Marketing mix consists of elements like product, price, place and promotion, which are part of the tactical marketing plan.
A.Price
There are many ways to price a product. The following are strategies used to set price for product or service.
Premium Pricing.
Use a high price where there is a uniqueness about the product or service. This approach is used where a a substantial competitive advantage exists. Such high prices are charge for luxuries such as JW Merriot, Ferrari sports car and QE2 cruise.
Penetration Pricing.
The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by companies offering new products.
Economy Pricing.
This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands such as house brand like Tesco Choice.
Price Skimming.
Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply.
Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing.
Psychological Pricing.
This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'free airline seats or huge discount on second purchase.
Product Line Pricing.
Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.
Optional Product Pricing.
Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.
Captive Product Pricing.
Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.
Product Bundle Pricing.
Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.
Promotional Pricing.
Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).
Geographical Pricing.
Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.
Value Pricing.
This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.
B.Product
For many a product is simply the tangible, phsysical entity that they may be buying or selling. You buy a new car and that's the product.
The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).
The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products or services that customers NEED throughout their lives.
Strategies for the differing stages of the Product Life Cycle.
Introduction.
The need for immediate profit is not a pressure. The product is promoted to create awareness. If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution.
Growth.
Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilise.
Maturity.
Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilise. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and use a greater variety of media.
Decline.
At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.
For many a product is simply the tangible, phsysical entity that they may be buying or selling. You buy a new car and that's the product - simple! Or maybe not. When you buy a car, is the product more complex than you first thought? In order to actively explore the nature of a product further, lets consider it as three different products - the CORE product, the ACTUAL product, and finally the AUGMENTED product.
The CORE product is NOT the tangible, physical product. You can't touch it. That's because the core product is the BENEFIT of the product that makes it valuable to you. So with the car example, the benefit is convenience i.e. the ease at which you can go where you like, when you want to. Another core benefit is speed since you can travel around relatively quickly.
The ACTUAL product is the tangible, physical product. You can get some use out of it. Again with the car example, it is the vehicle that you test drive, buy and then collect.
The AUGMENTED product is the non-physical part of the product. It usually consists of lots of added value, for which you may or may not pay a premium. So when you buy a car, part of the augmented product would be the warranty, the customer service support offered by the car's manufacture, and any after-sales service.
C.Place
Another element of marketing mix is Place. Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer.
There are six basic 'channel' decisions:
Do we use direct or indirect channels? (e.g. 'direct' to a consumer, 'indirect' via a wholesaler).
Single or multiple channels.
Cumulative length of the multiple channels.
Types of intermediary (see later).
Number of intermediaries at each level (e.g. how many retailers in Southern Spain).
Which companies as intermediaries to avoid 'intrachannel conflict' (i.e. infighting between local distributors).
Selection Consideration - how do we decide upon a distributor?
Market segment - the distributor must be familiar with your target consumer and segment.
Changes during the product life cycle - different channels can be exploited at different points in the PLC e.g. Foldaway scooters are now available everywhere. Once they were sold via a few specific stores.
Producer - distributor fit - Is there a match between their polices, strategies, image, and yours? Look for 'synergy'.
Qualification assessment - establish the experience and track record of your intermediary.
Types of Channel Intermediaries.
There are many types of intermediaries such as wholesalers, agents, retailers, the Internet, overseas distributors, direct marketing (from manufacturer to user without an intermediary), and many others. The main modes of distribution will be looked at in more detail.
1. Channel Intermediaries - Wholesalers
They break down 'bulk' into smaller packages for resale by a retailer.
They buy from producers and resell to retailers. They take ownership or 'title' to goods whereas agents do not (see below).
They provide storage facilities. For example, cheese manufacturers seldom wait for their product to mature. They sell on to a wholesaler that will store it and eventually resell to a retailer.
Wholesalers offer reduce the physical contact cost between the producer and consumer e.g. customer service costs, or sales force costs.
A wholesaler will often take on the some of the marketing responsibilities. Many produce their own brochures and use their own telesales operations.
2. Channel Intermediaries - Agents
Agents are mainly used in international markets.
An agent will typically secure an order for a producer and will take a commission. They do not tend to take title to the goods. This means that capital is not tied up in goods. However, a 'stockist agent' will hold consignment stock (i.e. will store the stock, but the title will remain with the producer. This approach is used where goods need to get into a market soon after the order is placed e.g. foodstuffs).
Agents can be very expensive to train. They are difficult to keep control of due to the physical distances involved. They are difficult to motivate.
3. Channel Intermediaries - Retailers
Retailers will have a much stronger personal relationship with the consumer.
The retailer will hold several other brands and products. A consumer will expect to be exposed to many products.
Retailers will often offer credit to the customer e.g. electrical wholesalers, or travel agents.
Products and services are promoted and merchandised by the retailer.
The retailer will give the final selling price to the product.
Retailers often have a strong 'brand' themselves e.g. Ross and Wall-Mart in the USA, and Alisuper, Modelo, and Jumbo in Portugal.
4. Channel Intermediaries - Internet
The Internet has a geographically disperse market.
The main benefit of the Internet is that niche products reach a wider audience e.g. Scottish Salmon direct from an Inverness fishery.
There are low barriers low barriers to entry as set up costs are low.
Use e-commerce technology (for payment, shopping software, etc)
There is a paradigm shift in commerce and consumption which benefits distribution via the Internet
D.Promotion.
Another one of the 4P's is 'promotion'. Products or services offered must be communicated to the target consumers in the right target markets. There are various communication tools available to communicate with the target consumers.
The elements of the promotions mix are:
- Personal Selling.
- Sales Promotion.
- Public Relations.
- Direct Mail.
- Trade Fairs and Exhibitions.
- Advertising.
- Sponsorship.
The elements of the promotions mix are integrated to form a coherent campaign. As with all forms of communication. The message from the marketer follows the 'communications process' as illustrated above. For example, a radio advert is made for a car manufacturer. The car manufacturer (sender) pays for a specific advert with contains a message specific to a target audience (encoding). It is transmitted during a set of commercials from a radio station (Message / media).
The message is decoded by a car radio (decoding) and the target consumer interprets the message (receiver). He or she might visit a dealership or seek further information from a web site (Response). The consumer might buy a car or express an interest or dislike (feedback). This information will inform future elements of an integrated promotional campaign. Perhaps a direct mail campaign would push the consumer to the point of purchase. Noise represent the thousand of marketing communications that a consumer is exposed to everyday, all competing for attention.
The Promotions Mix.
Let us look at the individual components of the promotions mix in more detail. Remember all of the elements are 'integrated' to form a specific communications campaign.
1. Personal Selling.
Personal Selling is an effective way to manage personal customer relationships. The sales person acts on behalf of the organization. They tend to be well trained in the approaches and techniques of personal selling. However sales people are very expensive and should only be used where there is a genuine return on investment. For example salesmen are often used to sell cars or home improvements where the margin is high.
2. Sales Promotion.
Sales promotion tend to be thought of as being all promotions apart from advertising, personal selling, and public relations. For example the BOGOF promotion, or Buy One Get One Free. Others include couponing, money-off promotions, competitions, free accessories (such as free blades with a new razor), introductory offers (such as buy digital TV and get free installation), and so on. Each sales promotion should be carefully costed and compared with the next best alternative.
3. Public Relations (PR).
Public Relations is defined as 'the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organization and its publics' (Institute of Public Relations). It is relatively cheap, but certainly not cheap. Successful strategies tend to be long-term and plan for all eventualities. All airlines exploit PR; just watch what happens when there is a disaster. The pre-planned PR machine clicks in very quickly with a very effective rehearsed plan.
4. Direct Mail.
Direct mail is very highly focussed upon targeting consumers based upon a database. As with all marketing, the potential consumer is 'defined' based upon a series of attributes and similarities. Creative agencies work with marketers to design a highly focussed communication in the form of a mailing. The mail is sent out to the potential consumers and responses are carefully monitored. For example, if you are marketing medical text books, you would use a database of doctors' surgeries as the basis of your mail shot.
5. Trade Fairs and Exhibitions.
Such approaches are very good for making new contacts and renewing old ones. Companies will seldom sell much at such events. The purpose is to increase awareness and to encourage trial. They offer the opportunity for companies to meet with both the trade and the consumer. Expo has recently finish in Germany with the next one planned for Japan in 2005, despite a recent decline in interest in such events.
6. Advertising.
Advertising is a 'paid for' communication. It is used to develop attitudes, create awareness, and transmit information in order to gain a response from the target market. There are many advertising 'media' such as newspapers (local, national, free, trade), magazines and journals, television (local, national, terrestrial, satellite) cinema, outdoor advertising (such as posters, bus sides).
7. Sponsorship.
Sponsorship is where an organization pays to be associated with a particular event, cause or image. Companies will sponsor sports events such as the Olympics or Formula One. The attributes of the event are then associated with the sponsoring organization.
The elements of the promotional mix are then integrated to form a unique, but coherent campaign.
Apart from the marketing mix that consists of product, price, place and promotion, some authors will increase the marketing mix to the Five P's, to include people. Others may increase the mix to Seven P's, to include physical evidence(such as uniforms and facilities) and process (i.e. the whole customer experience e.g. a visit the London Bridge).
E.Physical evidence
Physical evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so a consumer tends to rely on material cues. There are many examples of physical evidence, including some of the following:
Packaging.
Internet/web pages.
Paperwork (such as invoices, tickets and despatch notes).
Brochures.
Furnishings.
Signage (such as those on aircraft and vehicles).
Uniforms.
Business cards.
The building itself
Some organisations depend heavily upon physical evidence as a means of marketing communications, for example tourism attractions and resorts (e.g. Disney World), parcel and mail services (e.g. UPS trucks), and large banks and insurance companies (e.g. Lloyds of London).
F.People
People are the most important element of any service or experience. Services tend to be produced and consumed at the same moment, and aspects of the customer experience are altered to meet the 'individual needs' of the person consuming it. Most of us can think of a situation where the personal service offered by individuals has made or tainted a tour, vacation or restaurant meal. Remember, people buy from people that they like, so the attitude, skills and appearance of all staff need to be first class. Here are some ways in which people add value to an experience, as part of the marketing mix - training, personal selling and customer service.
Training.
All customer facing personnel need to be trained and developed to maintain a high quality of personal service. Training should begin as soon as the individual starts working for an organization during an induction. The induction will involve the person in the organization's culture for the first time, as well as briefing him or her on day-to-day policies and procedures. At this very early stage the training needs of the individual are identified. A training and development plan is constructed for the individual which sets out personal goals that can be linked into future appraisals. In practice most training is either 'on-the-job' or 'off-the-job.' On-the-job training involves training whilst the job is being performed e.g. training of bar staff. Off-the-job training sees learning taking place at a college, training centre or conference facility. Attention needs to be paid to Continuing Professional Development (CPD) where employees see their professional learning as a lifelong process of training and development.
Personal Selling
There are different kinds of salesperson. There is the product delivery salesperson. His or her main task is to deliver the product, and selling is of less importance e.g. fast food, or mail. The second type is the order taker, and these may be either 'internal' or 'external.' The internal sales person would take an order by telephone, e-mail or over a counter. The external sales person would be working in the field. In both cases little selling is done. The next sort of sales person is the missionary.
Here, as with those missionaries that promote faith, the salesperson builds goodwill with customers with the longer-term aim of generating orders. Again, actually closing the sale is not of great importance at this early stage. The forth type is the technical salesperson, e.g. a technical sales engineer. Their in-depth knowledge supports them as they advise customers on the best purchase for their needs. Finally, there are creative sellers. Creative sellers work to persuade buyers to give them an order. This is tough selling, and tends to o ffer the biggest incentives. The skill is identifying the needs of a customer and persuading them that they need to satisfy their previously unidentified need by giving an order.
Customer Service
Many products, services and experiences are supported by customer services teams. Customer services provided expertise (e.g. on the selection of financial services), technical support(e.g. offering advice on IT and software) and coordinate the customer interface (e.g. controlling service engineers, or communicating with a salesman). The disposition and attitude of such people is vitally important to a company. The way in which a complaint is handled can mean the difference between retaining or losing a customer, or improving or ruining a company's reputation. Today, customer service can be face-to-face, over the telephone or using the Internet. People tend to buy from people that they like, and so effective customer service is vital. Customer services can add value by offering customers technical support and expertise and advice.
G.Process
Process is another element of the extended marketing mix, or 7P's.There are a number of perceptions of the concept of process within the business and marketing literature. Some see processes as a means to achieve an outcome, for example - to achieve a 30% market share a company implements a marketing planning process.
Another view is that marketing has a number of processes that integrate together to create an overall marketing process, for example - telemarketing and Internet marketing can be integrated. A further view is that marketing processes are used to control the marketing mix, i.e. processes that measure the achievement marketing objectives. All views are understandable, but not particularly customer focused.
For the purposes of the marketing mix, process is an element of service that sees the customer experiencing an organisation's offering. It's best viewed as something that your customer participates in at different points in time. Here are some examples to help your build a picture of marketing process, from the customer's point of view.
Going on a cruise - from the moment that you arrive at the dockside, you are greeted; your baggage is taken to your room. You have two weeks of services from restaurants and evening entertainment, to casinos and shopping. Finally, you arrive at your destination, and your baggage is delivered to you. This is a highly focused marketing process.
Booking a flight on the Internet - the process begins with you visiting an airline's website. You enter details of your flights and book them. Your ticket/booking reference arrive by e-mail or post. You catch your flight on time, and arrive refreshed at your destination. This is all part of the marketing process.
At each stage of the process, markets:
- Deliver value through all elements of the marketing mix. Process, physical evidence and people enhance services.
- Feedback can be taken and the mix can be altered.
- Customers are retained, and other serves or products are extended and marked to them.
- The process itself can be tailored to the needs of different individuals, experiencing a similar service at the same time.
- Processes essentially have inputs, throughputs and outputs (or outcomes). Marketing adds value to each of the stages.
