216 ENTREPRENEURSHIP
own advantage. For example, if cutting-edge technological innovation is a major strength
of the venture, it can focus on buyers who demand high-tech products and services. If
efficient operation is the core entrepreneurial competency, the venture can aim for the
most price sensitive buyers. It is virtually impossible to be all things to all people, to
achieve world-class customer satisfaction across all classes of customers, so effective mar-
ket segmentation enables the firm to serve some segment of customers exceedingly well.Bases for Segmentation. Sometimes markets can be segmented along very broad lines:
consumer end users versus commercial end users, for example. Commercial end users
can be further segmented into manufacturing businesses, distribution organizations,
wholesalers, retailers, service organizations, and not-for-profits. These are distinctly dif-
ferent types of buyers, and each is likely to have a distinguishable set of needs. Markets
can also be segmented geographically by determining the scope of the venture’s opera-
tion: global, regional, domestic, or local.
Segmentation methods are widely used by new ventures and small businesses. One
study reported that 62 percent of businesses employed some type of market segmenta-
tion strategy and that effective segmentation strategies produced significant differences in
return on invested capital.^17 In other words, not only do segmentation strategies lead to
higher customer satisfaction, but this satisfaction translates into profits. Table 6.2 pres-
ents a range of segmentation techniques, the percentage of small firms that employ
them, and the reported effectiveness of each method.Marketing Activities
Four major marketing decisions must be made once the target markets are selected.
These decisions are not made in isolation but are intertwined with each other and with
the venture’s distinctive competencies, target market, and macro and competitive envi-
ronments. These decisions concern pricing, product and service configurations, distribu-
tion strategies, and promotional campaigns.^18Pricing. A priceis the exchange value (usually denominated in money) of the venture’s
goods and services, and price has many aliases: fares, taxes, tuition, fees, tips, interest,
and tolls. The pricing decision is probably the most important major marketing activity
because it directly affects the value relationship (quality divided by price). A poorly
priced product is a misplaced product in relation to the competition, in the perceptions
of buyers, and in relation to the firm’s other products and sources.
An entrepreneur must make fairly accurate price decisions even before the product is
introduced to the market, because the price has a direct impact on the sales forecast. If
pricing is wrong, forecasts are wrong, and so are projected cash flow and profits. An
incorrect pricing decision can get the entrepreneur a “green light” on launching the busi-
ness when more accurate forecasting would have generated a “red light” and saved
everybody time and money.
Different pricing objectives require different pricing strategies, but the primary objec-
tive of pricing is to make a profit. Seven of the most popular pricing strategies are dis-
cussed below, and each of them can help the venture achieve its primary objective.^19
Cost-based pricingis the simplest strategy. After the entrepreneur determines the
cost of producing the product or delivering the service, a mark-up is added. This method