This is Part 7 in a series that discusses the drafting of an effective business plan for use in promoting a scientific idea or start-up company to the business community. Each month, a different section of the business plan is discussed. This week, we discuss the "Marketing Strategy"--the part of your business plan that describes how you're going to sell your product.
The marketing strategy section of the business plan needs to do two things. It must describe the current market for your product or service (the "market assessment"), and it must describe how you're going to sell your product or service, given that market environment (the "marketing strategy"). Last month, we discussed the market assessment, and, if you haven't read it yet, you should probably go back and take a quick look at it before reading this section. This month, we take the information we've learned about our market environment and build a marketing strategy around it.
For those of you completely new to marketing, it might be a good idea to go back and read Chapter 2 of this series, where I discuss marketing in detail. Today, I'll be reviewing the concepts discussed there, but the discussion will have more to do with what to put in your business plan, rather than the intricacies of marketing.
Once you've figured out what your competition is doing and what the general competitive environment is for your product, the next step is determining how, exactly, you are going to compete. Your marketing strategy is a big part of that and should include thoughts on the following four concepts: price, product, promotion, and distribution. Depending on the type of business you're in, you're going to want to highlight only the more important of these four marketing concepts in your business plan.
For many products, price is a key marketing drive. Some companies sell their product only because it is priced lower than the competition's. Other companies only sell their product because it is higher priced than the competition's. This counterintuitive phenomenon is called price-influenced quality perception. Here, a higher price instills in the customer a perception that the product must somehow be better. A good example of pricing strategy is the laser. The laser pointers every kid in your neighborhood owns are sold primarily on price. A $20 pointer just isn't going to sell if it's sitting on a shelf next to a $10 pointer that does exactly the same thing. But when the military is buying a laser guidance system for their latest missile, although it might be the exact same technology that goes into the laser pointer, if you tried to sell it to them for $10, they probably wouldn't believe that the technology was reliable or accurate enough.
For many markets, however, price is a very minor part of the marketing strategy. If you've got a new drug for a disease that has no other treatment, for example, people are going to buy it, whether it costs $1 or $10! Your main focus will be on your product and your promotion of it.
Regardless of which situation you are in, your business plan should include a description of your pricing strategy. Some of the other price issues you'll want to discuss include what the competition is charging, how price-sensitive the customer is, and what your profit margin will be at the price you are proposing. Don't be afraid to use tables to summarize your data.
Promoting a new product can be very difficult. After all, no one has heard of your company or your product. How are you going to change that? Your business plan should answer this question. Specifically, you should have some kind of plan for how large your sales force is going to be, how you're going to advertise, and how much all of this will cost. If you're still in the early research and development stages, you can approximate here. If you're ready to launch your product, however, you should have a lot of very specific information. At the least, you should have a media schedule (how many TV spots, how many radio ads, etc.) with budgets and a sample of your advertising--nothing stimulates the imagination better than seeing what an ad will actually look like.
Many start-up companies rely on a partnership with an already established business for most of their promotion work. Most biotech companies, for example, will team up with a big pharmaceutical company to handle most of their marketing, manufacturing, and distribution. If you're planning on doing this (or have already made agreements with other companies to do this), don't make up an elaborate promotion strategy for your business plan. Instead, describe how you plan on "delegating" this task and what it will cost you to do this. If you've made arrangements with another company for this already, describe that relationship here. You should also highlight some of their past successes. If you haven't come up with an arrangement yet, detail how others in your industry have done it, who your potential partners might be, and why they might be interested.
In this part of the business plan, you should demonstrate that you understand the distribution channels of your business and explain how you are going to get your product into that channel. If there is more than one possible channel for your product (e.g., retail stores and mail order sales), you should explain which you are planning to use and why. Unless there is something dramatically different about the distribution channel you have chosen, you really don't need to go into much detail in your business plan. Simply explain how you are going to get your product through the distribution chain. Again, if you are going to partner with someone else who will be doing your distribution, describe the arrangement in this section.
Much of the discussion of your product will be done in the "technology" section of your business plan--the section we called "explaining your science" a few months back. So in this section, it is more important to explain how your product compares with others on the market and why it will make sense to customers to buy your product instead of your competitor's. Unless there is an obvious problem here (for example, there are 12 other products out there that are exactly like yours), you shouldn't go into much detail--after all, your product is unique. All you need to do is convince the reader of this and that there's a market for it, and you'll be OK.
Unless you are a marketing-driven business, the marketing strategy section of your business plan should be short and sweet. Keep it simple, but convince the reader that you know your market cold and that you have a good strategy for making money out of your product.