Toolkit on how to Start and Improve your Business

Business Implementation

Toolkit for the creation and follow-up of your business

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1. Instruction to Sales and Marketing
 

1.1   What is the Product?
Give a short description of the product, its size, colour, shape and the range of products to be offered.  Describe product features, uses and benefits, whether it is a new or an existing product.

1.2   How does it compare in Quality and Price to its Competitors?
In answering this question, determine what will make the product unique in the market. Will it be of better quality as compared to what is currently available, or will the price be significantly different to make it easier to sell? What other features will make it different from your competitor’s products?

1.3   Where will the Business be located?
Location of the business is essential to either reduce costs or to increase the chances of customers stopping at the business to look at your products or at least make inquiries. If the business is retail or service oriented, it must be near to the market. If it is production oriented, it may be better to be closer to its raw material sources or near necessary infrastructure facilities (e.g., port), transport and utilities (e.g., power) centres. The important factors to consider with regard to location are:

• proximity to essential raw material sources;

• proximity to markets and distribution channels;

• availability of transport facilities;

• availability of efficient and cheap skilled labour;

• existence of related industries (forward/backward linkages);

• infrastructure facilities (e.g., road, power, port, etc.);

• communication facilities (e.g., post office, telephone, fax).

A good location is one of the most crucial factors essential for market development hence the choice of location should therefore be carefully considered. The location should also be differentiated in terms of marketing outlets or factory locations.

1.4   What geographical Areas will be covered by the Project?
Determining the geographical coverage (that is, where to market the product) depends very much on the nature of the product; how well it lend itself to transport and distribution; the size of the market in different localities; the presence of strong competitors in the areas under consideration; your willingness to travel and, of course, on existing contacts or channels of distribution you are familiar with.  In general, it is easier to deal with a limited market area, since travel time and distribution costs can be kept to a minimum.

1.5   Within the Market Area, to whom will the Business sell its Products?
Here we are talking about a specific target group or market segments among the population, within the specified market area you have chosen, to whom you will aim to sell your products. Identify these customers as clearly as possible (e.g., their characteristics and profile in terms of age, sex, income, buying practices, consumption pattern, etc.), in order to ensure that the product does indeed suit their taste, needs, wants, income, lifestyle.

Will you sell to wholesalers, retailers, and if so, what are the consequences? If you plan to have a retail outlet, the choice of location is critical.

1.6   Is it possible to estimate how much of the Product is currently being sold?
This estimate should be possible to carry out in a number of ways. Basically, the approach is to move from the general to the particular. For example, you can start by estimating consumption, usage or sales of the product per head of the population in your market area.

Then, one by one eliminate certain segments (specific groups categorised by age, income, location, sex, habits, etc.) of the population who may not be your consumers, so that at the end a reasonable figure can be assumed to be correct. If possible and available, it is also good to check certain statistics. If you cannot make use of any reliable statistics (secondary data), it may be better to carry out a simple and low-cost sample survey, i.e., gather firsthand or primary data. For example, if you know how many shops there are which sell your or similar products, and if you question a few of them regarding their sales, you can estimate the total sales of the product.

1.6.1     Market Survey Checklists
The following is a series of checklists which can guide you in your interview with wholesalers, retailers, and consumers (people who use the product) or customers (people who buy your product). The questions are intended to be illustrative and you should learn how to begin your interview (by being friendly with your interviewees so that they will open up and not feel suspicious or threatened) and pose your questions diplomatically, politely and clearly to attain the desired information and accurate answers.

If the questions are adequately answered, you can make a preliminary estimate of the total demand in your market area and the share of the market which you can realistically capture, given an effective marketing strategy. If similar products are distributed mainly by wholesalers and retailers, conducting such a survey is really the first step in establishing a relationship with your customers and finding out their needs. There are two main reasons for carrying out the survey:

a)  Accurate collection of information, so that a reliable level of sales and production can be forecasted;

b)  Establishment of good relations with your own potential customers.

1.6.2.    Wholesalers'/Importers' Checklist
Most consumer products such as biscuits, sugar, toothpaste, matches, etc. find their way to the consumers by means of wholesalers who purchase the goods in bulk from a factory or distributors and then sell them in smaller quantities to grocery stores and retail shops (customers). Since there are usually few wholesalers and many retailers, it is often best to start your market survey by visiting the wholesalers. Once you have defined your market area, try and locate all the wholesalers who supply your area and ask the following questions:

1)   How many wholesalers are there in your market area? What are their names and where are their locations?

2)   What market areas does each wholesaler cover?

3)   How often does each of your products sell per year? Are your sales of the product increasing every year? If yes, by how much?

4)   Are seasonal fluctuations present?
 

5)   What about the extent of competition? Are they large in size, are their product features the same, what are their quality standards? What are their marketing practices?

6)   What about product improvements, i.e. do they think the market needs some new designs, more varieties, better features, new product specifications?

7)   What are their selling prices of your products?

8)   At what price do they buy them?

9)   What is the length of credit extended to them by their suppliers (one week, one month?), if any?

10) Assuming your product is of suitable quality and priced competitively, how much of your product would they take as a sample order?

1.6.3.    Retailers' Checklist
Retail shops are the last link between producers and consumers. Ultimately, they make the final sale to the public.  Their proximity to the buyers makes them valuable sources of information on what people actually want and buy.  

For example, if a person buys ink that turns out to be of poor quality, then the customer will complain to the shop where he purchased it, rather than going to the factory. For this reason, retailers are in a strategic position to identify gaps within the market, particularly between what the customer’s demand is and what his wholesalers can supply.  A few creative retailers may be able to give you new product ideas that could also be realised in your factory.

The objectives of interviewing retailers are:

a)   To cross-check data provided by wholesalers;

b)   To learn about the needs, wants, tastes, buying habits, etc. of the consumers;

c)   To look for potential new products;

d)   To learn how to position your product as against your competitor’s products;

e)   To learn how to market your product more effectively;

f)    To help identify promotional measures that will be useful in selling the product
      (e.g. display boards, give-aways, samples, etc.);

g)   To help formulate the marketing strategy of the business.

A few questions which may be asked from the retailer:

1)   How much of the product does he sell in a year?

2)   How many competitors does he have in his neighbourhood?

3)   Does he experience any seasonal fluctuation in sales?

4)   From what wholesaler or manufacturer does he buy the product?

5)   Is he given any credit by his suppliers?

6)   If he is given credit for the product, for how long is the credit given?

7)   Does he sell on wholesale anywhere, if so, where?

8)   What is his purchase price of the product?

9)   What is his selling price of the product?

10) Does he have any ideas whether his customers would like some changes or
      improvements of the product?

11) Does he buy the product by means of cash or on credit?

12) Does he sell on commission?

1.6.4.    Customers' or Consumers' Checklist
Even if you have interviewed wholesalers and retailers, it is important to discuss market acceptance with customers (who buy the product) and consumers (who use the product).  Their feedback is very useful, either to cross-check previously collected opinions or to capture new ideas that neither of the other two groups of interviewees have touched on or refelcted.

In particular, if your product is a capital good (e.g., machinery), it is necessary to talk to consumers as they normally purchase directly from the factory. A few questions which can be asked from customers and consumers are:

1)   Why did you buy this product?

2)   When (What month) did you buy it?

3)   How often do you buy this product?

4)   Will you need more of this product in future? How many units?

5)   How much did you pay for it?

6)   Are you satisfied with it?

7)   Would you like to see any changes or improvements?

8)   From where did you buy it (locality), from whom?

9)   Why did you buy it from this particular supplier?

You must have a profile record of your interviewees (wholesalers, retailers, consumers), including information such as age, occupation, income, buying habits, sex, consumption patterns etc., as this information will be helpful in analysing and describing your market.

1.7   What Share or Percent of this Market can be captured by the Business?
This is always a difficult question to answer precisely, since much depends on your ability as an entrepreneur to sell your product, your network, the effectiveness of your marketing strategy and your aggressiveness in pushing the product combined with business common sense. It also depends on the extent and strength of competition. However, certain guidelines can be given. If you have done your market survey properly, you will know the following information on your competitors:

a)   whether there are few or many competitors;

b)   whether they are large or small in size;

c)   whether their product features are similar or different to one another;

d)   whether their product features are similar or different to yours.

The following decision guide may help in processing this information to make an estimate of your market share.

* Assumed that your business is in the "small" category when entering the market.
 

1.8   How much of the Product will be sold?
Now that you have estimated the market share you can realistically capture, make an estimate of your targeted sales (sales forecast), that is, every month for the first year and yearly for the next five years. The first annual sales forecast is generally a fraction of the estimated market share and could be anywhere from 60 to 80% of the market share at the beginning.  This is to take certain errors in estimating the market into consideration.

1.9   What is the Selling Price of the Product?
There are three common ways of determining the selling price of your product. These are:

a)     The "Cost-plus Method"
This is done by adding a reasonable profit margin (say 20% to the final total product costs (i.e., marketing costs plus production costs plus administration costs, plus finance costs). The final product costs per unit are determined by dividing the total product costs by the number of units produced. To this figure you may add a profit margin.

b)     The "Comparative Method"
This method compares your product with others in the market and then, based on your product's quality and other features, you may fix your price lower, higher or at the same level as your competitor’s price.

c)     "What the Market will bear Method"
This method is based on supply and demand of the product. For instance, if there is a scarcity of the product in the market (sellers' market), you can set your selling price at a high level; hence your profit margin could be higher. Similarly, if there is a surplus of the product in the market (buyers' market), you may be forced to lower your price, and consequently your profit margin. (Two alternatives to avoid reducing profit margins are: (1) to reduce the product costs by identifying which areas under marketing, production, administration and finance can be reduced), and (2) to identify other market segments that can afford to buy at the original price).

In practice, all three methods should be used from time to time in any business, but in general and especially when starting a business, it is safer to use the "Cost-Plus Method". It is also a good business strategy to anticipate your competitor’s reaction to your pricing strategy.

1.10 What promotional Measures will be used to sell the Product?
Promotion is one of the most neglected aspects of marketing a product. Promotion is necessary to entice and convince buyers into purchasing your product and not those of your competitor.  Promotion is generally divided into advertising, sales promotion, publicity and personal selling. A few of these measures are:

• radio advertisements, newspapers, magazines, trade journals or, if appropriate also via television,

• volume discount (reduced prices when selling in bulk);

• handbills distribution;

• prompt, regular, courteous and efficient service;

• good merchandising ensuring the proper display of your product on the shelves of your market outlets;

• special credit facilities to regular customers;

• posters; billboards; signboards;

• free samples; free trials;

• press releases;

• buy one - take two;

• raffles; coupons;

• sponsorship of local shows, festivals;

• participation in trade fairs and exhibitions;

• personal selling.

One word of caution on promotional measures: These activities cost money to your business, so be sure that for every promotional measure adopted, there is a foreseeable increase in sales. Without a justifiable increase in sales, costs will escalate, hence increasing the unit costs of the product. Make sure to include these costs in your marketing budget.

1.11 What Marketing Strategy
is needed to ensure that Sales Forecasts are achieved?
Formulating a marketing strategy means proper planning, balancing and integration of the business's product strategy, pricing strategy, distribution strategy and promotion strategy. In order to market effectively, you must identify your market, know your product and study your competitors. You also have to spend a certain amount of time on promotion activities, pricing your products correctly and distributing them to your retailers and/or consumers effectively and efficiently. You should not assume that because your product is good that customers will automatically buy your product.

1.12 How much do you need to promote and distribute your Product?
You must have a marketing budget that includes your marketing costs, such as for promotion, distribution and salaries of your sales force, if any.

back to Business plan 2  I  Executive Summary  I  Production
Organisation and Management  I  Financial Plan