How to Develop a Marketing Budget

Resource allocation is a critical part of any marketing plan. To simplify budget preparation, it is recommended that investments in labor, material and services be broken down into the five Ps of marketing:

Product - The item or service you have to sell.

Price - The amount of money you ask your customer to pay for your product.

Place - Where a product is now and how it is transported to your customer.

Promotion - The advertising and publicity neces sary to complete a transaction.

Persuasion - Personal selling of your business.

Each of the five Ps represents an investment in money, materials and services. We can represent this as a system of pipes consisting of a tank of money, which represents the total marketing budget, a main pipe through which the dollars flow and five valves that control the flow of money to each of the five Ps. The concepts of market planning, segmentation and positioning are shown as filters. Budgeting is the process of setting the valves to meet the needs of each marketing task for each segment and then monitoring the results over time to make sure you remain on target.

As your market segments change, you will have to reset the valves. The important thing is to have in place an effective marketing research system that gives you the confidence to move in the right direction for the right reason.

The Product (or Service)

When consumers think about using a product or service, they consider its advantages and disadvantages. In other words, they ask, What's in it for me? Therefore, it is not enough to define your product and its features; other questions must be answered. Think first of your perception of your product or service and then find out how your customers see it. Ask yourself questions such as:

What is a description of our product or service?

What image does it have in the market?

What are its features and benefits?

In the eyes of the consumer, is there a way for us to provide our product or service more effectively?

Where does our product or service fit in a product life cycle?

Introduction (maximum investment in develop ment).

Growth (investment in marketing).

Maturity (maximize profits).

Decline.

Marketing decision - At some point during this declining stage, you must decide whether to invest more money in the product (i.e., create a new and improved model requiring additional investment and generating a new life cycle) or to discontinue it.

Price

There are a number of pricing strategies you can use to achieve your growth goal. Each has the potential of producing a profit, and most are tied to the critical relationship of price-to-sales volume and stock turnover. Some strategies you may want to consider are listed below.

Price Skimming

This refers to the practice of charging high prices for the purpose of maximizing profit in the short run. It works best when:

The product is unique and people are willing to pay extra just to have it. There are trendsetters in society who always are looking for something new and are willing to pay the price. A larger number are followers, and they will buy your product if it is accepted by the leaders. The followers, however, will not pay the higher price.

The cost of development is high and there is a chance of early obsolescence or imitation by competitors.

You have a strong patent position, or your product would be difficult to copy.

The real disadvantage of skimming is that it attracts competition. Your competitors will soon figure out what you are up to, and the high profit potential will encourage them to copy you. They may produce cheaper versions of your product or style, referred to as knockoffs in the market. Once you have meaningful competition on price, your skimming days are over and you run the risk of ending up with a warehouse full of products that cannot be sold at any price.

Penetration Pricing

The opposite of skimming is to introduce your product at such a low price that you will quickly gain a large share of the market. The purpose is to discourage competition. However, eventually you will have to raise your prices to start making some profit and, when you do, you will learn much about customer loyalty.

Buying a Market Position

A variation of penetration pricing is to buy your way into the market with free samples or heavy coupons, for example, 50 cents off on a 69-cent purchase. This tactic is usually used by big companies because it takes considerable financial backing and it may be six months or more before it starts to pay off. Small marketers can use it to the degree they know what they are doing and can control the process. Frequent follow-up is important to ensure samples are not going to professional collectors but are reaching potentially strong customers.

Loss Leader

This refers to promoting a few items at a sizable reduction to attract customers. The idea is that the increased traffic will result in greater sales of your regular-priced merchandise. The reductions have to be on recognized brands and items purchased frequently enough so customers know the prices and can recognize the savings. You must keep switching leader items - people are not going to buy catsup four weeks in a row regardless of its price. The danger is that you may develop a following of cherry pickers who will breeze into your store, scoop up the specials and buy nothing else.

Multiple Unit Pricing

You can increase the size of your individual sales by offering a meaningful discount for larger purchases. A liquor store usually will offer a discount or throw in a free bottle of wine when you buy a case. The same idea applies to the "baker's dozen," a discount on a "set" of tires or selling beer and soft drinks by the pitcher. This is a good technique for building customer goodwill, but you will not see your customers as often. The trade-off, of course, is that you save time and money on containers and packaging, save time by writing up fewer sales and, perhaps, can make your delivery service more efficient by selling by the truckload. Variations are "two-fors," "six-packs," "cheaper by the carton" and "bulk price."

Once you have decided what type of business you want to start and The investment requirements, you're ready to decide on a
location. The amount of aggressive companies already in the area should affect your choice of location. Many areas are overloaded
with service channels or certain forms of restaurants. Check on the amount of your kind of company from Census figures, the yellow
pages, or by personally checking out the place.

Factors other than the potential market, availability of employees And number of competitive businesses have to be considered in
choosing a location. For example, how adequate are utilities - sewer, water, power, gas? Parking facilities? Police and fire
protection? What about home and environmental things like colleges, cultural and community activities for employees? What's the
average price of the location in taxes and rents? Check on zoning regulations. Evaluate the business of the neighborhood
business-people, the aggressiveness of civic organizations. In short, what's the city soul? Such aspects should provide you a clue
to the city or city's future.

Chambers of Commerce and nearby universities Normally Have created or Are knowledgeable about local surveys which can provide
answers to these questions and the a number of other questions which will happen to you.

Then you have to decide in what area of town to find. If the town is Very small and you're establishing retail or service
business, there'll probably be little choice. Just one shopping place exists. Cities have outlying shopping centers along with the
central shopping area, and stores spring up along main thoroughfares and neighborhood streets.

Think about the shopping center. It's different from other locations. The shopping center building is pre-planned as a
merchandising unit. The site has been intentionally selected by a developer. On-site parking is a frequent feature. Clients may
drive , park and do their shopping in comparative speed and safety. Some centers offer weather protection. Such conveniences make
the shopping centre an advantageous location.

There are also some limitations you should know about. As a renter, You become a part of a retailer group and must pay your pro
rata share of the budget. You must keep shop hourslight your windows, and place your signals according to established rules. Many
communities have restrictions on evidence along with the center management may have additional limitations. Moreover, if you're
thinking about a shopping centre for your first store you could have an extra problem. Developers and owners of shopping centers
look for successful retailers.

The type and Wide Range of merchandise that you take helps determine the Kind of purchasing place you choose. By way of instance,
clothing stores, jewelry stores and department stores are more likely to be more successful in buying districts. On the flip side,
grocery stores, drug stores, filling stations, and bakeries do better on main thoroughfares and neighborhood streets beyond the
shopping districts. Some sorts of shops customarily pay a very low rent per square foot, while others pay a high rent. In the"low"
class are furniture, grocery stores and hardware stores. In the"large" are cigar, medication, women's furnishings, and department
stores. There is not any hard and fast rule, but it is helpful to see in which kind of place a store like yours often appears to
flourish.

After deciding an area best suited to your type of business, Obtain as many details as possible about it. Examine the competition.
How many similar companies can be found nearby? What does their sales volume appear to be? If you are establishing a store or
support trade, how far do people come to trade in the region? Are the visitors patterns positive? If the majority of your
customers will probably be local inhabitants, research the population trends of the region. Is population climbing, static or
decreasing? Are the people native-born, mixed or mostly foreign? Are new ethnic groups coming in? Are they predominantly laborers,
clerks, executives or retired men? Are they all ages or principally retired, middle aged, or young? Judge buying power by
assessing average house rental, typical property taxes, number of telephones, number of cars and, if the amount is available, per
capita income. Larger shopping facilities have this sort of information available, and will ensure it is available to serious
prospective tenants.

Zoning ordinances, parking availability, transport facilities And natural barriers - such as hills and bridges - are important
factors in locating any kinds of business. Potential sources for this information are Chambers of Commerce, trade associations,
property businesses, local newspapers, banks, city officials, local retailers and private observation. In the event the Bureau of
the Census has developed census tract information for the specific region in which you're interested you will find this especially
valuable. A census tract is a small, permanently established, geographical place within a large city and its environs. The Census
Bureau provides population and housing characteristics for every tumor. This information can be valuable in measuring your
marketplace or service possible.

Choosing the actual site within an area might well be taking what you Can get. Not too many buildings or plants will be
appropriate and at the exact same time, accessible. Should you have an option, be sure to consider the chances carefully.

For a manufacturing plant, think about the condition and suitability Of the construction, transport, parking facilities, and also
the type of lease. For A store or service establishment, check out the closest competition, traffic Leak, parking amenities,
street location, physical aspects of the construction, Kind of lease and price, and the speed, cost and quality of transportation.
Also Investigate the history of the site. Find answers to these questions as: Has the Building remained empty for any length of
time? Why? Have various types of Stores occupied it for brief periods? It may have proved unprofitable for them. Websites on which
many businesses have failed should be avoided. Vacant buildings Don't attract traffic and are generally considered bad neighbors,
so check on nearby unoccupied buildings.

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