The concept of Marketing Mix is evergreen in the marketing industry. Despite the world moving from traditional to digital marketing, this stays effective and relevant for businesses. Since it’s a mixture of four different elements, it’s often referred to as 4 P’s of Marketing. Neil Borden first came up with the term Marketing Mix. However, it was later popularized by Jerome McCarthy of Notre Dame University who named it “the Four P’s of Marketing”. He used it first in his marketing guide, “Basic Marketing: A Managerial Approach”.
The Father of Marketing, Philip Kotler, highlighted the 4 P’s of Marketing in the following manner:
“Marketing Mix is the set of controllable variables that a firm can use to influence the buyer’s response.”
In simple words, a product is a market offering that solves a problem for consumers. It can be a good, service, or experience and can be tangible as well as intangible.
Businesses invest in products that meet an existing customer need and can earn profits due to their high demand in the market. Traditional businesses opt for product ideas that are well-known to their audience. For instance, a traditional business person may start manufacturing and selling running shoes to athletes. Innovative entrepreneurs, however, have a different mindset.
Such business people turn to innovation and create a need for their products. Uber is a popular example of innovation. They noticed taxi services and came up with a unique idea to facilitate customers. Instead of purchasing vehicles, they developed a platform to connect customers with taxis and generate revenue through commissions. Some other top innovative businesses include Apple, Amazon, Tesla, SAP, The Walt Disney Company, etc.
There are three levels of any product that are as follows:
- Core Product – This is the main product that satisfies the fundamental customer need. For example, the core benefit of a car is the ease of traveling
- Actual Product – This involves additional design features that add value to customers. For example, car manufacturers design vehicles with appealing interior and exterior body and install heating system, music system, and more features to attract customers
- Augmented Product – This refers to the additional features that aren’t a part of the actual part but meet the wants and needs of specific audiences. For example, car dealers may offer free or discounted insurance policies to new buyers
Types of Products
A product can be a good, service, experience, or idea that can be sold or exchanged. It is further divided into two categories: Consumer Products and Industrial Products.
Consumer Products are those that are ready for consumption and can meet consumer needs without further processing.
It is termed as Convenience Product when the customer tends to buy it on a frequent basis without spending much time in research. Its example is detergent or dairy products.
Another type of consumer product is Shopping Product that involves higher customer engagement. Customers spend significant time and efforts in learning about the quality, features, and longevity of the product. They may compare multiple brands to shortlist the best product option before making a purchasing decision. Its examples can be gaming devices and microwave ovens.
Specialty Product is another type which includes products focused at specific niche. These are premium quality products that target smaller customer groups and those customers are willing to pay a premium price for the brand. For example, Rolls Royce cars and Rado watches.
The last type of Consumer Products is Unsought Product which has lesser market demand because customers either don’t feel the need to purchase them or don’t know much about the product. Therefore, marketers have to aggressively promote and advertise them. Common examples of unsought products are funeral insurance, smoke detectors, and cemetery plots.
As the name suggests, Industrial Products are those goods that are used by businesses. These can be further categorized into three types.
The first type of industrial products is Capital Item which includes items that support buyer’s operations. For instance, a plumbing business may purchase wrench, drill, and pliers to install and repair plumbing pipes for their customers.
The second type of industrial products is Materials and Parts which refers to raw materials. These products are further processed and usually become a part of a larger product. An example is bottle caps purchased by a pharmaceutical company. These bottle caps are of no value when sold as a stand-alone product and installed on medicine bottles before reselling.
The third category of industrial products is Supplies and Services. Its examples are roof repairing service, smartphone repairing service, and operating supplies such as primers for house painters.
A product usually goes through multiple phases since the idea inception. Businesses must analyze the current standing of their products and come up with relevant strategies to stay ahead of the competition. This PLC has five stages: New Product Development, Introduction, Growth, Maturity, and Decline. This must be noted that not every product experiences all five stages.
New Product Development stage is when the business only has a new idea and they need to invest in the idea to develop the product. New product development starts when a stakeholder gets a new idea. This idea is tested to determine whether it would be viable in the market before developing the product. After thorough analysis and testing, the product is made available to customers.
The next stage is Introduction and this phase starts immediately after the product is launched. During this time, sales are usually low and businesses focus on increasing awareness.
The third stage is Growth when the product starts generating profits and more and more customers get introduced with the brand.
After the growth stage starts the Maturity stage. This is when the product attains maximum profits and can’t further increase profits or market share. The business can develop appropriate strategies to retain the product in this stage for the longest possible period.
Every product has a limited lifespan and sooner or later, its popularity comes to an end. This is when the product enters the Decline stage. During this phase, sales gradually drop and customers lose interest.
In a marketing mix, pricing is the amount of money customers need to give up to obtain a product or service. This is one of the most important elements that defines the profitability and sustainability of a company.
While deciding the right pricing strategy is crucial, many businesses fail to do so. Their prices are either too high or too low since they fail to understand market dynamics. If a product is priced too high, customers are less likely to show interest since they would rather turn to alternative options that offer higher value at lower prices.
On the other hand, if a business sets their prices too low, they may end up losing revenue. If the price doesn’t cover the cost, the business would experience huge losses. Furthermore, customers often regard a product to be of low quality if it’s priced too low as compared to other similar products. Therefore, it’s vital to set the most suitable price for a product.
There are multiple strategies for setting the right price, but we will discuss only the prominent three strategies: value-based pricing, cost-based pricing, and competition-based pricing.
Customer Value-Based Pricing strategy relies on customer perception of the product and brand. The higher value customers perceive, the higher will be the price of the product. Marketers that prefer to take this route should evaluate whether or not the product delivers expected benefits to customers to increase sales and earn customer loyalty.
Another common strategy for setting the price of a product or service is known as Cost-Based Pricing. This strategy enables a business to set the price of the product by considering different types of costs involved.
If you take a look at costs involved in manufacturing a product, you will notice costs such as Direct Material, Direct Labor, and Factory Overhead Costs.
Direct Material is the cost of raw materials that directly go into manufacturing the final product. Direct Labor includes the expenses of the labor force that directly engages in the manufacturing process of the said product. Lastly, Factory Overhead Costs covers all other expenses that aren’t a part of direct material and labor costs. This may be supervisor salary, utility bills, security guard wages, etc.
Apart from these categories, Cost can be categorized into two types based on its behavior. These are Fixed Cost and Variable Cost.
The former stays the same regardless of the level of production. Let’s take the example of a magazine facility. Regardless of how many magazines are printed by the publisher, certain costs would stay the same such as rent of the facility and depreciation of machinery.
The latter cost, however, increases or decreases with production. The more units of products are manufactured, the higher will be the variable cost. In the above-mentioned the magazine facility example, the cost of paper is variable. The more magazines are printed, the higher amount of pages would be needed that will automatically increase the price.
Competition-Based Pricing refers to the pricing strategy in which a company decides to set product prices by analyzing the prices set by competitors for similar products. However, it’s important for the company to compare features, benefits, costs, and perceived value before adopting this strategy.
New Product Pricing
When it comes to deciding the price of a new product, there are two different ways to do so: market-skimming and market penetration. The key to setting suitable prices for new products is to understand the market and customers.
During the product introduction phase, the company focuses on building awareness. They may opt for Market Penetration Strategy to propagate the product in the market. This strategy works best if the product is intended for the mass market. Lower pricing gives such brands a competitive advantage and they can achieve customer attention through reduced pricing.
The other option for selecting a price for a new product is market penetration. This means a business sets premium prices for products instead of taking the low-pricing route.
This strategy is ideal when the product is innovative and can change the lives of customers for the better. First movers may benefit from this strategy and earn high profit margins. Furthermore, market skimming also works when a product targets a niche market that agrees to pay premium pricing due to brand image or quality.
Also referred to as placement or distribution, Place is a fundamental element of marketing mix. It is the process of strategically delivering a product to places where customers can easily find and purchase it. Marketers need to ensure that the product is readily available to customers at the place of their choice. Even the highest quality products can fail if they aren’t available to customers when needed.
For instance, a customer may visit a superstore to purchase kids’ diapers. They may look for diapers by ABC brand, but if the product isn’t available, they would end up purchasing another brand. If the new product meets their needs, they are likely to stick with it. As a result, ABC would lose loyal customers.
It’s rightly said that “Out of sight, out of mind”. This proverb perfectly explains the distribution concept. Ineffective channel distribution hurts businesses like nothing else. Products that aren’t delivered to customers on time lead to customer dissatisfaction, ruin brand reputation, and cause inventory management problems.
Distribution Channels: What Are the Options?
Distribution channels or marketing channels describe the methods through which a manufacturer makes the product available to potential customers. A manufacturer has two major options to achieve this goal. They can either distribute the product on their own and keep this function in their hands or involve as many intermediaries as needed.
The first option is Direct Distribution in which the company hires staff and sets up operations in the geographical areas of its target audience. This approach enables customers to purchase the product directly from the manufacturer. While significant investment is required to initially establish a network, this approach can reduce on-going channel management costs since the company directly sells its products to consumers. A common example of this case is Dell Computers.
Direct distribution is suitable for businesses that have sufficient resources and a strong network. It’s also important to understand the needs of the local market to best meet customer needs. Otherwise, the decision may backfire and the business would incur huge losses.
The other option is Indirect Distribution where a business involves third-parties to make its products available to target customers. Businesses can benefit from the expertise, network, and local experience of distributors. Furthermore, these distribution networks can also help a business expand its customer base and find suitable vendors.
Before making the decision to outsource distribution management, a business should understand its risks too. While this decision saves businesses from the cost and efforts of creating a distribution network, it decreases your control over place-related decisions. Moreover, manufacturers and intermediaries sometimes get into conflict which may negatively affect the performance of the distribution channel.
Now, let’s take a look at some prominent intermediaries that can be part of a distribution channel.
Wholesalers Intermediaries purchase products in bulk and usually sell them to retailers or other businesses at lower rates. Since they purchase the product in higher volumes, they benefit from the scale of economies concept and get reduced pricing from the manufacturer.
Retailer Intermediaries may purchase the product from the manufacturer or another intermediary to sell the product to consumers. Nowadays, retailers are turning to digital platforms, including social media to facilitate customers in purchasing the items they need from the comfort of their home.
Aside from distributors, wholesalers, and retailers, a business may consider hiring independent facilitating agencies to outsource specific tasks. These agencies can be logistics and warehousing providers, order fulfillment agencies, advertising agencies, financial agencies, and insurance firms.
The keynote in this section is that not every business engages all types of intermediaries. They may acquire the services of certain third-party businesses as per their needs. When the business grows, they may consider setting up an in-house distribution department and eliminating these intermediaries through vertical integration.
Promotion refers to activities that are helpful in selling a product. These activities are important to familiarize customers with the brand. Regardless of how good a product is, the brand won’t be able to achieve sales goals if target customers aren’t aware of its existence.
Many people confuse promotion with advertising. However, advertising is only a small component of this entire process. The business may start promotional activities even before the product enters the introduction phase. They may create the hype to raise brand awareness and encourage the audience to give it a try.
The purpose of promotion is to increase awareness and generate sales and leads. It’s a must to set appropriate KPIs (Key Performance Indicators) to determine whether the activities are proving fruitful. Based on these KPIs, the business can evaluate its performance and review promotion strategies accordingly.
Some of these KPIS can include:
- Customer Acquisition Cost
- Marketing Qualified Lead
- Sales Qualified Lead
- Customer’s Lifetime Value
- Website visits
- Marketing ROI