market segmentation
Involves studying a firm's
industry and determining the
different target markets in that
industry.
Markets can be segmented in
a number of different ways,
including
- Product type
- Geography (city, state, region)
- Demographic variables
Target Market
The market must be sufficiently
attractive and the firm must have
the capability to serve it.
By focusing on a clearly defined
market, a firm can become an
expert in that market and then
be able to provide customers a
high level of service.
Positioning
After selecting a target market, the
firm's next step is to establish a
"position" within the market that
differentiates it from its rivals.
A "position" is the part of a market
that the firm is claiming as its own.
A firm establishes a unique
position in
niche market
is a place within a market segment that represents a narrow group of customers with similar interests.
Branding
A brand is the set of attributes�positive or negative�that people associate with a company.
These attributes can be positive, such as trustworthy, dependable, or easy to deal with.
Or they can be negative, such as cheap, unreliable, or difficult to deal w
Brand Management
Some companies monitor the integrity of their brands through a program called "brand management.
Establishing a Brand
On a philosophical level, a firm must have meaning in its customers' lives. It must create value�something for which customers are willing to pay.
On a more practical level, brands are built through a number of techniques, including advertising, public re
Cost-Based Pricing
The list price is determined by adding a markup percentage to a product's cost.
Value-Based Pricing
The list price is determined by estimating what consumers are willing to pay for a product
Place
Encompasses all the activities that move a firm's product from its place of origin to the consumer.
The first choice a firm has to make regarding distribution is whether to sell its products directly to consumers or through intermediaries (such as wholesa
Promotion
Refers to the activities the firm takes to communicate the merits of its product to its target market.
There are several common activities that entrepreneurs use to promote their products and services
Public Relations
One of the most cost effective ways to increase the awareness of the products of a company is through public relations.
Viral Marketing
Facilitates and encourages people to pass along a marketing message about a particular product or service
Guerrilla Marketing
A low-budget approach to marketing that relies on ingenuity, cleverness, and surprise rather than traditional techniques
Sales Process
A firm's sales process (or sales funnel) depicts the steps it goes through to identify prospects and close sales.
A formal sales process involves a number of identifiable steps.
Intellectual property
is any product of human intellect that is intangible but has value in the marketplace.
Patents
A patent is a grant from the federal government conferring the rights to exclude others from making, selling, or using an invention for the term of the patent.
Requirements for Obtaining a Patent
It must have utility, it must be different from what has come before, it must be not obvious to a person of ordinary skill in the field
Utility Patents
New or useful process, machine, manufacturer, or composition of material or any new and useful improvement thereof.
20 years from the date of the original application.
Design
Invention of new, original, and ornamental design for manufactured products.
14 years from the date of the original application.
Plant
Any new varieties of plants that can be reproduced asexually.
20 years from the date of the original application.
Patent Infringement
One party engaging in unauthorized use of another party's patent.
Patent infringement cases are costly to litigate.
A typical patent infringement case costs each side at least $500,000 to litigate.
Trademarks
A trademark is any word, name, symbol, or device used to identify the source or origin of products or services and to distinguish those product or services from others.
Renewable every 10 years, as long as the mark remains in use.
Service mark
Similar to trademarks; are used to identify the services or intangible activities of a business, rather than a business's physical products
Every 10 years
Collective mark
Trademarks or service marks used by the members of a cooperative, association, or other collective group.
Certification mark
Marks, words, names, symbols, or devices used by a person other than the owner to certify a particular quality about a good or service.
Obtaining Trademarks
select an appropriate mark, perform trademark search, create rights in the trademark
Copyrights
A copyright is a form of intellectual property protection that grants to the owner of a work of authorship the legal right to determine how the work is used and to obtain the economic benefits from the work.
Copyright Infringement
Copyright infringement occurs when one work derives from another or is an exact copy or shows substantial similarity to the original work
Trade Secrets
A trade secret is any formula, pattern, physical device, idea, process, or other information that provides the owner of the information with a competitive advantage in the marketplace.
Plan for Growth
A firm should establish
growth-related plans.
Writing a business plan
greatly assists in preparing
growth plans.
It's also important for a firm
to determine, as soon as
possible, what its growth
strategies will be.
pace of growth
growth is the rate at which it is growing on an annual basis.
1 Economies of scale
Occur when increasing production lowers the average cost of each unit produced. There is a reachable limit to this gain.
2 Economies of scope
Occur when the scope (or range) of a firm's operations creates efficiencies, allows diversification to reach more customers for the same amount of effort. Growing the portfolio, a strategy for Economies of scope.
3 Market Leadership
Occurs when a firm holds the number one or the number two position in an industry or niche market in terms of sales volume.
4 Influence, Power, and Survivability
Larger businesses usually have more influence and power than smaller firms.
5 Accommodate the Growth of Key Customers
Sometimes firms are compelled to grow to accommodate the growth of a key customer.
6 Attract and Retain Talented Employees
Growth is a firm's primary mechanism to generate promotional opportunities for employees.
Variable costs
are the costs a company incurs as it generates sales. Second, by increasing production, a company can spread its fixed costs over a greater number of units.
Fixed costs
are costs that a company incurs whether it sells something or not. For example, in a manufacturing setting, it may cost a com-pany $10,000 per month to air-condition its factory.
Market leadership
occurs when a firm holds the number one or the number two position in an industry or niche market in terms of sales volume.
Introduction Stage of growth
Start-up phase where a business determines what its core strengths and capabilities are.
The main challenge is to make sure the initial business model works.
Early Growth
Generally characterized by increasing sales and heightened complexity.
Two important things must happen for a business to be successful in this stage.
Continuous Growth
The need for structure and formalization increases.
Often the business will start developing related products and services
Maturity
A business enters the maturity stage when its growth stalls.
At this point, a firm is typically more intently focused on managing efficiently than developing new products.
Well-managed firms often look for partnering opportunities or opportunities for acq
Decline
It is not inevitable that a business enter the decline stage.
Many American businesses have long histories and have adapted and survived over time
productive opportunity set
which is the set of opportunities the firm feels it's capable of pursuing.
Entrepreneurial services
generate new market, product, and service ideas, while
managerial services
administer the routine functions of the firm and facilitate the profitable execution of new opportunities.
managerial capacity problem
When a firm's managerial resources are insufficient to take advantage of its new product and services opportunities, the subsequent bottleneck is referred to as
Adverse selection
means that as the number of employees a firm needs increases, it becomes increasingly difficult for it to find the right employees, place them in appropriate positions, and pro- vide adequate supervision.
Moral hazard
means that as a firm grows and adds personnel, the new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated as the founders to put in long hours or may even try to avoid work
Internal growth strategies
involve efforts taken within the firm itself, such as new product development, other product-related strategies, and interna-tional expansion, for the purpose of increasing sales revenue and profitabil-ity.
organic growth
Internally generated growth
New product development
involves designing, producing, and selling new products (or services) as a means of increasing firm revenues and profitability.
market penetration strategy
involves actions taken to increase the sales of a product or service through gr eat er marketing efforts or through increased production capacity and efficiency
Outsourcing
is work that is done for a com-pany by people other than the company's full-time employees
product line extension strategy
involves making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele.
Geographic expansion
is another internal growth strategy. Many entrepre-neurial businesses grow by simply expanding from their original location to additional geographic sites.
International new ventures
are businesses that, from inception, seek to derive competitive advantage b y using their resources to sell products or services in multiple countries
External growth strategies
rely on establishing relationships with third parties. Mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchis-ing are examples of external growth strategies.
merger
is the pooling of interests to combine two or more firms into one.
acquisition
is the outright purchase of one firm by another.
acquirer
buying firm
target
the firm that is acquired
Franchising
is a form of business organization in which a firm that already has a successful product or service
franchisor
licenses its trademark and method of doing business to other businesses
franchisees
in exchange for an initial franchise fee and an ongoing royalty.
product and trademark franchise
is an arrangement under which the franchisor grants to the franchisee the right to buy its products and use its trade name.
business format franchise
is by far the more popular approach to franchising and is more commonly used by entre-preneurs and entrepreneurial ventures.
individual franchise agreement
involves the sale of a single franchise for a specific location.
area franchise agree-ment
allows a franchisee to own and operate a specific number of outlets in a particular geographic area.
master franchise agreement
is similar to an area franchise agreement, with one major difference.
subfranchisees
The people who buy franchises from master franchisees are typically called
multiple-unit franchisee
A person who owns and operates more than one outlet of the same fran-chisor, whether through an area or a master franchise agreement,
Initial franchise fee
The initial franchise fee varies, depending on the franchisor, as shown in Table 15.4. High-overhead brick-and-mortar fran-chises charge less (4 to 5 percent of gross sales), while low-overhead home- based and service business charge more (8 to 10 percent
Capital requirements
These costs vary, depending on the franchisor, but may include the cost of buying real estate, the cost of constructing a building, the purchase of initial inventory, and the cost of obtaining a business license. Some franchisors also require a new franch
Continuing royalty payment
In the majority of cases, a franchisee pays a royalty based on a percentage of weekly or monthly gross income. Note that because the fee is typically assessed on gross income rather than net income, a franchisee may have to pay a monthly royalty even if t
Advertising fees
Franchisees are often required to pay into a national or regional advertising fund, even if the advertisements are directed at goals other than promoting the franchisor's product or service. (For example, advertising could focus on the franchisor's attemp
Other fees
Other fees may be charged for various activities, including training additional staff, providing management expertise when needed, providing computer assistance, or providing a host of other items or sup-port services.
Franchise Disclosure
contains 23 categories of information that give a prospective franchisee a broad base of information about the background and financial health of the franchisor.
franchise agreement
, or contract, is the document that consummates the sale of a fran-chise.
fiduciary obligation
to its franchisees, it would always act in their best interest, or be on the franchisees' "side.