“The only thing that matters is getting to product/market fit.”

– Marc Andreeson

You already have a marketing plan in your lean plan. It’s a combination of the strategy and the marketing tactics. This chapter is about how to dress that up and add descriptions and explanations.

You might start the marketing plan section with either the essential business story from your strategy, or a version of one of the stories I suggested in Lead with Stories, in Appendix B on sharing your plan. Then structure the marketing plan section around your marketing tactics. As you do, write around your tactics to explain the logic for outsiders.

A classic marketing plan might include the following pieces:

1. An explanation of the choice of the target market.
2. A summary of the main tag lines, key selling points, value proposition and so forth (we could call this messaging).
3. Discussion of media, which almost has to be social media and content marketing these days, but used to be advertising budgets, placement, and so on.
4. Pricing is your most important marketing message.
5. Channels of distribution for physical products or websites, mobile marketing and such.
6. Promotion, if it isn’t covered in the earlier discussion of media. It could include public relations and advertising, affiliate sites, price promotion, and events.

Presumably the important decisions are already in your marketing chapter.

Most of this is covered in this chapter, which includes:

• Market Information: Needles and Haystacks
• Market Segmentation
• Strategic Segmentation
• Strategic Market Intersection
• Evolution of Niches to Opportunities
• SAM, TAM, SOM, and Potential Market
• Stories Matter More than Numbers
• Know Your Industry
• Market Analysis or Proof of Market?

Working with so-called personas is a trendy way to develop marketing strategy based on making strategic choices around target markets. It’s closely related to overall strategy and marketing strategy. It’s a good tool for developing your marketing tactics.

Try to imagine in detail your absolute ideal buyer. Experts call this working with a persona. Give her age, family, education, job, and commuting habits. Know what kind of car he drives, what websites she likes, and what he watches on TV. Know her politics. Know what he reads. The more you know this person, the better to manage your market message and media.

Make sure you understand this person’s underlying buying decision. Understand the real needs. With restaurants, for example, the needs and wants involved in an expensive low-lighting romantic meal for two are very different from those involved in a quick cheap drive-through hamburger happy meal. Free yourself of features, and think of benefits. Tell yourself the story of how this person finds your business, what he is looking for, and why that matters to her.

For individuals as customers, you probably want to know their average age, income levels, family size, media preferences, buying patterns, and whatever else you can learn that relates to your business.

If you’re planning to sell a physical product, make sure you understand your options and develop distribution tactics to align with strategy. For example, there is a huge difference in selling direct to customers online vs. getting physical products into stores. The margins through channels of distribution, and the gatekeeper functions of the people saying yes or no to your product, are critical. Don’t be naive.

Just so you know, my experience with channels started in 1993 and has been almost entirely in stores and chains selling packaged computer software. I’ve talked to a lot of people dealing in other kinds of channels, and it seems to be quite the same. So that’s a disclaimer.

1. Understand tiers. Most of the major retail channels in the U.S. involve two-tiered distribution.
2. The big retailers, who tend to be chains with hundreds of stores, want to buy from distributors, not from you. No offense intended. Buying from distributors makes their life simple. One bill, one payment, easier administration.
3. Distributors are tough gatekeepers to get through. They aren’t looking for new vendors. New vendors mean more work. And more risk. So they aren’t anxious to change the status quo. Of course there are exceptions, but that’s the rule.
4. Retailers are also tough gatekeepers, for the same reason. There too, there are exceptions, but it’s hard to be one.
5. Both tiers are much happier about new products when they come from existing vendors. Those major companies that are already selling into the channel have it easier.
6. Packaging is really important for everybody in the channel, and more so for new companies. Obviously this is a matter of different products and different industries, but through retail, buyers make choices based on what they see. We vendors would like them to read reviews and make more informed decisions, but most of the time they decide based on what they see.
7. Channels take a big cut of your money. How much varies by industry, but if you are planning a new business and you don’t know, find out. The distributors take a smaller cut but they take forever to pay you. The retailers take a larger cut, and they don’t have to pay you, because they bought from the distributors. Both tiers take cuts of the money for co-marketing and things like that. You get a much smaller revenue per unit, and it comes several months after you make the sale.
8. Most channels will insist on being able to send unsold goods back to you the vendor, and have you purchase them back from them at the same price they paid you, without any allowance for all the co-marketing commissions. This makes financial analysis hard.

One of the things I learned early and hard about channels. They don’t care about your problems. If you’re hard to deal with, they’ll find somebody else to sell into the same segment.

So if you can sell direct, count your blessings. Channels offer volume, and branding, and that’s attractive. But direct sales have some attractive advantages too.

And in the context of developing the formal business plan, for outsiders to read, unless distribution is completely direct and painfully obvious, you should include a discussion of distribution in the marketing section of your plan.

Explain how distribution works in your industry. Is this an industry in which retailers are supported by regional distributors, as is the case for computer products, magazines, or auto parts? Does this industry depend on direct sales to large company customers? Do manufacturers generally support their own direct sales forces, or do they work with product representatives?

Then explain how your specific distribution strategy works. There are almost always variations on the industry norm. In many product categories there are several alternatives, and distribution choices are strategic. Encyclopedias and vacuum cleaners were traditionally sold door-to-door but are now also sold in stores and direct from manufacturer to consumer through radio, television, newspaper, and of course Web ads.

Technology can change the patterns of distribution in an industry or product category. The Internet, for example, changed the options for software distribution, books, music, and other products. Look what it’s done to video and video rental. Look what cable distribution is doing to them as well.

This topic may not apply to most service companies, because distribution is normally about physical distribution of specific physical products. If you are a restaurant owner, graphic artist, architect, or offer some other service that doesn’t involve distribution, just omit this topic from your plan.

For a few services, distribution may still be relevant. A phone service, cable provider, or Internet provider might describe distribution related to physical infrastructure. Some publishers may prefer to treat their business as a service rather than a manufacturing company, and in that case distribution may also be relevant.

My favorite example is packaging, which is critical to some marketing strategies, but often left as an afterthought.

Pricing is magic. There are no simple answers and no algorithms. Take into account your strategy, costs, competition, weather, and instinct. And stay alert with pricing, because change is constant.

Three Common Pricing Mistakes

Try to avoid these three most common mistakes in pricing:

Trying to be the lowest price provider:

Forget what you learned in economics class. The whole idea that lower price correlates with higher volume was based on commodities like coal. Today, while low-price and high-volume strategies still work, they are usually very capital-intensive and work only for very large national brands.

Startups and small businesses are much more likely to succeed by offering specific market segments (as in your core story) high value at a price premium.

Would you get a root canal from the cheapest dentist in town? Would you save money by buying two-day-old sushi? And why isn’t the cheapest car made the most popular?

I once lost a consulting job I really wanted when I bid $25k for it and a competitor bid $75k. The guy who gave me the bad news told me everybody liked my proposal, but they wanted the best, so they went for the higher price.

What would you rather have for dinner: a $1 hamburger or a $20 steak? We used to go to a restaurant that had really good food and surprisingly low prices. But I often wished they’d raise their prices so we didn’t have to wait 45 minutes or more to get a table. And guess what: they no longer exist. They went out of business. Do you think pricing had something to do with that? I do.

Mixing your pricing message:

Pricing is also your strongest marketing message. The gourmet restaurant with bargain prices is not credible. Claims of highest quality and best customer service, but also at the lowest price, aren’t credible. If you claim to have the best product, charge for value. People won’t believe you if you don’t.

Underestimating real costs:

Sadly, many businesses underprice themselves out of business. It takes profit to grow, marketing expenses to generate growth, and you have to generate enough money to cover fixed costs and working capital for buying inventory, waiting to get paid, and making mistakes.

Businesses go under when they run out of money. The research on these losses is confusing and ambiguous, and there are rarely single identifiable causes. Still, just betting on what I’ve seen with my own eyes through a lot of years, I think businesses frequently run out of money because they underestimated real costs.

Suppose you buy the widget for $2 and sell it for $6. That’s a gross margin of $4 and it seems like enough, right? Unfortunately, focusing just on gross margin isn’t enough. Aside from the $2 you paid for that widget, there are all those other expenditures, including your rent, your payroll, your insurance, your electric and water bill, all of your marketing costs, and lots of hidden costs, like the computers and software you’ll need to buy next year. We call that overhead and tend to forget it. Which is a shame, because a lot of businesses forget about it all the way to the business grave. You run out of money.

Use your thinking about pricing to go back and review your strategic action plan for your business offering. Does your pricing align with your product or service?

This is huge. This is what the marketing plan is aiming for. You understand the buyer, the target segment, pricing, distribution, and the rest, so you can figure out what your messages are, to whom to send them, and how to send them.

Traditionally, branding was about what the textbooks call the marketing mix, which included details of advertising, collaterals, public relations, events, promotions and so forth. You can still find a lot of information about all that in bookstores, blogs, and on the web. But be careful, because even though the fundamentals of target audience and message and media are still valid, branding and actual marketing have changed overnight. Consider this statement:

You don’t control your brand. Your customers do.

As I write this, traditional advertising and most of the traditional marketing mix is in disruption from social media and the changing landscape around it. I like the phrase Jim Blasingame uses as the title his latest book: The Age of The Customer. He says the balance of power has changed forever. Previously, companies paid for advertising to send their message to the world – one-way communication. That’s like buying your branding, which is like buying a voice and shouting slogans at a crowd. In the new world, instead of buying your branding, you earn it, through engagement, and effort; and what the world thinks of your business is what your customers tell each other about it.

And changes come very fast. Mobile is the new web. Facebook, Twitter, Google+, and LinkedIn are the giants today, but new platforms come quickly.

Your work and thinking here have a huge impact on marketing tactics. Inputs like target marketing, segmentation, messaging, and media will never be the same. Advertising, public relations, and events are radically different now from what they were just 10 years ago. So definitely incorporate social media in your marketing tactics unless you are in a very old-fashioned business with very old-fashioned customers. And social media is not something many business owners do well in their spare time. The accounts may be free, but the time and effort aren’t. Make sure you plan for it.