Plan of Attack

PLAN OF ATTACK

Expanding your business? Don't make a move without a marketing plan.

For many entrepreneurs, the business plan is the only strategic planning tool used to document their companies' strategies. They create a plan once and most likely update it on an annual basis; as the company grows, so will the thickness of the business plan. But there is another strategic planning tool many entrepreneurs either don't know about or fail to use. It's called the marketing plan.

The marketing plan, as its name suggests, focuses on expanding or adding a specific product or service to the company's offerings. Ideally, the business and marketing plans work hand in hand. The goals and strategies the marketing plan documents for a new product or service can easily be transferred to the business plan when you revise it each year.

The marketing plan provides a written format in which to list the business's plans to diversify into other product areas. More than this, however, it forces the entrepreneur to do the following:

• Chart industry growth
• Define the market(s)
• Determine the strengths and weaknesses of the competition
• Project sales
• Chart the marketing strategies needed to achieve sales goals
• Identify capital equipment requirements
• Determine investment requirements
• Provide direction for the assignment of responsibilities
• Produce financial projections

The structure of a marketing plan varies according to the business, its objectives, and its product or service. Generally, however, the plan includes:

• Executive summary
• Product description
• Market analysis
• Competitive analysis
• Product development
• Operations
• Goals and objectives
• Marketing tactics
• Financial projections
• Summary

The following look at each topic's significance to the overall marketing plan will help you determine what you need to include.

[Top [Executive Summary] [Product Description] [Market Analysis] [Competitive Analysis] [Product Development] [Operations] [Objectives] [Tactics] [Financial Projections] [Summary]

Executive Summary

The executive summary is a brief synopsis of the entire marketing plan. It provides:

• A short description of your product or service
• An explanation of why it differs from your competitors' products
• Your objectives and goals
• The competitive advantage your product or service has over your competitors
• The amount of expansion capital needed to meet your objectives
• Financial results (e.g., return on investment, sales, profits, market share) and strategies you'll use to reach your objectives

A solid, hard-hitting executive summary is one of the most important elements of a marketing plan, especially if you are trying to raise capital. It provides busy investors and lenders with a quick view of your proposed idea.

The executive summary can be anywhere from a few paragraphs to a page and a half at most. It must convey the feeling that you are a responsible individual who can get things done and that your plan has good potential for success.

Although the executive summary is usually prepared after the plan has been drafted (after all, it is impossible to summarize a plan you haven't yet formed), we are starting with it because it appears at the beginning of the completed marketing plan.

Develop your executive summary by reading your plan and extracting key factors such as size of the market, growth forecasts, competition and your objectives. Start with an attention-grabbing statement that describes your market, product and any unmet customer needs. Follow with the specific thrust of your marketing strategy. What are you trying to accomplish?

For instance, suppose you manufacture disposable diapers. This is a huge market with several major players and many minor ones, including private label manufacturers and direct marketing companies, plus peripheral competitors like diaper services and cloth diaper manufacturers. Through your research, you've come across a little-exploited gap in the market and, based on that, have developed a biodegradable disposable diaper. You want to act fast and get this product on the market before your competitors do.

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Product Description

Unlike the executive summary, the product description is not a synopsis of the overall plan but a detailed preface to your proposed project. The product description should communicate the purpose of your plan--what your product or service is, what you intend to do with it, and the main strategies you will use to accomplish your objectives.

The product description can range from a few paragraphs to a few pages, depending on the complexity of your plan. If your plan is not too complicated, keep it short, describing your product or service in one paragraph and your objectives and strategies in another.

Use support statistics from the body of your plan in writing your product description. Make sure you credit any secondary or primary sources so the reader knows these numbers weren't formed arbitrarily.

[Top] [Executive Summary] [Product Description] [Market Analysis] [Competitive Analysis] [Product Development] [Operations] [Objectives] [Tactics] [Financial Projections] [Summary]

Market Analysis

The market analysis section defines the market your product targets. It starts with a broad overview of the industry and eventually concludes with a narrow definition of the market share your product can reasonably sustain. The information is taken from your market research.

Chart items such as sales history, current demand and future trends for your product or service based on the customer base you have targeted. From this information, draw conclusions regarding demand for the product or service: Is it increasing, leveling off or declining?

Discuss your industry, including where your product fits within the industry. Is your product high-tech, low-tech or no-tech? If high-tech, how often are new products introduced? This will have a direct bearing on the product life cycle, which you need to cover in this section of the marketing plan. Provide a clear idea of how technology affects the product or service and its marketability. The distribution channels used in the industry should be described in detail, along with any applicable laws and regulations.

The market analysis section should also define your target market. Answering the following questions will help you describe the segments you're targeting:

1. What is the geographic location of the target market? Is it subject to any special climatic changes?
2. What is/are your target customers' . . .cultural, ethnic, religious and racial characteristics? social class? sex? age range? education level? income range and disposable income? marital status? average household size? typical occupation?
3. What member of the household is the decision maker for your product or service? Who does the actual buying?
4. What does the target market want and need?
5. What are the key traits of your product or service?
6. How frequently do customers use your product or service?
7. How big is the market and what are the growth trends?
8. Are there any laws or regulations that affect the marketing of your product or service?

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Competitive Analysis

The competitive analysis section identifies your competitors and evaluates their strategies to determine their strengths and weaknesses in comparison with yours. This section of the marketing plan should illustrate the advantage your product has over competitors.

Ask yourself:

1. Who are my competitors?
2. What do they sell?
3. What is their market share?
4. What media do they use to market their product or service? How many hours per week do they buy?
5. What potential problems do they pose in my marketing the product or service? What potential opportunities are available for marketing the product or service?

You can evaluate your competitors by placing them in strategic groups according to how directly they compete against you. Under each competitor or strategic group, list the product or service, size, profitability, growth pattern, objectives, current and past marketing strategies, organizational and cost structure, and strengths and weaknesses.

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Product Development

As the name implies, the product development section details the development of the product or service. You should show your development goals, time lines and costs. The product development section also defines the expertise required to develop the product or service and shows whether it currently exists in your company or whether you need to hire new staff.

Start by detailing exactly what stage of development the product or service is in. Perhaps you have a prototype of the product or a rough idea of the equipment and materials required for a service concept, but you haven't ironed out all the wrinkles because you're waiting for financing. In this event, the potential investor or lender will want to know how far along you are in developing the concept.

Next, detail the goals associated with the product or service's development. Do not underestimate time, cost and personnel requirements, or you may not cover the expense of production adequately.

Specify general procedures, schedules, and who will handle each task to complete the goals by the deadline. The work assignments created from the general procedures will break down the various tasks into stages, which usually include a completion date for delivery of the preliminary product review, revision and final delivery of the product.

This section also includes a development budget. Take into account all the expenses required to develop the product, from prototype to production. These usually include:

• Raw materials
• Labor
• Overhead expenses (taxes, rent, utilities and office supplies)
• General and administrative costs (salaries of executive and administrative personnel along with other office support functions)
• Marketing and sales (salaries of marketing personnel)
• Professional services (accountants, lawyers and consultants)
• Equipment requirements
• Miscellaneous costs

The last element to discuss in the product development section is the risks involved. This is important because it will show potential investors or lenders that you have completely thought out the development process and have a plan to solve any problems.

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Operations

The operations section describes how the product will be integrated into your company's existing operations. Start by listing the products or services your company now offers and the motivating factors behind your current proposal. Next, provide some background information on yourself and your management team. Include your experience, successful projects you've supervised, education and so on. Your goal is to make investors comfortable with you and your track record so they will feel confident about funding your project.

Discuss your business's financial resources, human resources, strengths and weaknesses. Let the reader know how solvent your company is, the expertise available to implement your marketing plan, and how you perceive your strengths and weaknesses.

Include tables showing operating expenses, capital requirements and the cost of goods. Operating expenses should include all fixed and variable expenses associated with running a business. This illustrates how the new product will affect the company's operating expenses.

The capital requirements table shows the required investment for new equipment to produce the product. If this equipment is already in place, the investment shown in this table might be small or even nonexistent.

The cost of goods table is mainly for manufacturers, merchandisers and service companies that use a great deal of material to service their clients. This shows the material, labor and overhead expenses associated with producing the product on a continuing basis.

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Objectives And Goals

The objectives and goals section spells out exactly what you intend to accomplish. Long-range objectives usually involve financial targets such as overall sales, return on investment and increased profit margins. They can also include areas of growth such as market share, personnel, productivity, or research and development. You can have a single objective or several, as long as they do not conflict.

Short-term goals are building blocks that eventually lead to your long-range objective(s). Short-term goals are often developed around financial targets but, like long-range objectives, should not be confined solely to these items. In fact, a well-developed short-term goals section takes into account the various elements within your company that need to be accomplished to achieve long-range objectives, such as an increase in staffing, introduction of modernized equipment and increased productivity.

Prepare your long-range objectives and short-term goals before you begin writing your marketing plan. The previous sections of the plan should present the facts that support your objectives and goals. The objectives and goals section ties all this information together in a plan of action with a specific time frame.

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Marketing Tactics

By analyzing your customers, competitors, industry and company, you should have a good idea of your marketing strategies. Emphasize how you will introduce the product into the market and its competitive advantage.

This section should detail not only your marketing strategy but also how your competition will react. For every action you take, your competitors will respond with a countermove to maintain their position or expand it. Explain your competitors' probable reactions to your plans and how you propose to counteract them.

Ask yourself these questions about your product:

1. What are its main features?
2. How does it differ from the competition's?
3. At what point is your product entering the market?
4. What will the package look like and what message will be on it?
5. What is your sales and production forecast?

Ask yourself these questions about distribution:

1. What channels will you use to distribute your product or service?
2. How will you time distribution?
3. Will distribution be intensive, selective or exclusive?

Ask yourself these questions about price:

1. What is your basic cost per unit to manufacture the product?
2. What is your price per unit?
3. Will you offer discounts?
4. What do you project revenue and profits to be?

Ask yourself these questions about sales promotion:

1. How will you position your product or service?
2. Will your promotions be coordinated with distribution schedules?
3. How large will your sales staff be and how will you compensate them?
4. What are your publicity objectives and what type of publicity will you seek to reach them?

Ask yourself these questions about advertising:

1. What will your campaign theme be?
2. What will your copy theme be?
3. What media do you plan to use and how frequently?
4. What will be the size or length of your ads or commercials?
5. What is your advertising budget?

Start each segment of the marketing strategy section with your objectives, then explain the actions you will use to reach these objectives. Include supporting information whenever possible, whether in text, graph, table or illustration form.

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Financial Projections

This section is perhaps the most critical because it's the one readers most closely scrutinize. Although each plan differs, the norm is for a financial projection section to include a three-year income statement, a cash flow projection, and balance sheets.

A three-year income statement is a month-by-month look at projected sales, fixed and variable expenses, and profits. It provides a quick look at how you believe your project will perform over a three-year period.

While the income statement looks at sales and expenses in detail, the cash flow projection summarizes this information and shows availability of cash on a month-to-month basis. A cash flow projection is usually divided into two sections: income and total expenses. When expenses are subtracted from income, you wind up with your cash flow excess or deficit.

The cash flow projection is an important barometer because it shows when you will need additional money to keep the project going. A three-year cash flow projection is generally used.

A balance sheet is a table of assets and liabilities (i.e., a summary of credits and debits) as well as capital, or owner's equity, of a business at one point in time. For the marketing plan, you should provide balance sheets on a yearly basis. Generate a balance sheet for years one, two and three. Take the information from your profit-and-loss statement and cash flow projection.

You may also want to include an implementation schedule, which lists the major goals and tasks necessary to complete the project and capital outlay for each period. You can base your schedule on weekly, monthly or quarterly periods. If your project is a lengthy one with projections up to five years, use quarterly periods. If it ranges between one and three years, use a monthly schedule. If it is a year or less, consider a weekly schedule.

While forming your projections, keep in mind that market potential, sales potential and sales forecast all mean different things when it comes to forecasting. Market potential refers to the total potential sales for a product or service within a specific geographic area over a fixed period. Sales potential refers to the market's ability to absorb the volume produced by a specific company within the industry, supposedly yours. For instance, market potential for the first year for the entire disposable diaper industry might be $3.1 billion, but the ability of the market to purchase Bio-Diapers during that period could be only $248 million.

The sales forecast is the actual sales you believe your company will generate during the year based on your market research. In the Bio-Diapers example, the sales forecast for the first year might be $155 million, far short of the $248 million potential.

Why would the sales forecast fall short of potential? There are several reasons, including limited resources, margin of return on the investment and unforeseeable market factors. Perhaps the greatest reason, however, is the law of diminishing returns. In brief, this means that more aggressive marketing requires greater marketing expenditures. If you spend too much on marketing, your break-even point will be extended dramatically and you won't reach your profit goals.

[Top] [Executive Summary] [Product Description] [Market Analysis] [Competitive Analysis] [Product Development] [Operations] [Objectives] [Tactics] [Financial Projections] [Summary]

Summary

Since the summary concludes your marketing plan, it should highlight the most significant points, such as the advantages your product has over your competitors, costs and profits. A few paragraphs should allow you to encapsulate all the major points for readers who bypass the body of the plan and go straight to the summary.

Start your summary by explaining the purpose of the marketing plan. Since most are formed to raise capital, include the amount you will need to accomplish your goals. Next, show reasons this investment is justified, such as your product's advantage over competitors and any other elements that will contribute to its success. Finally, the summary should include an implementation schedule outlining all the major tasks and when they will be executed.

Your product or service's advantage over competitors is the key to the success of your marketing plan. Emphasize that advantage in the summary, and you'll boost your chances of creating a winning plan.

This article is reprinted with the permission of Entrepreneur magazine. With Entrepreneur, you get expert advice and friendly assistance. Learn how to master the art of marketing, management and finance. Gain insight from fellow business owners and entrepreneurs. Save yourself valuable time, and avoid costly mistakes with proven start-up secrets and sound business strategies. For more information on subscribing to Entrepreneur, call 1-800-274-6229, Dept. 5GD84.

[Top] [Executive Summary] [Product Description] [Market Analysis] [Competitive Analysis] [Product Development] [Operations] [Objectives] [Tactics] [Financial Projections] [Summary]

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