- Product
- Price
- Place (distribution)
- Promotion
These four P’s are the parameters that the marketing manager
can control, subject to the internal and external constraints of the marketing
environment. The goal is to order to create perceived value and generate a
positive response.
PRODUCT DECISIONS
The term “product” refers to tangible, physical products as
well as services. Here are some examples of the product decisions to be made:
- Brand Name
- Functionality
- Styling
- Quality
- Safety
- Packaging
- Repairs and Support
Product support is a service provided by many retailers
of various products, primarily electronics, that provides the end-user with a resource for
information regarding the product, and help if the product should malfunction. Product Support can be found in most manuals for
products in the form of a phone number, website address, or physical location. The Internet has
allowed for a new form of product support to develop. Some online communities have
developed to give support where manufacturer support is lacking.
PRICE DECISIONS
Competition Based Pricing
- Warranty
- Accessories and Services
PRICE DECISIONS
Some examples include:
- Pricing Strategy
Competition Based Pricing
- Setting the price based upon prices of the similar competitor products. Competitive pricing is based on three types of competitive product:
- Products have lasting distinctiveness from competitor's product. Here we can assume
- The product has low price elasticity.
- The product has low cross elasticity.
- The demand of the product will rise.
- Products have perishable distinctiveness from competitor's product, assuming the product features are medium distinctiveness.
- Products have little distinctiveness from competitor's product. assuming that:
- The product has high price elasticity.
- The product has some cross elasticity.
- No expectation that demand of the product will rise.
- · Competitive pricing is based on three types of competitive product:
DVD players, are
firstly dispatched into the market at a high price. This strategy is often used
to target "early adopters" of a product or service. These early
adopters are relatively less price-sensitive because either their need for the
product is more than others or they understand the value of the product better
than others. This strategy is employed only for a limited duration to recover
most of investment made to build the product. To gain further market share, a
seller must use other pricing tactics such as economy or penetration. This
method can come with some setbacks as it could leave the product at a high
price to competitors.
Limit Pricing
A limit price is the price set by a monopolist to discourage
economic entry into a market, and is illegal in many countries. The limit price
is the price that the entrant would face upon entering as long as the incumbent
firm did not decrease output. The limit price is often lower than the average
cost of production or just low enough to make entering not profitable. The
quantity produced by the incumbent firm to act as a deterrent to entry is
usually larger than would be optimal for a monopolist, but might still produce
higher economic profits than would be earned under perfect competition. The
problem with limit pricing as strategic behavior is that once the entrant has
entered the market, the quantity used as a threat to deter entry is no longer
the incumbent firms best response. This means that for limit pricing to be an
effective deterrent to entry, the threat must in some way be made credible. A
way to achieve this is for the incumbent firm to constrain itself to produce a
certain quantity whether entry occurs or not. An example of this would be if
the firm signed a union contract to employ a certain (high) level of labor for
a long period of time. Market Oriented Pricing.
Market Oriented Pricing
Setting a price based upon analysis and research compiled from the targeted market.
Penetration Pricing
The price is deliberately set at low level to gain customer's interest and establishing a foot-hold in the market
Loss Leader
Basic Concept In the majority of cases, this pricing strategy is illegal under EU and US Competition rules. No market leader would wish to sell below cost unless this is part of its overall strategy. The idea of selling at a loss may appear to be in the public interest and therefore not often challenged. Only when the leader pushes up prices, it then becomes suspicious. Loss leadership can be similar to predatory pricing or cross subsidization; both seen as anti-competitive practices.
Price Discrimination
Setting a different price for the same product in different segments to the market. For example, this can be for different ages or for different opening times, such as cinema tickets.
Premium Pricing
Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.
Predatory Pricing
Aggressive pricing intended to drive out competitors from a market. It is illegal in some places.
Contribution Margin Base Pricing
Contribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the product's price and variable costs (the product's contribution margin per unit), and on one’s assumptions regarding the relationship between the product’s price and the number of units that can be sold at that price. The product's contribution to total firm profit (i.e., to operating income) is maximized when a price is chosen that maximizes the following: (contribution margin per unit) X (number of units sold).
Psychological Pricing
Pricing designed to have a positive psychological impact. For example, selling a product at $3.95 or $3.99, rather than $4.
Dynamic Pricing
A flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies. By responding to market fluctuations or large amounts of data gathered from customers - ranging from where they live to what they buy to how much they have spent on past purchases - dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight.
Price Leadership
An observation made of oligopic business behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, the others soon following.
Target Pricing
Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like automobile manufacturers. Target pricing is not useful for companies whose capital investment is low because, according to this formula, the selling price will be understated. Also the target pricing method is not keyed to the demand for the product, and if the entire volume is not sold, a company might sustain an overall budgetary loss on the product
Absorption Pricing
Method of pricing in which all costs are recovered. The price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs. A form of cost plus pricing
High Low Pricing
Method of pricing for an organization where the goods or services offered by the organization are regularly priced higher than competitors, but through promotions, advertisements, and or coupons, lower prices are offered on key items. The lower promotional prices are targeted to bring customers to the organization where the customer is offered the promotional product as well as the regular higher priced products.
Premium Decoy Pricing
Method of pricing where an organisation artificially sets one product price high, in order to boost sales of a lower priced product.
Marginal Cost Pricing
In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor. Businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price to $1.10 if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.
- Suggested Retail Price
- Volume Discounts and Wholesale Pricing
Wholesale is the sale of goods, usually in quantity, for the purpose of resale to consumers. Wholesale is distinguished from retail, which is the direct sale of goods to the consumer.
- Cash and Early Payment Discounts
Typically, an early discount is a reduced amount offered for paying before a certain date. For instance, if you owe $100 to Joe's Crab Shack, they may offer an early discount of $5 for paying before the 25th of the month, reducing your bill to $95.
- Seasonal Pricing
- Bundling
Bundling is most successful when:
- There are economies of scale in production,
- There are economies of scope in distribution,
- Marginal costs of bundling are low.
- Production set-up costs are high,
- Customer acquisition costs are high.
- Consumers appreciate the resulting simplification of the purchase decision and benefit from the joint performance of the combined product.
- Consumers have heterogeneous demands and such demands for different parts of the bundle product are inversely correlated. For example, assume consumer A values word processor at $100 and spreadsheet processor at $60, while consumer B values word processor at $60 and spreadsheet at $100. Seller can generate maximum revenue of $240 by setting $60 price for each product - both consumers will buy both products. Revenue cannot be increased without bundling because as seller increases the price above $60 for one of the goods, one of the consumers will refuse to buy it. With bundling, seller can generate revenue of $320 by bundling the products together and selling the bundle at $160.
Product bundling is most suitable for high volume and high margin (low marginal cost) products. Research by Yannis Bakos and Erik Brynjolfssonfound that bundling was particularly effective for digital "information goods" with close to zero marginal cost, and could enable a bundler with an inferior collection of products to drive even superior quality goods out of the market place.
In oligopolistic and monopolistic industries, product bundling can be seen as an unfair use of market power because it limits the choices available to the consumer. In these cases it is typically called product tying.
Pure bundling occurs when a consumer can only purchase the entire bundle or nothing, mixed bundling occurs when consumers are offered a choice between the purchasing the entire bundle or one of the separate parts of the bundle.
Pure bundling can be further divided into two cases: in joint bundling, the two products are offered together for one bundled price, and, in leader bundling, a leader product is offered for discount if purchased with a non-leader product. Mixed-leader bundling is a variant of leader bundling with the added possibility of buying the leader product on its own.
Bundling in political economy is a type of product bundling in which the product is a candidate in an election who markets his bundle of attributes and positions to the voters.
In peer-to-peer swarming systems for content dissemination, such as BitTorrent, bundling consists of disseminating multiple files together in a single swarm. Empirical evidence and analytical models indicate that bundling improves content availability in those systems. Both pure and mixed bundling are supported by BitTorrent.
- Price Flexibility
- Price Discrimination
Price discrimination requires market segmentation and some means to discourage discount customers from becoming resellers and, by extension, competitors. This usually entails using one or more means of preventing any resale, keeping the different price groups separate, making price comparisons difficult, or restricting pricing information. The boundary set up by the marketer to keep segments separate are referred to as a rate fence. Price discrimination is thus very common in services, where resale is not possible; an example is student discounts at museums. Price discrimination in intellectual property is also enforced by law and by technology. In the market for DVDs, DVD players are designed - by law - with chips to prevent use of an inexpensive copy of the DVD (for example legally purchased in India) from being used in a higher price market (like the US). The Digital Millennium Copyright Act has provisions to outlaw circumventing of such devices to protect the enhanced monopoly profits that copyright holders can obtain from price discrimination against higher price market segments.
Price discrimination can also be seen where the requirement that goods be identical is relaxed. For example, so-called "premium products" (including relatively simple products, such as cappuccino compared to regular coffee) have a price differential that is not explained by the cost of production. Some economists have argued that this is a form of price discrimination exercised by providing a means for consumers to reveal their willingness to pay.
Refers to getting the goods to the customer and location, some of distribution decisions include:
- Distributions Channels
- Marketing Coverage (Inclusive, selective, or exclusive distribution)
Inclusive: Frequency distribution: A tabular arrangement of data showing the frequency of each observation is called a frequency distribution. Grouped frequency distribution: The presentation of grouped data in the form of a frequency table is termed as grouped frequency distribution.
Selective: Takes place when suppliers sell through a moderate number of retailers in specific geographical locations. This allows suppliers to have higher sales than in exclusive distribution and lets retailers carry some competing brands.
Exclusive: Takes place when suppliers enter into agreements with one or a few retailers that designate the latter as the only companies in specified geographic areas to carry certain brands and/or product lines.
- Inventory Management
In any business or organization, all functions are interlinked and connected to each other and are often overlapping. Some key aspects like supply chain management, logistics and inventory form the backbone of the business delivery function. Therefore these functions are extremely important to marketing managers as well as finance controllers.
Inventory management is a very important function that determines the health of the supply chain as well as the impacts the financial health of the balance sheet. Every organization constantly strives to maintain optimum inventory to be able to meet its requirements and avoid over or under inventory that can impact the financial figures.
Inventory is always dynamic. Inventory management requires constant and careful evaluation of external and internal factors and control through planning and review. Most of the organizations have a separate department or job function called inventory planners who continuously monitor, control and review inventory and interface with production, procurement and finance departments.
- Warehousing
Facility that is usually smaller than a firms main warehouse and is used for receipt, temporary storage, and redistribution of goods according to the customer orders as they are received. Also called branch warehouse or distribution center.
- Distribution Centers
The way a typical retail distribution network operates is to have centers set up throughout a commercial market. Each center will then serve a number of stores. Large distribution centers for companies such as Wal-Mart serve 50–125 stores. Suppliers will ship truckloads of products to the distribution center. The distribution center will then store the product until needed by the retail location and ship the proper quantity.
Since a large retailer might sell tens of thousands of products from thousands of vendors, it would be impossibly inefficient to ship each product directly from each vendor to each store. Many retailers own and run their own distribution networks, while smaller retailers may outsource this function to dedicated logistics firms that coordinate the distribution of products for a number of companies. A distribution center can be co-located at a logistics center.
In today's marketplace, many retailers treat merchandise returns as individual, disjointed transactions. "The challenge for retailers and vendors is to process returns at a proficiency level that allows quick, efficient and cost-effective collection and return of merchandise. Customer requirements facilitate demand for a high standard of service that includes accuracy and timeliness. It’s the logistic company's responsibility to shorten the link from return origination to the time of resell."By following returns management best practices, retailers can achieve a returns process that addresses both the operational and customer retention issues associated with merchandise returns. Further, because of the connection between reverse logistics and customer retention, it has become a key component within Service Lifecycle Management (SLM), a business strategy aimed at retaining customers by bundling even more coordination of a company's services data together to achieve greater efficiency in its operations. Reverse logistics is more than just returns management, it is "activities related to returns avoidance, gatekeeping, disposal and all other after-market supply chain issues". Returns management – increasingly being recognized as affecting competitive positioning – provides an important link between marketing and logistics.
PROMOTION DECISIONS
As it pertains to the marketing mix, promotion represents the various aspects of integrated marketing communication, that is, the communication of information about the product with the goal of generating a positive a positive customer response.
- Order Processing
A key element of Order fulfillment."Order processing" is the term generally used to describe the process or the work flow associated with the picking, packing and delivery of the packed item(s) to a shipping carrier. The specific "order fulfillment process" or the operational procedures of distribution centers are determined by many factors. Each distribution center has its own unique requirements or priorities. There is no "one size fits all" process that universally provides the most efficient operation. Some of the factors that determine the specific process flow of a distribution center are:
- The nature of the shipped product - shipping eggs and shipping shirts can require differing fulfillment processes
- The nature of the orders - the number of differing items and quantities of each item in orders
- The nature of the shipping packaging - cases, totes, envelopes, pallets can create process variations
- Shipping costs - consolidation of orders, shipping pre-sort can change processing operations
- Availability and cost and productivity of workforce - can create trade-off decisions in automation and manual processing operations
- Timeliness of shipment windows - when shipments need to be completed based on carriers can create processing variations
- Availability of capital expenditure dollars - influence on manual verses automated process decisions and longer term benefits
- Value of product shipped - the ratio of the value of the shipped product and the order fulfillment cost
- Seasonality variations in outbound volume - amount and duration of seasonal peaks and valleys of outbound volume
- Predictability of future volume, product and order profiles -
- Predictability of distribution network - whether or not the network itself is going to change
The effect of Globalization has immense impacts on much of the order fulfillment but its impact is felt most in transportation and distribution.
- Transportation
A broad industry sector responsible for managing the flow of goods, information, and people between a point of origin and a point of consumption in order to meet the requirements of consumers. Major sub-sectors within the industry include air, rail, water, and truck transportation, urban transit and ground passenger transportation, warehousing and storage, and motor vehicle repair.
- Reverse Logistics
Reverse logistics stands for all operations related to the reuse of products and materials. It is "the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Re-manufacturing and refurbishing activities also may be included in the definition of reverse logistics."The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer.
PROMOTION DECISIONS
As it pertains to the marketing mix, promotion represents the various aspects of integrated marketing communication, that is, the communication of information about the product with the goal of generating a positive a positive customer response.
- Promotional Strategy (push, pull, etc)
- Advertising
A form of communication intended to persuade an audience (viewers, readers or listeners) to purchase or take some action upon products, ideas, or services. It includes the name of a product or service and how that product or service could benefit the consumer, to persuade a target market to purchase or to consume that particular brand. These messages are usually paid for by sponsors and viewed via various media.
Advertising can also serve to communicate an idea to a large number of people in an attempt to convince them to take a certain action.
Commercial advertisers often seek to generate increased consumption of their products or services through branding, which involves the repetition of an image or product name in an effort to associate related qualities with the brand in the minds of consumers. Non-commercial advertisers who spend money to advertise items other than a consumer product or service include political parties, interest groups, religious organizations and governmental agencies. Nonprofit organizations may rely on free modes of persuasion, such as a public service announcement.
Modern advertising developed with the rise of mass production in the late 19th and early 20th centuries. Mass media can be defined as any media meant to reach a mass amount of people. Different types of media can be used to deliver these messages, including traditional media such as newspapers, magazines, television, radio, outdoor or direct mail; or new media such as websites and text messages.
In 2010, spending on advertising was estimated at more than $300 billion in the United States and $500 billion worldwide.
Internationally, the largest ("big four") advertising conglomerates are Interpublic, Omnicom, Publicis, and WPP.
- Hierarchy of effects model
- Awareness
- Knowledge
- Liking
- Preference
- Conviction
- The actual purchase
- Means-End Theory
- Leverage Points
- Verbal and Visual Images
- Personal Selling and Sales Force
Sales force management systems are information systems used in crm marketing and management that help automate some sales and sales force management functions. They are frequently combined with a Marketing Information System, in which case they are often called Customer Relationship Management (CRM) systems.
Sales force management systems are essentially the same thing as Sales Force Automation System (SFA). SFA systems are a type of program that automates business tasks such as inventory control, sales processing, and tracking of customer interactions, as well as analyzing sales forecasts and performance. Businesses may have a custom version developed specifically for their needs, or choose from among the increasing number of sales automation software products, such as Interact Commerce's ACT! and GoldMine Software's GoldMine. Sales automation software is sometimes called sales automation software, and sometimes called customer relations management ( CRM ) software.
A SFA, typically a part of a company’s customer relationship management system, is a system that automatically records all the stages in a sales process. SFA includes a contact management system which tracks all contact that has been made with a given customer, the purpose of the contact, and any follow up that might be required. This ensures that sales efforts are not duplicated, reducing the risk of irritating customers. SFA also includes a sales lead tracking system, which lists potential customers through paid phone lists, or customers of related products. Other elements of an SFA system can include sales forecasting, order management and product knowledge. More developed SFA systems have features where customers can actually model the product to meet their required needs through online product building systems. This is becoming more and more popular in the automobile industry, where patrons can customize various features such as color and interior features such as leather vs. upholstered seats.
An integral part of any SFA system is company wide integration among different departments. If SFA systems aren’t adopted and properly integrated to all departments, there might be a lack of communication which could result in different departments contacting the same customer for the same purpose. In order to mitigate this risk, SFA must be fully integrated in all departments that deal with customer service management.
Making a dynamic sales force links strategy and operational actions that can take place within a department. the SFA relies upon objectives, plans, budget, and control indicators under specific conditions. In order to perform the objectives correctly specific procedures must be implemented.
- Sales Promotions
- Public Relations and Publicity
An earlier definition of public relations, by The first World Assembly of Public Relations Associations held in Mexico City in August 1978, was "the art and social science of analyzing trends, predicting their consequences, counseling organizational leaders, and implementing planned programs of action, which will serve both the organization and the public interest."
Others define it as the practice of managing communication between an organization and its publics. Public relations provides an organization or individual exposure to their audiences using topics of public interest and news items that provide a third-party endorsement and do not direct payment. Once common activities include speaking at conferences, working with the media, crisis communications and social media engagement, and employee communication.
The European view of public relations notes that besides a relational form of interactivity there is also a reflective paradigm that is concerned with publics and the public sphere; not only with relational, which can in principle be private, but also with public consequences of organizational behaviour. A much broader view of neo-ubiquitous interactive communication using the Internet, as outlined by Phillips and Young in Online Public Relations Second Edition (2009), describes the form and nature of Internet-mediated public relations. It encompasses social media and other channels for communication and many platforms for communication such as personal computers (PCs), mobile phones and video game consoles with Internet access.
Public relations is used to build rapport with employees, customers, investors, voters, or the general public. Almost any organization that has a stake in how it is portrayed in the public arena employs some level of public relations. There are a number of public relations disciplines falling under the banner of corporate communications, such as analyst relations, media relations, investor relations, internal communications and labor relations.
Other public relations disciplines include:
- Financial public relations - providing information mainly to business reporters
- Consumer/lifestyle public relations - gaining publicity for a particular product or service, rather than using advertising
- Crisis public relations - responding to negative accusations or information
- Industry relations - providing information to trade bodies
- Government relations - engaging government departments to influence policy making.
From a marketing perspective, publicity is one component of promotion which is one component of marketing. The other elements of the promotional mix are advertising, sales promotion, and personal selling. Promotion But the publicist cannot wait around for the news to present opportunities. They must also try to create their own news. Examples of this include:
- Art exhibitions
- Event sponsorship
- Arrange a speech or talk
- Make an analysis or prediction
- Conduct a poll or survey
- Issue a report
- Take a stand on a controversial subject
- Arrange for a testimonial
- Announce an appointment
- Invent then present an award
- Stage a debate
- Organize a tour of your business or projects
- Issue a commendation
Publicity draws on several key themes including birth, love, and death. These are of particular interest because they are themes in human lives which feature heavily throughout life. In television serials several couples have emerged during crucial ratings and important publicity times, as a way to make constant headlines. Also known as a publicity stunt, the pairings may or may not be according to the fact.
LIMITATIONS
- Marketing Communications Budget
Those who practice advertising, branding, brand language, direct marketing, graphic design, marketing, packaging, promotion, publicity,sponsorship, public relations, sales, sales promotion and online marketing are termed marketing communicators, marketing communication managers, or more briefly, marcom managers.
The communication process is sender-encoding-transmission device-decoding-receiver, which is part of any advertising or marketing program. Encoding the message is the second step in communication process, which takes a creative idea and transforms it into attention-getting advertisements designed for various media (television, radio, magazines, and others). Messages travel to audiences through various transmission devices. The third stage of the marketing communication process occurs when a channel or medium delivers the message. Decoding occurs when the message reaches one or more of the receiver's senses. Consumers both hear and see television ads. Others consumers handle (touch) and read (see) a coupon offer. One obstacle that prevents marketing messages from being efficient and effective is called barrier. Barrier is anything that distorts or disrupts a message. It can occurs at any stage in the communication process. The most common form of noise affecting marketing communication is clutter.
Traditionally, marketing communications practitioners focused on the creation and execution of printed marketing collateral; however, academic and professional research developed the practice to use strategic elements of branding and marketing in order to ensure consistency of message delivery throughout an organization - a consistent "look & feel". Many trends in business can be attributed to marketing communications; for example: the transition from customer service to customer relations, and the transition from human resources to human solutions and the trends to blogs, email, and other online communication derived from an elevator pitch.
In branding, every opportunity to impress the organization's (or the individuals) brand upon the customer is called a brand touch point (or brand contact point.) Examples include everything from TV and other media advertisements, event sponsorships, webinars, and personal selling to even product packaging. Thus, every experiential opportunity that an organization creates for its stakeholders or customers is a brand touch point. Hence, it is vitally important for brand strategists and managers to survey all of their organization's brand touch points and control for the stake holder's or customer's experience. Marketing communications, as a vehicle of an organization's brand management, is concerned with the promotion of an organization's brand, product(s) and/or service(s) to stakeholders and prospective customers through these touch points.
Marketing communications is focused on the product/service as opposed to corporate communications where the focus of communications work is the company/enterprise itself. Marketing communications is primarily concerned with demand generation, product/service positioning while corporate communications deal with issue management, mergers and acquisitions, litigation, etc.LIMITATIONS
It's important to keep in mind that the marketing mix was created in a time where physical products dominated much of the economy. With an increase in the number of products and markets and the further embedding of marketing in most organizations authors and scholars have attempted to increase the reach and usefulness by introducing a fifth P, such as people, packaging, processing, etc. some models ranging as high as 17-20 P's. The most commonly used form of the marketing mix remains centered in these 4 P's despite its limitations and perhaps because of its simplicity, with many marketing textbooks organized around it.
