In this article we will discuss about the four elements of marketing mix. Also learn about what binds the different elements of marketing mix.
1. Product:
This is the substance or bundle of product, service, brand, and “experience.” This is central to the value the firm creates for customers and is far more complex than meets the eye. In fact, there are many different dimensions to a firm’s “product” – all of which somehow deliver value to customers. These dimensions extend well beyond the physical product itself, as the discussion of Starbucks reveals.
The product itself constitutes the important element of the marketing mix. This variable is the aspect of the marketing mix that deals with researching customers’ product wants and designing a good, service, or idea that satisfies those wants. It also involves creating or modifying packaging and brand names and may include decisions regarding warranty and repair services. Actual production of tangibles goods is not a marketing activity.
Product variable decisions and related activities are important because they are involved directly with creating products that meet customers’ needs and wants. To maintain a set of products that helps an organization achieve its goals, marketers must develop new products, modify existing ones, and eliminate those that no longer satisfy enough buyers or yield acceptable profits. Levi’s latest product innovation is mass marketing custom-fit jeans. The jeans fit according to your measurements; later technology makes the individual tailoring possible.
(a) Product Development:
i. As we’ll see, Starbucks’ product development is guided by its “positioning” strategy. It is imperative for the firm to be different from competitors in ways that are important to customers. Starbucks’ key points of differentiation have been unique product, consumption experience, and ubiquity.
ii. Coffee made from Arabica coffee beans from carefully selected suppliers in specific countries. The beans are roasted to Starbucks’ standards via its own process. The beans, regardless of the flavor, produce coffee with a unique Starbucks taste.
iii. As competition in markets moves very quickly today (with rapid competitive imitation of new products and adaptation of consumer expectations), new product / service development has never been more important. Starbucks continually evaluates how to improve and expand its product line. In the last several years, the company has developed and introduced such new products as the Starbucks Barista Aroma thermal coffeemaker, Starbucks ice cream, Frappucino, and Tiazzi, a fruit juice and tea product.
(b) Service Development:
i. The Starbucks retail stores are manned by carefully selected and trained baristas who are knowledgeable about products, and very courteous and helpful.
ii. When Howard Schultz took over the company; there was a compensation framework in place that allowed Starbucks to obtain very highly qualified people and motivate them to provide excellent service.
(c) Experience:
i. This dimension of the “product” is least understood and most challenging to get one’s hands around. Only in the past several years has discussion in marketing begun to take into account the value that consumers obtain from the actual experience of consuming the product or service.
ii. “Experience” has to be defined broadly – but can perhaps best be described as the totality of the consumption process. It reflects the firm’s ability to meet and exceed whatever expectations the customer might have. In this sense, pleasant employees, efficient customer interaction processes, systems to address customer complaints, decor, atmosphere, speed of service are all aspects that influence the customer’s experience.
iii. In fact, experience can be a very real dimension of customer utility.
iv. In the case of Starbucks, the company’s goal was to recreate a retail setting that captured the essence of European coffee houses. Such coffee houses have traditionally been community- meeting places, where conversation and intellectual debate rule the day. There is music, decor, and a sense of atmosphere of a bistro; cosmopolitan and reflective. Intellectual stimulation is an important part of Starbucks’ “product.”
(d) Product Line/Mix Decisions:
i. There are over 30 coffee- and tea-related products in Starbucks retail locations. The company continual experiments with a variety of food products, including fresh-baked and packaged products of the company’s own invention.
ii. Starbucks also has a line of coffee, food, and related products sold in grocery and convenience stores.
2. Physical Distribution:
Another element in the marketing mix of any firm is the distribution. To reach and keep customers, products must be available at the right time and in convenient location. In dealing with the distribution, marketing manager makes products available in the quantities desired to as many target market customers as possible, keeping total inventory, transportation, and storage costs as low as possible. With these objectives in mind, McDonald’s is expanding distribution by installing its restaurants in Wal-Mart store, Amoco and Chevron service stations, and Incredible Universe electronics stores.
This practice permits the fast- food giant to share costs with the partner store and to reach more customers when and where hunger strikes. A marketing manager may also select and motivate intermediaries (wholesalers and retailers), establish and maintain inventory control procedures, and develop and manage transportation and storage systems. Wal-Mart has been especially successful at designing an efficient distribution system.
The basic object of the manufacturer in selecting and developing distribution channels in conjunction with other elements of the marketing mix is to maximize the degree of attainment of company goals including profit, stability and long-term growth.
It should be stressed that marketing channel policies are an integral part of the marketing mix and must be considered on the basis of other marketing decisions. Production and financial considerations affect the marketing channel decision.
3. Pricing:
The price variable relates to decisions and actions associated with establishing pricing objectives and policies and determining product prices. Price is a critical component of the marketing mix because consumers are concerned about the value obtained in an exchange.
Price is often used as a competitive tool. McDonald’s, Burger King, and other fast-food chains often use price reductions to increase store traffic. Intense price competition sometimes leads to price wars, but high prices can also be used competitively to establish a product’s image. A company’s pricing decisions send a message to the market that helps shape the overall marketing strategy.
4. Promotion:
Finally, another important element of the marketing mix is promotion that includes advertising, sales promotion in the narrower sense such as contests and free gifts as well as the personal selling activities. Promotion relates to activities used to inform individuals or groups about an organization and its products. Promotion can be aimed at increasing public awareness of an organization and of new or existing products. Promotion can also educate consumers about product features or urge people to take a particular stance on a political or social issue.
Promotion can keep interest strong in an established product that has been available for decades. Many companies use promotion to associate themselves or their products with things that make consumers feel good, such as the Super Bowl or the Olympics. More and more companies are setting up “home pages” on the Internet’s World Wide Web to communicate information about themselves and their products. Ragu’s home page, for example, offers Italian phrases, recipes, and sweepstakes.
Marketing manager must develop a marketing mix that precisely matches the need of people in the target market. Before they can do so, they must collect in-depth, up- to-date information about those needs. Such information might include data about the age, income, ethnicity, gender, and educational level of people in the target market; their preferences for product features; their attitudes toward competitors’ products; and the frequency with which they use the product. Armed with such data, marketing managers are better able to develop a product, distribution system, promotion program, and prices that appeal to people in the market.
Developing and maintaining an effective mix of product, distribution, promotion, and price are the key requirements for a strong marketing strategy.
Promotion decisions involve the many ways that firms seek to inform and provide incentives for customers. Promotional tools include (but are not limited to!) media advertising, sales promotion, publicity, and personal selling. Promotion decision-making refers to how the firm creates an optimal combination of promotional tools and spending to achieve its communications goals.
What Binds Different Elements of the Marketing Mix?
This is a great question, and very important. If there are a 50 product /service alternatives we might consider, 5 possible price points, 100 different promotion programs, and 5 different distribution options, we’re looking at 100,000 possible combinations that make up the marketing mix! How do we decide the correct combination? How do we select a marketing mix that “fits together?”
The answer comes from the literature on business strategy, particularly the work of Michael Porter (1980, 1985). The product, price, place, and promotion decisions should be driven by the firm’s core positioning strategy. The positioning strategy – which is the firm’s strategy for how it will uniquely position itself in the competitive marketplace (and in customers’ minds) – can be determined effectively only with a deep understanding of (a) who potential customers are, (b) what their needs are, and (c) what the competitive landscape looks like. Figure 17.2 adds to the marketing mix, three strategic dimensions that are the determinants of marketing mix decisions- market segmentation, target market selection, and positioning strategy.
1. Market Segmentation:
Prior to determining positioning strategy, it is very important that the firm have a clear understanding of what customer markets it is seeking business from. One of the core concepts that define economic markets is heterogeneity in demand. This concept is straightforward – it simply means that all markets are made up of buyers who are different at some level – there are different needs, different perceptions, and different behaviors.
The marketer’s job is to study the market and identify how to group customers together in ways that create sufficient business opportunities. The most significant way to do this is to deeply study customer needs. Needs- based segmentation is a process in which the firm examines the needs that influence customer decision-making and how those needs create a means of grouping people together to form potential target markets.
A recent well- known example is Mobil’s research that uncovered five segments of gasoline buyers in a study featured in the Wall Street Journal in 1995:
(i) Road Warriers (16% of buyers) – drive above average number of miles wants full service and food;
(ii) True Blues (16%) – highly loyal, seeking convenience.
(iii) Generation F3 (27%)- young, constantly on the go, drive a lot, snack heavily;
(iv) Homebodies (21%)- usually female heads of households shuttling family around, need convenient locations along route of travel;
(v) Price-Driven (20%)- Not loyal, rarely buy premium, on tight budgets.
Mobil subsequently developed such innovations as “friendly serve” and “Speed Pass” to enhance convenience and improve the loyalty of customer segments who were not price driven. In the mid-1980s, Starbucks chief Howard Schultz realized that there was an opportunity to serve a largely unmet need in the American marketplace Struck by the warmth and stimulation of the coffee culture in Europe (particularly Italy), Schultz observed that most coffee consumption in the U.S. involved the preparation of inexpensive coffee at home and lower quality being served at restaurants and diners throughout the country. Yet, in Seattle and on the west coast, interest had begun to develop in more expensive specialty coffees.
While consumers could obtain the benefits delivered by coffee at home and at work, what was missing was a “place;” that is, a comfortable public meeting place for socializing and discourse. In short, Schultz perceived there to be a significant segment of consumers in the American marketplace whose needs for affiliation and community (in addition to stimulation) were going unresolved.
It so happened that Schultz’ insight combined with two other factors- (1) That the segment whose needs he had correctly anticipated (largely baby-boomers) are the largest consumer segment in the history of the American economy, and (2) Unparalleled economic growth in through most of the 1990s. Surprising, revealing these needs was a boon to the entire industry. The number of coffee houses in the U.S. doubled between 1996 and 2001 (to 13,300 stores) and independents accounted for more than half of this growth.
2. Target Market Selection:
A target market is the market segment that a particular product is marketed to. Age, gender and/ or socio-economic grouping often define it.
Targeting strategy is the selection of the customers you wish to service.
The decisions involved in targeting strategy include:
i. How many segments to target
ii. Which segments to target
iii. How many products to offer
iv. Which products to offer in which segments
There are three steps to targeting:
i. Market segmentation
ii. Target choice
iii. Product positioning
Targeting strategy decisions are influenced by:
i. Market maturity
ii. Diversity of buyer’s needs and preferences
iii. The company’s size
iv. Strength of the competition
v. The volume of sales required for profitability
Targeting can be selective (e.g.: focus strategy, market specialization strategy or niche strategy), or extensive (e.g.: full coverage, mass marketing, or product specialization).
In some cases, the firm will identify a number of different market segments that it considers and then makes a strategic choice to focus on 6ome and not others. Typically, in these types of decisions, the most important criteria for choosing among the segments will be market growth (size, growth rate, market potential of the segments), competitive intensity (number of competitors, ease of entry, presence of substitutes), and market access (customer familiarity, channel access, fit of the company to serving this segment).
3. Positioning:
Decisions about positioning strategy are the heart of marketing decision-making. At the simplest level, positioning strategy involves deciding how the firm is or will be unique relative to competitors. So, a prerequisite to effectively determining positioning strategy is a deep understanding of competitors in the market. However, being different from competitors is not a sufficient for effective positioning strategy. (In fact, if all you did was study competitors, you would be missing the boat.)
The key to positioning strategy is to be different from competitors in ways that are important to customers. Perhaps a better way to phrase this is as follows- create value for customers that competitors are unable to match. A simple way to depict this is as follows. We can represent competitors’ positions, customers’ needs, and the company’s competencies (e.g., the company’s capabilities) as three circles.
The intersection of the company and customer circles represents an area in which the company delivers on customer needs. The competitor similarly has an intersection with customer needs. The concept of positioning is all about defining what we do or can do that creates unique value for customers.
The area labeled A above reflects our firm’s unique value that delivers on important customer needs in ways competitors cannot match. Because it is overlaps with customer needs in a way that is unique relative to competitors, this area is called the “point of difference.” For Starbucks, this would be their unique product development and their unmatched processes for franchising- building and managing a wide franchise network that consistently delivers on its core promises. For Dell, it is the business model that allows them to customize computers to customer specs while receiving cash even before the finished product is assembled.
For Harley Davidson it is equipment with unique styles and sounds, but also attachment to a unique community of product users. The area labeled B captures common value provided by both our firm and competitors. The particular value dimensions captured here would be called “points of parity.” So, for example, some competitors are matching Starbucks’ trendy downtown locations (e.g.-, Seattle’s Best, Tully’s) and atmosphere.
Finally, the area labeled C captures competitors’ unique value added-or competitive points of difference. One example is Pura Vida, a small Seattle coffee company founded by former Microsoft employees that roasts and sells special coffee blends, but with the mission of “feeding, clothing and educating at-risk children in coffee-growing regions of the world.” (puravida.com) The Company has developed programs in computer training, sports, soup kitchens, and kids clubs in Costa Rica and has even received a testimonial from Howard Schultz, Starbucks CEO. Region C would capture Pura Vida’s social mission, which is unique relative to Starbucks.