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7 The Marketing Plan

— CHAPTER 7 LECTURE NOTES

1 Describe small business marketing.

PPT 7-1 A. What is small business marketing? Chapter 7  The Marketing Plan Present the text definition of small business marketing. Small business PPT 7-2 marketing consists of those business activities that relate directly to the Looking Ahead following: (1) identifying a target market, (2) determining target market PPT 7-3/TM 7-3 What Is Small Business potential, and (3) preparing, communicating, and delivering a bundle of Marketing? satisfaction to the target market.  Point out that market segmentation, marketing research, and sales forecasting are integral parts of market analysis.  Point out that product, pricing, promotion, and distribution activities form the firm’s marketing mix. 1. Marketing philosophies make a difference PPT 7-4/TM 7-4  Ask students whether their personal philosophies about education influence Marketing Philosophies Make a Difference their approach to studying, taking tests, and writing research papers. Try to bring out a parallel between this situation and that of an entrepreneur running a business. His or her marketing philosophy will shape the firm’s marketing activities, just as an individual’s personal philosophy influences his/ her approach to education.  List the three distinct marketing philosophies: (1) a production orientation was associated with the Industrial Revolution, (2) a sales orientation PPT 7-5 concentrates on personal selling and advertising, (3) a consumer Why Firms Fail to Adopt orientation places the needs of customers first—the marketing concept a Consumer Orientation begins & ends with the consumer. 2. A consumer orientation—The right choice Explain to students that the particular marketing management philosophy adopted by a small business is strongly influenced by the following three factors: (1) state of the competition, (2) entrepreneur’s personal expertise, and (3) tendency of managers to be shortsighted.

2 Identify the components of a formal marketing plan.

PPT 7-6/TM 7-6 B. The formal marketing plan Marketing research activities 1. Market analysis PPT 7-7  Provides a detailed discussion of the major customer benefits The marketing plan and  Contains a customer profile supporting marketing activities  Elaborates additional target markets (each with its own profile) PPT 7-8  Contains the sales forecast as major element The Formal Marketing Plan  Ask the students why it is usually desirable to include sales forecasts for most likely, pessimistic, and optimistic scenarios. 2. The competition 62 63 Part 3 Developing the New Venture Business Plan

 Profile competitors  Discuss strengths and weaknesses of competitors  Note related products of competitors  Monitor competitors via their Web sites 3. Marketing strategy a. The total product and/or service — plans to transform the basic PPT 7-9 product or service idea into a total product or service The Formal Marketing Plan b. The distribution plan — getting the product/service to customers c. The pricing plan — an effort to explain pricing decisions d. The promotional plan — an approach to create customer awareness and includes all efforts to communicate with intended target audiences.

3 Discuss the nature of the marketing research process.

C. Marketing research for the new venture  Emphasize the importance of conducting marketing research prior to making many marketing decisions.  Marketing research should be a supplement to, not a replacement for, the intuitive judgment of the entrepreneur. 1. The nature of marketing research  PPT 7-10/TM 7-10 Marketing research involves gathering, processing, reporting, and The Nature of interpreting market information. Marketing Research  Small firms typically conduct less marketing research than large firms (mostly because of expense and lack of knowledge about the process).  The Internet is an excellent resource for marketing research data.  Hiring a marketing research expert may be well advised.  Consider the cost/benefit tradeoffs of marketing research. PPT 7-11/TM 7-11 2. Steps in the marketing research process The Nature of Marketing Research a. Identifying the informational need  Marketing research can help identify the information that is needed b. Searching for secondary data  Cheaper than primary data, so exhaust these sources first.  Discuss available resources (e.g., libraries, SBA, databases).  Note the problems that accompany the use of secondary data (datedness, wrong units of measure, lack of creditability). PPT 7-12  Discuss how secondary data can be useful. Methods for Collecting c. Collecting primary data Primary Data  Discuss differences between (1) observational methods and (2) questioning methods.  Emphasize the value of personal observation to small businesses.  Underscore that surveys are used more often than experimentation.  Compare the speed, cost, and amount of information obtained with surveys conducted via mail, telephone, and personal interviews. PPT 7-13  Developing an effective questionnaire: Designing and testing a (1) Ask questions that related to the issue under consideration questionnaire (2) Select the form of question that is most appropriate for the subject and the conditions of the survey. (3) Carefully consider the order of questions. (4) Ask more sensitive questions near the end of the questionnaire. Chapter 7 The Marketing Plan 64

(5) Carefully select the words for each question. (6) Pre-test the questionnaire. d. Interpreting the data gathered  Statistics and entrepreneurial insight should be used to interpret the meaning of the data generated.

4 Define market segmentation and its related strategies.

D. Understanding potential target markets PPT 7-14 Understanding Potential Ask students to define the term market in their own words. Then, describe the typical Target Markets definitions:  A physical location where buying and selling take place (e.g., a farmer’s market or a supermarket)  A process of selling a product (e.g., “We must market the product aggressively.”)  A group of customers or potential customers who have purchasing power and unsatisfied needs (e.g., “The target market has 1,000 potential buyers.”) Note that the “group of customers” definition requires that each of the following three components be present before a market exists. (That is, one component in isolation or any two in combination do not comprise a potential market!) PPT 7-15/TM 7-15 Ingredients of a Market A market must contain individuals or business entities. [Acetate 7-15] These individuals or businesses must have purchasing power. These individuals or businesses must have unsatisfied needs. 1. Market segment and its variables  PPT 7-16 Make sure the students understand that the two broad competitive Market Segmentation strategies mentioned in Chapter 3 (i.e., cost and differentiation) can be Variables used in focusing on a specific part of the market, which is the most likely approach in a startup.  Market segmentation—dividing the market into groups with similar needs (those likely to respond favorably to the same marketing strategy). PPT 7-17  Markets are usually segmented according to benefit or demographic Types of Market variables. Segmentation Strategies PPT 7-18/TM 7-18 a. Benefit variables—based on customer needs An Unsegmented Market b. Demographic variables—age, sex, education, income, etc. [Acetate 7-18] 2. Marketing strategies based on segmentation considerations PPT 7-19/TM 7-19 A Multisegment a. The unsegmented strategy (sometimes referred to as mass marketing) Market Strategy b. The multisegmentation strategy (unique marketing mixes for various [Acetate 7-19] segments) PPT 7-20/TM 7-20 A Single-Segmentation c. The single-segmentation strategy (recognizes several segments but Market Strategy chooses only one; probably the best strategy for small firms) [Acetate 7-20]

5 Explain the different methods of forecasting sales.

E. Estimating market potential PPT 7-21  Estimating Market Especially important for small businesses. Potential  Requires information from numerous sources to determine market impact.  Ask the students if they can think of a startup that failed because it overestimated market potential. 65 Part 3 Developing the New Venture Business Plan

1. The sales forecast  This is a prediction of how much of a product or service will be purchased by a market for a defined time period.  The market must be defined precisely if forecasts are to be accurate.  The forecast is critical to assessing the feasibility of a new venture. 2. Limitations to forecasting  Emphasize the difficulty of forecasting by asking students to share what they will be doing one year or five years from now.  Explain why, despite forecasting limitations, a sales forecast should be made. (Remember the business plan.)  Explain why small firms are typically poor at forecasting compared to PPT 7-22/TM 7-22 large firms. For example: Dimensions of Forecasting Difficulty The forecasting circumstances of small firms are unique—new [Acetate 7-22] ideas. Entrepreneurs are generally less familiar with the methods of quantitative analysis. Many entrepreneurs lack familiarity with the forecasting process.  Discuss the sources of information about the forecasting process and business trends (e.g., trade publications and economic newsletters, government publications, professional forecasting services). 3. The forecasting process PPT 7-23 The Forecasting Process: Two a. The starting point Dimensions of Forecasting  The breakdown process (the “chain-ratio method”)—begin with the population figure for the target market and determine a percentage that can be served.  The buildup process—estimate market potential from all likely segments and combine these. PPT 7-24/TM 7-24,25 Sales Forecasting with b. The predicting variable the Breakdown Method  Direct forecasting—predicting sales directly [Acetate 7-24]  Indirect forecasting—using surrogate variables to predict sales

 Using Computerized Business Plan Programs Such as BIZPLANBuilder and Business Plan Pro

The following questions may help students uncover the information that will prove critical to conducting effective marketing research and sales forecasting and, in turn, lead to developing a superior small business marketing plan. Marketing Plan Questions: 1. What is the customer profile for your product or service? 2. How will you identify prospective customers? 3. What geographical area will you serve? 4. What are the distinguishing characteristics of your product or service? 5. What steps have already been taken to develop your product or service? 6. What do you plan to name your product or service? 7. Will there be a warranty? 8. How will you set the price for your product or service? 9. What type of distribution plan will you use? 10. Will you export to other countries? 11. What type of selling effort will you use? 12. What special selling skills will be required? 13. What types of advertising and sales promotion will you use? Marketing Research Questions: Chapter 7 The Marketing Plan 66

1. What types of research should be conducted to collect the information you need? 2. How much will this research cost? 3. What sources of secondary data will address your informational needs? 4. What sources of relevant data are available in your local library? 5. What sources of outside of outside professional assistance would you consider using to help with marketing research? Market Segmentation Questions: 1. Will you focus on a limited market within the industry? 2. What segmentation variables will you use to define your target markets? 3. If you determine that several distinct market segments exist, will you concentrate on just one segment? Forecasting Questions: 1. How do you plan to forecast sales for your product or service? 2. What sources of forecasting assistance have you consulted? 3. What sales forecasting techniques are more appropriate to your needs? 4. What is the sales forecast for your product or service?

— SOURCES OF AUDIO, VIDEO, AND OTHER INSTRUCTIONAL MATERIALS

Kidsmetics, Videostay, and Skullduggery, Inc. are three firms featured in the video program titled Taking Aim: The Marketing Plan, which is part of the Something Ventured video series produced by INTELECOM. The program talks about developing marketing strategies. For information contact your South-Western/ITP sales rep or ITP Faculty Support (fax (415) 592-9081 or E-mail [email protected]). A videotape entitled Creating a Winner: The Real Secrets of Successful Marketing is available from Inc. Business Resources. It is promoted as a marketing message that “strips away the mystery of marketing, giving you the insight and confidence to create, evaluate and execute a marketing plan that works—no matter what you sell.” Five entrepreneurs are presented on the tape. The toll-free number for ordering is (800) 372-0018. Currently, the video sells for $59.95. Several other videos related to the material in this chapter can be obtained from Nimco, P. O. Box 9, 102 Highway 81N, Calhoun, KY 42327. A complete catalog is available by writing to this address. Their toll-free number is (800) 962-6662. Four videos of particular interest are Selling with Service, Marketing Today, Target Markets, and Market Research. Bell Atlantic and the Small Business Administration have produced a videotape entitled Marketing: Winning Customers with a “Workable” Plan. This 45-minute tape is available for $30 plus shipping and handling from The Small Business Video Library, P. O. Box 523, Eagleville, PA 19408-0523, (800) 225- 2468.

— ANSWERS TO END-OF-CHAPTER

DISCUSSION QUESTIONS

1. What is the scope of small business marketing? Has it always been as broad as it is now? Why or why not? p. 141-142 Small business marketing consists of those business activities that related directly to (1) identifying a target market, (2) determining target market potential, and (3) preparing, communicating, and 67 Part 3 Developing the New Venture Business Plan

delivering a bundle of satisfaction to the target market. Marketing in the small business has not always been so sophisticated. At one time, marketing was considered little more than selling, and some entrepreneurs continue to view marketing in this limited way. In reality, a well-executed marketing effort involves numerous activities, many of which must transpire even before a product is produced and prepared for distribution or sale.

2. How do the three marketing philosophies differ? Select a product and discuss marketing tactics that could be used to implement each philosophy. p. 142 The philosophies differ in the degree of emphasis placed on the consumer and the point at which this concern is manifested. Because students will likely choose different products, the marketing tactics they offer will have to be scrutinized individually. Students may also emphasize different areas of marketing. For example, marketing information tactics for a business that markets refrigerators might be expressed as follows:

Philosophy Marketing Information Tactic

Production oriented “ Let’s survey our distribution system to find out why it costs so much.” Sales oriented “Let’s survey customers to find out how we can motivate them to buy our product.” Consumer oriented “ Let’s survey customers to learn what benefits they seek from refrigeration so we can satisfy their needs.” If pricing is emphasized, a student might answer as follows:

Philosophy Pricing Tactic

Production oriented “We must charge $X.XX because our production costs have already been figured to be $X.XX.” Sales oriented “We need to discount the current price in order to sell more.” Consumer oriented “Customers are willing to pay about $X.XX for a product offering these benefits.”

3. What are the obstacles to adopting a consumer orientation in a small firm? p. 142 In most cases, the failure of small firms to adopt a consumer orientation can be explained by one or more of the following three factors. First, a firm is likely to adopt a production efficiency emphasis if competitive pressure is weak and/or demand exceeds supply. Under these conditions, firms have little motivation to focus on customer needs because they can already sell all of the product they can produce. Second, if small business managers have particularly strong production skills, the firm is naturally prone to lean toward a production emphasis. As a parallel, if these managers have strong selling skills, these will be manifest in a sales-orientation philosophy. Third, some managers are too focused on the present to adopt a consumer orientation. For example, they may emphasize a high pressure selling approach in order to “move merchandise,” which is likely to have a negative effect on consumer satisfaction in the long-run.

4. Briefly describe each of the components of a formal marketing plan. p. 143-146 A formal marketing plan should contain detailed information regarding market analysis, the competition, and marketing strategy. The four areas of marketing strategy are the description of the total product or service, the promotional plan, the distribution plan, and the pricing plan.

5. What are the steps in the marketing research process? p. 148-151 There are typically four steps in marketing research:  Identify the informational needs.  Search for secondary data.  Collect primary data.  Interpret the data gathered. 6. What are the major considerations in designing a questionnaire? Chapter 7 The Marketing Plan 68

p. 149 The questionnaire developer should keep several considerations in mind. First, ask only those questions that relate to the issue of concern. Then, select the form of question (e.g., open-ended, multiple choice) that is most appropriate for the questionnaire and its application. Developers should also consider the order in which questions are presented (since one question can bias responses to subsequent questions), and sensitive questions should always come last. Next, carefully word questions so they are as simple, clear, and objective as possible. Finally, pretest the questionnaire using a representative sample.

7. Briefly explain the three components of the definition of a market, as presented in this chapter. p. 151 A market has been defined as a group of customers or potential customers who have purchasing power and unsatisfied needs. A market must have all three components—customers, purchasing power, and unsatisfied needs. The components of a market have a multiplicative relationship, which can be expressed as

Market = Customers × Purchasing power × Unsatisfied needs

If any one component is zero, the value of the market is also zero. For example, assume potential customers have no purchasing power. Then

Market = Customers × 0 × Unsatisfied needs = 0

8. What types of variables are used for market segmentation? Would a small firm use the same variables as a large business? Why or why not? p. 151-152 Segmentation variables are used to identify particular dimensions of a market. The two basic types of segmentation variables are benefit variables and demographic variables. Since resources are limited and the products and services of a small firm are usually specialized, use of segmentation variables is more important for small firms than for large businesses.

9. Explain the difference between a multisegmentation strategy and a single-segmentation strategy. Which one is more likely to be appealing to a small firm? Why? p. 153-154 A multisegmentation strategy involves approaching two or more homogeneous market segments with a tailor-made strategy for each segment. The single-segmentation strategy targets one segment that the firm believes will be most profitable. The single-segmentation strategy usually allows small firms to use their limited resources more efficiently.

10. Explain why forecasting is used more widely by large firms than by small ones. p. 155-156 First, forecasting circumstances in a new business are unique. Second, a small business manager is likely to be less familiar with methods of quantitative analysis. Finally, the typical entrepreneur lacks familiarity with the forecasting process.

— COMMENTS ON CHAPTER “YOU MAKE THE CALL” SITUATIONS

Situation 1

1. What type of research could Josh use to estimate demand for the care packages? To answer this question, Josh needs to determine his informational needs. For example, will he need primary data to move forward, or will secondary data suffice? Secondary (previously compiled) data are cheaper to gather than are primary (new) data. There are numerous sources of the former, but these are often dated, incompatible, or less than credible. Both primary and secondary data may be of use in this case, but primary data are likely to be necessary if Josh is to answer the questions that are relevant to his specific enterprise. If Josh decides that primary data are required, he will need to determine whether observational (learning by observing) or questioning (surveys and experimentation) methods are best. 69 Part 3 Developing the New Venture Business Plan

2. How could he develop a sales forecast for his product? There are two general “starting points” for developing a sales forecast—breakdown and buildup. The breakdown process begins with a variable that is very large in scope and then systematically works down to the sales forecast. Applied to Josh’s venture, the breakdown process would begin by determining the size of the entire potential market (e.g., all parents of students at universities in Wisconsin) and then forecast sales by estimating the percentage of that market that are likely to buy. The buildup approach would start by identifying all potential buyers in relevant submarkets and then add up the estimated demand. To do this, Josh may want to calculate the number of parents of students at the University of Wisconsin at Madison and then compute potential demand by estimating the percentage of these who are likely to be interested in purchasing care packages. By applying this percentage (or a figure adjusted to specific conditions) to other campuses, Josh would be able to forecast total sales. (Table 7-3 may be helpful in walking the students through the specifics of the breakdown process when applied to the care package venture.)

3. Would the Internet be helpful to his marketing plan? Josh may find the Internet beneficial to his efforts, especially when it comes to challenges such as finding and gathering secondary data and promoting his product to prospective customers. Given that he is tapping a market segment that is likely to be educated and thus Internet connected and comfortable with high-tech applications, the Internet may be more helpful than it would be for most startups. For example, he could include the venture’s Web address with all advertising to create a tech- savvy image (which should appeal to his target market) and facilitate use of his service by making prices and distribution information readily available.

Situation 2

1. What are the strengths and weaknesses of the sample used in this survey? The main strength of the survey is based on the profile of the sample, namely, it includes men and women and they range in age from young to old. This strength assumes that the target audience for the restaurant is both men and women of all ages. Another strength of the survey is that it was conducted by a native of the local culture, which adds an important element of reliability to the survey. Answers to an outsider's questions might not be as truthful. On the other hand, the size of the sample size is one of its weaknesses. A bigger sample would reduce the risk of sampling error in the responses. Other issues regarding the sample must be addressed in order to determine another weakness. For example, how was the sample collected? Were the respondents selected based on convenience or based on a quota system to fit the customer profile? Answers to these questions would allow one to assess the weaknesses of the sample. In other words, who are the 100 respondents in the sample? How were they selected?

2. Evaluate the questions used in the survey. Some of the wording of individual questions could be changed to enhance their precision. For example, question one asked, “How often do you visit restaurants?” Does the word “visit” mean to actually eat at the restaurant? Also, question 3 asks for the most important factor for “…you in choosing a restaurant?” Does Iskakow know that the person being interviewed makes this decision, or is it the spouse or someone else in the family group? Also, all questions use an open-ended format. This may be okay in Kokshetau, but in some cultures it would be necessary to provide choices for some of the questions.

Situation 3

1. What target market or markets can you identify for Wilson? How could she forecast sales for her service in each market? There appear to be at least two markets for this service. One is the elderly and handicapped who are not able to take their pets to grooming salons. The other market is those customers who do not like leaving their pets in a shop all day because the animals get nervous. Wilson may also be able to serve some of the overload that periodically builds up in grooming shops. Chapter 7 The Marketing Plan 70

Forecasting sales will be difficult prior to beginning operations. However, Wilson may be able to obtain secondary data on pet ownership from the local library. With an estimate of what market share she might expect, a sales forecast could be generated.

2. What advantage does her business have over existing grooming businesses? Probably the biggest advantage to Wilson’s service is the time factor. A client can have the service performed very soon after identifying the need. The owner can also be available at the grooming van to offer grooming instructions. The customer does not incur transportation costs or the inconvenience of transporting the pet.

3. What business name and promotional strategy would you suggest that Wilson use? The actual company is named All Breed Mobile Grooming, which is not necessarily an outstanding choice. A shorter, more descriptive name that connotes the convenience of the service might be better. Presently, word-of-mouth has been the primary form of promotion. The outside of the mobile van could be used for promotion; the painting would need to be done professionally. An advertisement in the Yellow Pages would be advisable. An occasional television commercial might work well also.

— ANSWERS TO EXPLORING THE WEB EXERCISES

For each chapter, the instructor’s manual will include a short summary of suggested results students will have after completing the various Web exercises. Because the Web is a constantly changing medium, the answers may vary, and the links may change as well. Thus, answers are only suggested, and the URL for resources, where required, is provided.

Exercise 1

Answers will vary. Students should compare and contrast marketing resources.

Exercise 2

a. Students should have the list the following resources.

Sources of Secondary Research ASAE Directory of Associations Online Ask a Librarian - U.S. Library of Congress Bureau of Labor Statistics Business Research Lab Center for Business Women's Research Economic Statistics & Research Fedstats.gov Internet Public Library Population & Demography Resources

b.Answers will vary; however, all students will answer the following questions.  Who are your five nearest direct competitors?  Who are your indirect competitors?  Is their business growing, steady, or declining?  What can you learn from their operations or from their advertising?  What are their strengths and weaknesses?  How does their product or service differ from yours? 71 Part 3 Developing the New Venture Business Plan

c. Answers will vary.

— SUGGESTED SOLUTION TO CASE 7:

SPECIALTY CHEESE

1. What sources of information did Paul and Vicki use to develop their marketing plan? Paul and Vicki used both secondary and primary data to construct their marketing plan. The main source of their secondary data was the U.S. Census Bureau statistics. Recall from the chapter that secondary data is market information that has been previously compiled. Paul and Vicki used the census database to research the location of different ethnicities across the United States and the size of the ethnic population in each location. The Scharfmans also did cultural research to determine which ethnicities incorporated cheese into their diets. By combining these two types of secondary data, Paul and Vicki were able to think more creatively about cheese products that would meet the needs and wants of very segmented markets. In addition to secondary research, the Scharfmans used primary data. That is, they gathered new marketing information themselves to satisfy their particular research needs. Once Paul and Vicki had several prototypes for new cheese products and packaging, they used focus groups to make sure they were on track. The video shows this near the end of the case, when Paul and Vicki are talking about the packaging fumbles they had with their Just the Cheese product. The Scharfmans credit their success to continually asking what the customer wants. In the video, Vicki talks about leading with the product as being the absolute backwards approach to marketing. Many people think they have a great invention that is going to appeal to great numbers of people, but once it’s on the market, it just sits there, and they can’t understand why. Vicki knows the reason: Because the marketer didn’t have the right information. “Marketing says, ‘Find out what your consumer wants, what your consumer needs and what they’re not getting from the current offerings in the marketplace, and go out and tailor your dream to what they want.’ And that’s going to be the right fit that sells product.” Paul echoes Vicki, “The gist of it is simple: ask.”

2. What kind of market segmentation do the Scharfmans practice? How did Paul and Vicki identify their target markets? Market segmentation is the division of a market into several smaller groups with similar needs. The book discusses three popular segmentation strategies: unsegmented, in which the total market is defined as the target; multisegment, which identifies different preferences of individual groups within the total market; and single-segmentation, in which a company recognizes the existence of multiple segments, but focuses exclusively on the most profitable one. The Scharfmans use a multisegmentation strategy. Although their main focus is on ethnic cheeses, Paul and Vicki also create unique cheese products attractive to a broader market, for example Just the Cheese. The Sharfmans began the process of identifying their target markets by building on the foundation of the Heim Cheese Company. When Paul and Vicki bought Heim, the company made good cheese, and in particular a kind of Cuban cheese. The couple then expanded on the notion of Cuban cheese, moving quickly into Hispanic cheese. Further segmentation came through detailed marketing research. The Scharfmans paid someone to go through a library and find out what languages are spoken at homes across the United States. The couple then determined which of the cultures represented in their research eat cheese. Armed with the list of cultures in the United States that eat cheese, Paul and Vicki were able to develop products that specific consumer groups needed and wanted. 3. Paul Scharfman said, “The competitive model for industry breaks down in small business. We ought to be more collaborative than competitive…We try not to copy our competition but to innovate. We try to build markets. We try to work with our partners and our suppliers and our companies around us. We try to find win-wins all the time. The little local cheese-maker down the street, who’s making Colby, and I – other than the fact we’re both buying raw milk, we might as well be in different businesses. We Chapter 7 The Marketing Plan 72

are not competitors.” If other smaller cheese makers are not competitors for Specialty Cheese, who is the company’s competition? The specialty cheese industry is highly fragmented. This means that numerous individual companies own entire markets for the product area in which they specialize. Specialty Cheese is one example. Although the company has an impressive roster of ethnic cheeses, it is not exhaustive. Nor can the company compete at the same level across multiple geographic locations. That is, there may be a small cheese maker in New York better positioned geographically to meet the needs of the Mexican market in Manhattan than Specialty Cheese is in Lowell, Wisconsin. But overall, the niche markets in which Specialty Cheese sells product are small enough to be dominated by one or two companies making a highly specialized product. The biggest competition to specialty cheese makers may, in fact, be mainstream cheese producers, like Kraft, that are able to generically position the most popular types of cheese as acceptable substitutes for specialty cheeses. In the video, Paul talks about how the cheese should not run out of a genuine Mexican enchilada, but many Americans are used to melted (probably cheddar) cheese running out the end. If consumers ultimately decided that runny, melted cheese was preferable to soft cheese that stays inside the enchilada, then Specialty Cheese would see its market shrink or disappear. Specialty Cheese Company, and other niche cheese makers, must work against standardization of cheese offerings in order to be successful. As an epilogue to the video: In 2004, Paul Scharfman developed a plan to consolidate multiple small cheese making operations into a central location, or condominium, where specialty cheese makers could share space and costs. He anticipated the cooperative to be up and running by 2006.

Activities Purpose: The purpose of this exercise is to give students a glimpse of what it takes to collect marketing research and the value of that investment. These activities will give students an idea of how cumbersome collecting marketing research can be, but combined with video, the students will appreciate how important it is not to overlook this critical part of small business development and management. (The Scharfmans spent close to $100,000 of their own money on marketing research before actually signing the contracts to purchase the Heim Cheese Company.) Setting it up: Often, doing Internet research with a partner can be frustrating. In order for students to get the most out of the exercise, it might be better to have them do the Internet research part individually. After students collect the information, then you can assign them to pairs to analyze their information. For example, in the first activity, have students find out about Japanese culture and cheese on their own. Then as pairs, have them write the description of how Japanese consumers think of cheese, and so forth.

1. In an interview with the Wisconsin State Journal, Vicki Scharfman said, “My secret fantasy is to export to Japan. They eat lots of salty snacks and they love cheese.” Use the Internet to research the Japanese cheese market and cheese varieties. A keyword search for “Japan cheese” or “Japanese cheese” should give you several places to start. Write a brief description of how the Japanese consumes cheese, what kinds of cheese they normally eat, how much cheese they eat annually, and so forth. 2. Vicki and Paul used census data to uncover target markets that matched the expertise of their company. Familiarize yourself with U.S. government census data at http://www.census.gov. If you have a business idea in mind, use this opportunity to explore the related census data. Once you are comfortable with the site, pick one of the Mid-Eastern cheeses on the Specialty Cheese Web site, and identify areas in the United States where there should be a substantial market for the cheese you selected.

Sources: Small Business School, full video on Specialty Cheese; company Web site at http://www.specialcheese.com; Malinda Miller, “Cheese Industry Profile,” Agricultural Marketing Resource Center, Iowa State University, February 2003, revised April 2004; “Specialty Cheese Co-Op in the Works,” Food Ingredient News, January 2004, online; Rick Barrett, “Wisconsin Specialty Cheese Company Takes Off,” Wisconsin State Journal, December 12, 1996, online; “The Time Is Right for 73 Part 3 Developing the New Venture Business Plan

Cheese,” report prepared for the United States Department of Agriculture by the Food Processing Center, Institute of Agriculture and Natural Resources, University of Nebraska, Lincoln, October 2001, online at http://www.farmprofitability.org/cheese.htm#_Toc526067524

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