In this lesson, we will introduce you to the activities that comprise a firm’s marketing program. These activities are popularly referred to as the 4 Ps – product, price, place and promotion. After you work out this lesson, you should be able to:
- Understand the major product decisions in marketing planning
- Know the pricing objectives and the factors that influence the pricing decisions
- Appreciate the role of marketing channels and understand the important channel decisions to be taken
- Comprehend the Promotion Mix of marketing and the different elements in the promotion mix
- Learn how the 4 Ps combine to create effective marketing programs
In this lesson, we will discuss the following:
- The sub-elements of each of the 4 Ps of marketing
- Marketing programs
- Product management decisions
- Channel management
- Marketing communications
- Pricing basis, objectives and approaches
After marketers select a target market, they direct their activities towards profitably satisfying that segment. Although they must manipulate many variables to reach this goal, marketing decision making can be divided into four areas: product, price, place (distribution) and promotion (marketing communication). The total package forms the marketing mix – the blending of the four elements to fit the needs and preferences of a specific target market.
These are the four variables that a marketer can use in different combinations to create value for customers. Several of the sub-elements in each of the four Ps that constitute the marketing mix are listed in the following table.
|Elements of the Marketing Mix||Sub-Elements|
|Place (distribution channels)||
A marketing program is made up of the various elements of the marketing mix and the relationships among them. The concept of the marketing mix emphasizes the fit of the various pieces and the quality and size of their interactions. There are three degrees of interaction – consistency, integration and leverage.
Consistency is the lack of a poor fit between two or more elements of the marketing mix. For example, to sell a high quality product through a low quality retailer would seem inconsistent. While consistency is the lack of a poor fit, integration is the presence of a positive, harmonious interaction among the elements of the mix.
For example, heavy advertising can sometimes be harmonious with a high price, because the added margin from the high price pays for the advertising and the high advertising creates the brand differentiation that justifies the high price.
Leverage is the situation in which each individual element of the mix is used to the best advantage in support of the total mix.
Once the elements of the marketing mix have met the internal tests of consistency, integration and leverage, the next step is to check that the proposed program fits the needs of the target customers, the core competencies of the company and the likely responses of key competitors.
The concept of program/customer fit encompasses development of a marketing program that fits the needs of the target-market segments. For that, the market must first be carefully and explicitly delineated. If the target has not been defined, it cannot be reached! The program must not only fit the market, but also fit the company. A marketing program must match the core competencies of the company that is implementing it.
For example, an organization with extensive mass advertising experience and expertise is more likely to be able to carry out a program that leans heavily on advertising than an organization less strong in that particular area. An effective marketing program must not only fit the company’s own core competencies, it must also take account of competitors’
Competitive/program fit can be defined as the characteristic of a marketing program that, while building on a company’s strengths and shielding its weaknesses, protects it from competitors by capitalizing on their weaknesses, in the process creating a unique market personality and position.
Like most concepts, the marketing mix is an abstraction and real marketing programs do not always fit perfectly the product, price, place and promotion paradigm.
In fact, several parts of the mix fall at the interface of two elements. For example, brand, which is often views as an aspect of product, is clearly also part of marketing communications and can serve to help coordinate product policy and communication.
Product Management Decisions
Product decisions start with an understanding of what a product is, viz., the product offering is not the thing itself, but rather the total package of benefits obtained by the customer. This is called as the total product concept. For example, a watch from Rediff.com is not just a watch but one shipped within 24 hours of order and unconditionally guaranteed. This broad conception of a ‘product’ is key to seeing possible points of differentiation from competitors. The following chart illustrates the total product concept.
The ‘generic’ product is no longer sought (leave alone bought!) by the customers. It merely represents customer need fulfillment. The expected product represents the customers’ minimal purchase conditions. When such customer expectations are met, it leads to customer satisfaction. The augmented product represents the customers’ wishlist.
It leads to customer delight. Beyond the augmented product, lies the potential product which represents all that this product can become in the future. It represents the customers’ dream.
Product line depth: How many types of a given product?
Individual item decisions: decisions on individual items need to be considered within the context of the firm’s full product line due to item interrelationships. At the individual item level, decisions to be made are whether to undertake efforts to delete an item from the line (pruning), reposition an existing product within the line (balancing), improve the performance of an existing product to strengthen its positioning (modernization), introduce a new product within an existing line (filling) and introduce a product to establish a new line (extension). The assortment of product lines and individual product
offerings is called as the product mix.
A proactive approach to new product development follows some form of a sequential process, for example:
- opportunity identification
- product introduction and
- life cycle management.
In the opportunity identification stage, the firm identifies a customer problem that it can solve. In addition it identifies the concept for a product through idea generation and screening initiatives. The next two stages, design and testing are linked in an iterative process.
The firm must first embody the product idea in a concept statement which is tested via presentation to potential customers. After the firm has settled on the product and a supporting plan, it reaches product introduction. Decisions at this stage involve the geographic markets to which the product will be introduced and whether markets will be
approached at the same time or sequentially over time. After introduction, a process of Product Life Cycle Management begins. The Life Cycle stages are introduction, growth, maturity and decline. The marketing objectives vary across these stages – so do the sales, profits and costs. The marketing mix also changes from stage to stage.
The first P of marketing, namely, the product also looks at how firms build and maintain identity and competitive advantage for their products through branding.
Functions like packaging and labeling also perform specific functions within the ambit of product management.
Place (Channel Management)
The marketing channel is the set of mechanisms or network via which a firm ‘goes to market’ or is ‘in touch’ with its customers for a variety of tasks ranging from demand generation to physical delivery of the goods. The customer’s requirements for effective support determine the functions which the members of the channel must collectively provide.
Eight generic channel functions can be identified, viz.,
- Product information
- Product customization
- Product quality assurance
- Lot size (e.g. the ability to buy in small quantities)
- Product assortment (refers to breadth, length and width of product lines)
- After-sale service
Marketers develop channels and formulate distribution plans to ensure that consumers find their products available in the proper quantities at the right times and places. Distribution decisions involve transportation, warehousing, inventory control, order processing and selection of marketing channels. Marketing channels are made up of institutions such as wholesalers and retailers – all those involved in a product’s movement from producer to final consumer.
The two major decisions in channels are:
- Channel design – which involves both a length and breadth issue,
- Channel management – what policies and procedures will be used to have the necessary functions performed by various parties
An important point with respect to channel design is that while there are options about whether a particular institution (e.g. a distributor) is included in the channel or not, the setting implicates specific tasks which need to be accomplished by someone in the channel. One can eliminate a layer in the chain but not the tasks that layer performed.
Promotion (Marketing Communications)
The next element of the marketing mix is deciding the appropriate set of ways in which to communicate with customers to foster their awareness of the product, knowledge about its features, interest in purchasing, likelihood of trying the product and/or repeat purchasing it. Effective marketing requires an integrated communications plan combining both personal selling efforts and non-personal ones such as advertising, sales promotion, direct marketing and public relations. Put together, they are referred to as the promotion mix.
A useful mnemonic for the tasks in planning communications strategy is the 6 Ms model:
- Market – to whom is the communication to be addressed?
- Mission – what is the objective of the communication?
- Message – what are the specific points to be communicated?
- Media – which vehicles will be used to convey the message?
- Money – how much will be spent in the effort?
- Measurement – how will impact be assessed after the campaign?
The marketing communications or promotions mix is potentially extensive – including non-personal elements as well as personal selling. The popular non-personal vehicles are advertising, sales promotion and public relations.
Advertising in media is particularly effective in
- Creating awareness of a new product
- Describing features of the product
- Suggesting usage situations
- Distinguishing the product from competitors
- Directing buyers to the point-of-purchase
- Creating or enhancing a brand image
Advertising is limited in its ability to actually close the sale and make a transaction happen. Sales promotions may be an effective device to complement the favourable attitude development for which advertising is appropriate. One trend in advertising is the movement to more precisely targeted media vehicles. Direct marketing to households or email marketing to individuals are just instances of this trend.
Sales promotion includes things such as samples, coupons and contests. These are usually most effective when used as a short-term inducement to generate action. The three major types of sales promotion are:
- consumer promotions – used by a manufacturer and addressed to the end consumer
- trade promotions – used by the manufacturer and addressed to the trade partners
- retail promotions – used by the trade partners and addressed to the end consumer
Public relations refers to non-paid communication efforts, such as press releases. These efforts do entail a cost to the firm, but generally are distinguished from advertising by virtue of the fact that the firm does not pay for space in the media vehicle itself.
Personal selling as the communication vehicle presents the advantage of permitting an interaction to take place between the firm and a potential customer rather than just the broadcast of information. The importance of personal selling in the promotions mix typically increases with the complexity of the product and the need for education of potential customers.
The proper allocation of budget across the various media vehicles varies greatly depending upon the market situation. A fundamental decision is whether to focus on a ‘push’ or ‘pull’ strategy. In a push strategy, focus is on inducing intermediaries, such as a retailer, to sell the product at retail. Advertising’s job may be to make the consumer aware of the product, but the closing of the deal is left to the intermediary.
Alternatively, a pull strategy means the end consumer develops such an insistence on the product that he or she ‘pulls’ it through the channel of distribution, and the retailer’s role is merely to make the product conveniently available.
Pricing Basis, Objectives and Approaches
One of the most difficult areas of marketing decision making, pricing, deals with the methods of setting profitable and justifiable prices. It is closely regulated and subject to considerable public scrutiny. In comparison to the other 3 Ps – product, place and promotion - of marketing mix, the price element is the only revenue element whereas the others are cost elements.
Also, this is the element which can be easily copied. To a large extent, the combination of the 3 Ps determine the target customer’s perception of the value of the firm’s product in a given competitive context. Conceptually, this perceived value represents the maximum price which the customer is willing to pay. This should be the primary guide to pricing the product. Once the firm has created value for customers, it is entitled to capture some of that value for itself to fund future value-creation efforts. This is the role of effective pricing.
Pricing Basis and Objective
In most situations, cost should act as a floor on pricing. In some circumstances, a firm intentionally sells at a loss for a time to establish a position in the market, but it is often difficult to increase prices later due to the customer’s use of the introductory price as a reference point. With perceived value in mind, the first question is what is the marketing objective and how does the pricing objective derive from that?
For example, the price that would maximize short-term profit is typically higher than the one which would maximize market penetration subject even to making some profit on each item. It can be described as a choice between a ‘skim’ and ‘penetration’ pricing strategy.
In a skim strategy, the focus is on those consumers with high value.
Starting with a high price and targeting a segment that is willing to pay this price, skimming happens. Later on, prices are reduced to reach the segments below. In penetration pricing, the firm sets a lower price to generate lots of sales quickly. It is designed to preempt competition and gain a significant number of customers early on.
The appeal of a penetration strategy increases to the extent that:
- customers are sensitive to price,
- economies of scale are important,
- adequate production capacity is available,
- there is a threat of competition.
Since customers typically place different values on the product, the firm should consider whether it is worth trying to capitalize on these value variations by charging different customers different prices. In some cases, legal constraints and logistical practicalities can make this infeasible.
However many firms owe their economic wellbeing to their ability to customize prices. In many cases, for example, prices are varied depending on when the buyer is booking, for how long, for what days of week and so on.
These characteristics are used as indicators of the value the customer places on the product. Price customization can be achieved by:
- developing a product line – e.g. developing ‘economy’ versions of the product
- controlling the availability of lower prices – e.g. select availability in certain stores
- varying prices based on observable buyer characteristics – e.g. new vs. existing customers
- varying prices based on observable characteristics of the transaction – e.g. purchase volume
Another pricing approach is product life cycle pricing in which different prices are charged at different stages of the product’s life cycle. Since the marketing objective and the cost structure various across the stages, the pricing approach also varies.
While product marketing mix consists of the 4 Ps, services marketing brings in additional 3 Ps into an extended marketing mix. The additional 3 Ps – People, Process and Physical evidence – are necessitated by the characteristics of the services. While products are tangible, services are intangible. While products can be manufactured and inventoried, production and consumption take place at the same time and hence are inseparable.
While products can be standardized, services cannot be – thanks to the human interaction in service delivery. The perceived quality of service depends on who provides it, when and where it is provided and also to whom it is provided. Because of this, the heterogeneity in services throws a quality challenge.
Finally, the services are perishable – so managing the demand and supply is crucial. Because of these characteristics of services, viz., intangibility, inseparability, heterogeneity and perishability, there is a need for industrializing and standardizing the services (Process), tangibilize the intangibles (through Physical evidence) and managing the service personnel (People) who are part of the service. The sub-elements of these additional 3 Ps are:
|Additional 3 Ps in Services Marketing||Sub-Elements|