at prices they certainly cannot afford. Apparently, this is not the case. If we believe in the free enterprise market system, then we believe, and a great deal of evidence suggests, that in order to run a successful business we must concentrate all our forces, hitting our market segment with our competitive advantage in our area of excellence.

Specialization
Which product or service would you like to produce and sell? In which area of human activity would you like to improve the lives of other people? To which area of human improvement can you bring excitement and enthusiasm? What is your area of excellence? What is your core business? For which product or service are you prepared to be a product champion? What would you love to do to improve the lives of others for 16 hours each day, even if you received no financial reward? What is it that makes you feel valuable and worthwhile? Remember there is a strong relationship between high self-esteem and peak performance. The more you love doing something, the greater will be your success. All successful businesses specialize in their areas of excellence. Many unsuccessful people drift into areas where they do not have the excitement, enthusiasm, energy, knowledge, etc., to establish competitive advantage and find their market segment.

Step 4
Regular SWOT

Conduct a regular SWOT analysis of your competitors to ensure that you stay ahead.

What are your competitors' Main Strengths

Main weaknesses - where are they vulnerable and how can you take advantage?

Which opportunities can you identify?

Does your competitor pose a threat to you, and how will you overcome it?

Learn more at http://www.my1stbusiness.com Ben Botes MSc. MBA, is an Entrepreneur, Speaker, Writer, Coach and academic. He is the founder of My1stBusiness.com, a web portal dedicated to 1st time business leaders and entrepreneurs. He is also the Co-founder of South African Business Hubs, Business support Hubs and incubators for the new breed of South African Entrepreneurs. Visit the sites for contacts, networking, a MarketPlace, hundreds of free Micro Modules, Tele-classes, Resources and Coaching designed for you to succeed with your business. Join the My1stbusiness.com Reseller Program and earn 40% referral commission http://www.my1stbusiness.com/affiliate

Read Ben's Blog at http://www.my1stbusiness.com/weblog

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