Marketing and Sales ◾ 191
produces revenues; all the other elements produce costs.
8
Your selected
pricing strategy will:
◾ Dene your product
◾ Help to segment the market
◾ Incentivize customer adoption
◾ Signal your quality intentions to your competition
◾ Establish the gold standard
Figure9.6 summarizes the recommended six steps in setting your pric-
ing policy.
9.5.1 Establishing Your Pricing Tactics
“I never said most of the things I said.” —Yogi Berra
Your pricing tactics should accurately reect your strategic goals. As an
innovative startup, you should be thinking in terms of value, not just pricing.
Value in new product pricing ensures that customers receive fair value-based
pricing, while enabling the entrepreneur to reach an industry price equilib-
rium that provides adequate revenue returns.
9
Value is the difference between what the customer gains from own-
ing a product and the costs of obtaining the product. Quality is the
Setting Your Pricing Policy
1. Establish pricing goals and objectives
2. Estimate demand, costs and your expected profits
3. Analyze competitor’s costs, prices, and offers to
help determine your base price
4. Select your optimal pricing method
5. Fine-tune your optimal price with
pricing tactics
6. Final price
Figure 9.6 Setting your pricing policy—Your most important marketing decision.
192 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
characteristics of a product/service that satisfy stated or implied customer
needs. Value-based new product offerings can best be seen in terms of a
price-quality continuum, as shown in Figure9.7.
9.5.2 Tensions between Marketing and Sales
“If you come to a fork in the road, take it.” —Yogi Berra
In a startup situation where the founders are critically looking for sales, the
marketing and sales functions are often at war. This is in spite of the fact
that everyone knows that “we all oat or sink together.” If sales are disap-
pointing, marketing blames the sales force for its poor execution of an other-
wise brilliant rollout plan.
10
Marketing traditionally accuses sales of focusing on pricing and short-term
sales at the expense of long-term prots, while sales complains bitterly that
prices are set articially high without proper regard to current market condi-
tions. Marketing personnel complain that the sales force is focused on clos-
ing deals, forsaking prots. The sales force lobbies for lower prices because
the product demand has reached its elastic limit, and it is well accepted that
the sales force often has private information about the strength of demand.
11
Marketing and sales are two sides of the same coin. However, there is
generally poor coordination between the two groups, which only raises
market launches costs, lengthens market cycles, and increases rancor and
internal disharmony. The founder must establish an unambiguous “revenue
Value-based New Products
Super value
(loss leader)
High value
(penetration)
Premium
strategy
Good value
(discounts)
Medium
value
Overcharging
(skimming)
Super economy
(predatory)
False
economy
Rip-off
Price
Quality
Figure 9.7 Value-based products—The price-quality continuum.
Marketing and Sales ◾ 193
funnel” that clearly denes the responsibilities of each group and what are
management’s realistic expectations for revenues and sustained sales growth,
as shown in Figure9.8.
9.6 The Complex Sale
“Focus on success, not failure avoidance.”
A complex sale is a type of selling where a number of people must give
their approval or input before the buying decision can be made. Complex
sales are primarily focused on business-to-business and business-to-govern-
ment transactions, and can range from a few weeks to years.
12
Most innovative startups will face the challenge of the complex sale. The
current business environment is characterized by four interrelated phe-
nomena: (1) escalating customer requirements with increased complexity,
(2) rapid commoditization leading to price erosion, (3) relentless competi-
tive forces, and (4) need to respond within a tight window of opportunity.
Commoditization is the pressure exerted by the customer to equalize the
differences between suppliers, thus reducing their decision-making to the
lowest common denominator: the selling price. This leads to the great mar-
gin squeeze as depicted in Figure9.9.
Market research
Prospecting
Pricing
Advertising
Promotion
e Revenue Funnel
Branding,
Segmentation
Marketing
……………… Hando to Sales …………………………….
Contacts
Orders
Sales
Customer advocacy
Market dynamics
Customer loyalty
Competitive intelligence
Follow up
Figure 9.8 The revenue funnel—Responsibilities of marketing and sales.
194 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
The length of time that an innovation enjoys the advantage of being rst
in the market is getting shorter and shorter. For a startup, the key to success
is to differentiate your innovative offering. Differentiation allows for more
protable, preemptive, and effective product introductions.
9.7 Market Segmentation
Market segmentation is a marketing strategy that involves dividing a
broad target market into subsets of consumers who have common needs,
characteristics, and behavior patterns. The rm can then design and imple-
ment strategies to target customer needs and desires using media channels
and other touch-points that best allow reaching them.
13
The market segmentation fundamental thesis is that it achieves a com-
petitive advantage by (1) identifying demand segments, (2) targeting specic
customer segments, and (3) developing marketing “mixes” for each targeted
market segment.
14
As a result, market segmentation enables companies
to target different categories of consumers who perceive the full value of
certain products and services differently from one another. Generally, four
criteria can be used to identify different market segments, as follows:
1. Homogeneity (common needs within one segment)
2. Distinction (unique from other groups in the category)
e margin
squeeze
Mu
ltiple decision makers
Interrelate
d decisions
Mu
lti-departmental
Mu
lti-disciplinary
La
rge nancial investments
Long sales c
ycles
Requires consensus building
Complexity
Commoditization
Price as common denominator
Technology theft
Globalization
Industry consolidation
Requests for proposals
Unpaid prototype deliveries
e Great Margin Squeeze
Figure 9.9 The great margin squeeze—Commoditization is the greatest enemy of
prot margins.
Marketing and Sales ◾ 195
3. Heterogeneity (individuals with diverse product needs)
4. Reaction (similar response to market forces)
15
A market segment consists of individuals, groups, or organizations with
one or more characteristics that cause them to have relatively similar product
needs. Figure9.10 presents the recognized market segmentation strategies.
Table9.5 discusses the advantages and disadvantages of the different seg-
mentation strategies.
9.8 Positioning: Your Place in the Sun
“Not what you can do to the product, what you can do to the
mind.” —Jack Trout
In the marketing sphere, differentiation is the process of creating an
intellectual image to clearly distinguish the company’s products from the
competition.
16
The key to differentiation is positioning. Positioning is the
process of creating a desired image of your company and its products in
the minds of potential customers and stakeholders. Positioning is a market-
ing concept that was rst introduced by Jack Trout
17
and then popularized
Micromarketing
Tailored, specic products
Segmentation level
Niche Marketing
Focused on subgroups within segments
Segment Marketing
Dierent products to individual segments
Mass Marketing
Same product to all customers
Segmentation Strategies
Targeted
Concentrated
Dierentiated
Undierentiated
Figure 9.10 Segmentation strategies—Achieving optimal value through four market
segmentation strategies.
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