5 Marketing Theories for Small Businesses that are Easy to Apply

Marketing Theories

Marketing theories are often focused on large companies instead of on small businesses. I can imagine that if you’re an owner of a small business, you don’t really have the time or the energy to really think about a marketing strategy. As a business owner, you don’t want to focus on the theoretical stuff. You want to build your business. For instance, if you own a bike store, you are probably very much focused on the day to day operations. If you own a consultancy company, you are constantly working on helping clients. However, you probably also realize that having a marketing strategy is important. For the success of a business it is important that you attract (and retain) customers.

Sometimes it is necessary to take a step back and really think about your marketing. That’s why in this article I am going to give several easy to use marketing theories that you can apply to your business. I did some research and selected five marketing theories that I think are practical to apply to a (small) business.  These theories will help you determine where your product or service stands and how to market it properly.

The five easy to apply marketing theories are:

  1. The Ansoff Matrix
  2. The BCG Growth Matrix
  3. The Marketing Mix
  4. STP Marketing Model
  5. Porter’s Generic Strategies

Let’s now have a closer look at each of these marketing theories and talk about how to apply them.

Marketing Theory #1: The Ansoff Matrix

The Ansoff Matrix is a marketing tool developed by Igor Ansoff, a Russian-American mathematician & strategist. He developed a tool for companies to analyze and plan a strategy for growth. The matrix shows four different strategies to grow. Additionally the matrix mentions the risks that are associated with each growth strategy. It is one of the most widely used marketing theories and I think it can easily be applied to small businesses. Let’s have a look at the matrix:

Ansoff Matrix

As you can see, the Ansoff Matrix consists of 4 quadrants, each representing a different growth strategy:

Growth Strategy 1: Market Penetration. This growth strategy focuses on increasing sales in an existing market with existing products. If the product doesn’t change, and the market also stays the same, how can sales be increased? The answer is: by increasing market share.

There are several ways in which a business can increase its market share. Some examples:

  1. Promoting its products / services to attract more customers
  2. Lowering prices (and thus attracting more customers
  3. Buying a competitor and taking its market share
  4. Loyalty programs to prevent customers from leaving

The market penetration strategy is the least risky strategy. However, higher risk strategies may have higher payoffs. Let’s look into the next growth strategy.

Growth Strategy 2: Market Development. This growth strategy aims to increase sales of existing products & services in new markets. Expanding into a new market can mean several things, such as geographic expansion (a new city, region or country), or a new customer segment.

The Market Development growth strategy has a higher risk than the market penetration strategy. After all, unknown territory brings uncertainties. As in life, in marketing it is always easier to stay in your comfort zone.

Growth Strategy 3: Product Development. This growth strategy aims to increase sales in an existing market with a new product of service. This could be the right strategy if you have extensive knowledge of one particular market. In that case, you have a good sense of what kind of products & services customers would be interested in.

You could either develop new products or services yourself, or look at what other competitors are offering.

Growth Strategy 4: Diversification. The fourth growth strategy focuses on increasing sales in new markets with new products or services.  It is the most difficult growth strategy because with this strategy, a company cannot fall back on its experience. Both the product and the market will be new.

This growth strategy could work if, for example, you have an idea for a great new product that the current market is not interested in.

Diversification is the most risky of growth strategies, but may have the highest rewards because it could open up a completely new revenue stream.

When to use the Ansoff Matrix for your business

For small businesses, the Ansoff Matrix is a great tool to investigate how you can grow your small business. It provides a structure for analysis that can help to organize your thoughts. Consequently it can lead to insights into how to build your business further. Where does your small business see opportunity for growth? Is any of the four strategies the best fit to your company & resources?

Marketing Theory #2: BCG Growth Matrix

The BCG Growth Matrix is a marketing theory developed by, unsurprisingly, the Boston Consulting Group. The BCG Matrix is a great tool to analyze the current product/services portfolio of a business. Similar to the Ansoff matrix, it looks at products in relation to the market. However, the BCG Matrix differs significantly from the Ansoff Matrix. While the Ansoff Matrix is focused on growth, the BCG Growth Matrix is used to analyze the performance of the currentproduct portfolio. I visualized the BCG Matrix below:

BCG Growth Matrix

The BCG Matrix divides products / services into four categories:

Stars: These are products that already have a high market share and still have a lot of room for growth. These are you best (most profitable) products.

Cash Cows: These are products that have a high market share, but there is not a lot of growth potential. However, currently you are making a load of money on these products, which is why they are called cash cows. Perhaps these cash cows used to be Stars in an earlier stage.

Question Marks: this category belongs to products that don’t have a lot of market share, but could have a lot of potential for growth. If this growth is realized, the question mark could become a star.

Dog: these products have low market share and there is little growth potential. You might want to get rid of these products sooner or later.

When to use the BCG Matrix for your business

The BCG Matrix is a great marketing tool to analyze your offerings. If helps to make a comparison between products. Which products are performing well and which ones are not? Are the products that have the most costs still worth it to be in my portfolio? The BCG Matrix also guides your promotional efforts. You want your marketing to be focused on products or services that have the most growth potential.

Marketing Theory #3: The Marketing Mix

The Marketing Mix is a theory that consists of 7 factors that an organization can use to develop a marketing strategy. It contains seven Ps:

Product, Price, Promotion, People, Process, Place, Physical evidence. Each of these 7 elements should be thought about when creating a marketing strategy. Let’s look at the seven Ps in more detail.

Marketing Mix

Product: The product (or service) should deliver what it promises. It should function well and live up to the expectations of customers. It is important to have a clear view of what the product or service looks like or should look like and if it fits the needs of customers/clients.

Price: The price of a product/service influences the perception a customer has of that product/service. The customer wants value for money. When setting a price, it is important to consider factors such as the cost price, fixed or variable pricing, and payment methods.

Promotion: When speaking about marketing, what many people usually mean is promotion. Advertising, Social media, flyers, commercials, PR, direct selling. While this is only one aspect of marketing, it should definitely be taking into account. Promotion entails activities to communicate with customers about your product/service and convince them to buy it.

People: all businesses are reliant on the people that work for them. It is important to know what people you need, which skills they should have and how you want them to represent the company. If you don’t have any personnel, think about yourself: Do you have the skills and knowledge you need? How are you behaving towards customers?

Process: Through which processes is the product/service delivered to the customer? Are these processes running smoothly or is there room for improvement? You can sell a high quality product or service, but if the processes to create and deliver the product are not up to standard or delayed, this can still lead to clients that are not satisfied.

Place: Location, location, location’. This element of the marketing mix refers to the distribution of the product/service to customers. How do you make it available to customers? You could have an office or store on Main Street, or deliver it to their houses. There are many possibilities.

Physical evidence: This pillar of the marketing mix does not refer to the product itself, but to the surroundings in which it is created and sold. Especially in today’s service oriented world, this is an important factor to think about. Since the quality of some services may be difficult for clients to review, other elements play a role as well.  For instance, think about a professional website, a dress code, the look of your invoices. These elements are things a client can actually see and have an opinion on.

When to use the Marketing Mix for your business

Marketing managers use it to implement a marketing strategy. For your own businesses, you could write down all 7 Ps, and think about whether your product or service is marketed in a way that fits all seven factors. Basically, you are analyzing your current marketing strategy or defining a new marketing strategy from seven different perspectives. By doing this, you make sure you take all factors into account. You won’t risk forgetting one or two of the seven elements.

Marketing Theory #4: STP Marketing Model

The STP Marketing Model is another theory that can help you to develop a marketing strategy. STP stands for Segmentation, Targeting and Positioning. It is a three step approach to communicate your products & services to customers.

STP Marketing Model

Segmentation: the first pillar of the STP model is all about dividing the market into separate customer groups: segments. Segmentation can be done based on geographic location (e.g. country or city) but also based on demographics (age, gender, etc. or behavioral characteristics such as a specific interest.

Targeting: The second step in the STP model is targeting. What you do in this step, is look at the different customer segments from step 1, and decide which one is the most attractive to you. Perhaps you only target one customer segment, but it is also possible that you target different groups. Ideally you want to target customer segments that are big enough to be profitable and with growth potential. You can also look at whether competitors are only targeting specific customer segments.

Positioning: the final step in the STP model ispositioning. In this step, you look at how you can stand out from your competitors.  What makes your product/service different from competition? And how do you communicate that to your target audience?

When to use the STP Marketing theory for your business

THE STP model is easy to apply to your own business. You could use it do develop a communication strategy with your target audience. Unlike some of the marketing theories we already discussed, this marketing theory does not really focus on the product/service. Instead, if focuses more on the target audience. This different perspective can give you valuable new insights.

Marketing Theory #5: Porter’s Generic Strategies

Porter’s Generic Strategies (named after creator Michael Porter) is a theory that describes different strategies through which a business can get a competitive advantage.

The four strategies determine in which direction a business should move. Although perhaps more a business strategy theory rather than a pure marketing theory, I still think it is a theory that can be used when thinking about marketing. Reason for this is that how your marketing should be organized depends on the strategy of your business. “

The strategies are categorized based on their market scope (broad or narrow) and the source if the competitive advantage (product or differentiation)

Porters Generic Strategies Matrix

Let’s dive into the four different strategies that Porter describes:

Cost leadership: Businesses with a cost leadership strategy focus on keeping costs as low as possible while delivering their products or services to customers. By focusing on reducing costs, this strategy could lead to high profits. Ryanair is an example of a company that has a cost leadership strategy.

Cost focus: having a cost focus strategy means that you apply a cost leadership strategy to a niche market. Operating in a niche market means that competition will be lower (but the market is obviously also smaller).

Differentiation: businesses with a differentiation strategy focus on standing out with their products/services. Instead of standing out with their price, these companies differentiate their offerings from their competition. This could be a fundamentally different product/service, or just a couple of different features. Apple is a company that has a differentiation strategy.

Differentiation focus: having a cost focus strategy means that you apply a differentiation strategy to a niche market.

When to use the Porter’s Generic Strategies for your business

Different businesses operate in markets in different ways. Each company has their own strategy. There is more than one road to Rome. Which strategy you choose for your business will influence many other choices that you will have to make. Because of that, it is important that you have a clear understanding of which of these strategies your businesses aims to pursue. Additionally, you could use Porter’s Generic Strategies to look at your market or industry and investigate your competition. Which strategies do your competitors have and how to they execute these strategies?

Do you want to read more about strategic tools and theories you can apply to your business? Check out the other articles here.

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