Sep 23, 2022 | Branding, Communication, Management, Marketing, Small business
In 1960, E. Jerome McCarthy published his idea of the four foundations of marketing. Price, Promotion, Product, and Place. The world has changed in the intervening 62 years, so you must wonder if this idea is still relevant, let alone a foundation.
To my mind, they are not only relevant, but retain their place as a seminal part of the marketing process, it is just that the context in which we think about marketing has changed radically, so the role the 4 P’s plays has also evolved.
This used to be simple, there was a product, and there was a price. Whether it was a consumer product, or one sold to another business, it was simple, and uncongested with notions of service.
Life, and the environment in which we compete has completely changed. Let’s see.
Product.
The idea of ‘product’ has changed along with everything else. We used to buy a car, increasingly, we are now buying the means to get from point A to point B, and discovering new ways to pay for it beyond the options of cash, or some sort of loan from a bank.
Product rather than being a singular physical product or service delivered has become a system that delivers value. The scope of ‘produc’t has also changed from the immediate geography to global, and the channels by which this is achieved look nothing like those available 62 years ago.
Price.
The exchange of money is how the economy goes round; money is the fuel. However, the articulation of the ‘Price’ of a product/service bundle has changed as much as everything else. Along with the product and delivery options now available are the pricing options. There are now many ways to be paid, only a few of which were available 62 years ago.
In all developed economies to differing degrees, the taxi industry has been regulated over time. Nothing changed from 1962 when the ‘Four P’s were articulated until along came Uber and disrupted the cosy taxi environment. Uber eliminated the uncertainty of how long you had to wait for a ride, creating great psychological value, and introduced surge pricing that would entice more supply into the system at times of high demand.
Surge and subscription pricing have changed the face of commerce globally. Amazon uses both in their operations, adding the willingness of a buyer to pay higher prices based on their browsing and purchase history.
Place.
We used to buy products at a defined place, in a defined manner. No longer. The notion of ‘Place’ has been replaced by one of ‘How’ you buy rather than ‘where you buy’.
The old model of a set of mechanically driven distribution channels has been replaced by a melange of ‘omni channels’ that deliver value in a wide variety of ways.
Control of the channels, formerly in the hands of the sellers has moved into the hands of the buyers, who demand and are given in increasing amounts of transparency backwards into the supply chain. All this is enabled by the explosive growth of digital technology.
Promotion.
If the other factors have changed radically, there are no words to describe the magnitude of the change to the ways promotional activity has evolved.
It used to mean the way we gained attention of potential customers via a limited number of options, engaged them, then sold product through whichever stable distribution channel was available. While the core process is unchanged, how we promote out products has exploded.
This brings us back to the question posed: are the for ‘P’s’ of marketing still relevant.
My answer is ‘Yes’, but the clothes they wear have changed radically and therefore the way we think about then must change.
My response to the change necessary is to look at the marketing process more from the perspective of the customer. This brings me to the view that both customer and supplier can look at the process from within the framework of Objectives, Value proposition, Ideal customer, and the Current state. Each party to a transaction sees these four parameters differently, but they are all relevant to the way the transection and relationship proceeds.
Dec 1, 2021 | Branding, Innovation, retail
Promotional pricing is often the only tool used to generate volume. Ask any salesperson ‘Why’ and they will say ‘because it works’. Go next door and ask a marketer, and their response is more likely to be something like: ‘to encourage non-users to try the product, and if they like it, to come back, become loyal customers’
Therein lies the paradox. The well intentioned promotion of a brand results in killing it.
By promotional pricing the product down, you reward current users who would have bought at full price, while not being effective at persuading potentially new users to try for any reason other than price.
The power of habit is huge in routine purchases, like the ones we make every week in the supermarket. A regular consumer is not necessarily loyal to a particular brand, they are more unthinking, more habitual than most marketers will concede, especially to themselves. If a choice is to be made to change brands, that decision takes up cognitive capacity better dedicated elsewhere, and involves risk, which we are programmed by evolution to avoid.
To change habits, we must change behaviour, an extremely challenging thing to do.
Psychologists have found over and over, the best way to change habits is to change little things, one at a time, progressively leading to the changed behaviour that in its turn becomes a habit. Each stage takes 3 or 4 times to become sufficiently entrenched to start to take on the characteristics of a habit.
Back to our supermarket.
Price promotions follow each other on a weekly basis. No brand is given the time to establish its routine purchase as a new behaviour, as there is a price promotion of an alternative brand every week, often several at the same time.
The net result is that for every product on shelf, the discounted price becomes the ‘real’ price, which becomes less and less relevant as consumers are trained by the retailers to think that the discount price is the real price for the products and the categories.
That, in a nutshell, is why we are seeing less and less brands on the supermarket shelves, and as a direct result, less and less innovation, as suppliers have little chance of recouping development costs in such an environment.
Nov 24, 2021 | Branding, Marketing
Customers read much into the price you choose to charge, the architecture of your price list, and willingness to deploy price tactically.
Price can also override all your other marketing activity, as it is the quantitative reflection of what you think your customers are prepared to pay. It reflects the market in which you choose to play.
When was the last time you saw Grange discounted in Dan Murphy’s, or a ‘dinner-deal’ at the perennially ‘three hatted’ Quay restaurant in Sydney?
‘Never’ would be the right answer.
Price is a key part of the strategic choices that must be made to establish a ‘Price Architecture’. This architecture is in its turn a fundamental driver of the business model.
So called ‘premium’ products have many characteristics: extreme quality, scarcity, a differentiated offer, a strong brand, high service levels, are often hard to find and with few if any substitutes. The purchase of a truly premium product demands deep consideration and happens rarely. It is never driven by discounts.
By contrast, commodity products have none of these characteristics, but do have a low relative price, and are easily substituted.
The distance between these two extreme points is a continuum along which a product can be moved, by accident or design. The limiting factor is that it is very hard to move ‘up’ the continuum from commodity towards premium, but very easy to slide in the opposite direction.
Your position on the scale is one of both strategic and tactical choice.
Make the choice wisely.
Nov 5, 2021 | Branding, Change, Governance
I cannot let the name change of ‘Facebook’, to ‘Meta’, go uncommented.
They are not the first to undergo a name change, for a range of reasons. Mostly they are to escape bad publicity, sometimes because it made some strategic sense to do so given the nature of the business had changed, and I suspect a few because of a brainfart in the boardroom.
Google changed to Alphabet, Philip Morris changed to Altria, Tribune Publishing (owner of several major newspapers in the US) changed to Tronc, then changed back to Tribune Publishing, (unexplainable) Blackwater changed to Xe Services, then on to Academi (no escape from a nasty history) Quikster changed to Netflix, and the list goes on.
Meta is an odd word, being self-referential, and often the first syllable of other words that mean change, such as metamorphose, and metabolism. It is also a word the few late teens I know use as an expression of surprise, or pleasure: even they cannot adequately define it.
Nearly 5 years ago, I wrote a post focussed on the ‘Moats‘ Facebook had built around itself. This latest move is one that adds a further dimension to the moat analogy, throwing a wide moat around the whole Facebook empire, while at the same time, attempting to separate the individual components of the castle inside the moat into (supposedly) more independent entities. It least, that may be the theory, although I see no change happening inside the moat, just more defence of the status quo.
Perhaps it is just a defensive move in response to the series of damaging leaks to the New York Times and other outlets by former senior executive Frances Haugen. Make the eggs that much harder for regulators to unscramble?
I watched Mark Zuckerberg explain the change in a video, and remain somewhat confused. He claimed the driver of the change was his vision of the future, and the technologies that will deliver it. I am very wary of that fluffy, tech friendly story. The current technologies and impact of all the Facebook stable of products are very similar. They collaborate to deliver some really nasty stuff kept hidden amongst the many useful tools. All this in the name of ‘connection’.
Will Meta take some of the pressure off Facebook and Mark Zuckerberg? I doubt it, but I also suspect if you asked Zuckerberg, and managed to get the truth out of him, he really could not give a toss.
Oct 18, 2021 | Branding, Marketing, Sales
In competitive markets, price is a bit like a game, typified by the ‘prisoners dilemma’ of game theory, where two players acting in their own self-interest will result in a suboptimal outcome for both.
In the classic scenario, you have two people, suspects of a crime held in separate rooms with no means to communicate.
The copper tells each of them that if they confess and testify and the other does not, you will go free.
If you do not confess and the other does, you will get the maximum sentence of 3 years.
If both confess you will both be sentenced to 2 years.
If neither confesses, there is enough evidence to have you both serve 1 year.
The result is that if the prisoners act out of self-interest, the result is worse than if they had cooperated.
When you consider this in a competitive duopoly market, to keep it simple: what happens if one party cuts its price?
The other has the choice of cutting theirs to match, which inevitably results in less profit for both if competitor two cuts their price in response. However, if the reaction of the second mover is to keep their prices up, they might sell less, but very probably make more profit. The price cutter will be relying on selling more at the lesser price to increase profit, or grabbing market share which is usually the driver, because of the added volumes.
Given most organisations have KPI’s around sales volumes, the temptation to cut prices in the face of competitive activity is almost irresistible, despite the profit impact which is often ignored.
The Fountain Tomato sauce story: I joined Cerebos back in 1981. Fountain Tomato sauce had a share in NSW of about 40% of volume and 50% of value. Fountain sold for .72 cents for the 600ml bottle, I remember the numbers well. A short time after I joined, discounter Franklins brought out No Frills tomato sauce, on shelf for .69 cents,
The sales force was in a panic, as Fountain was a big part of their sales and they insisted that we had to drop the price to match No Frills or lose huge volumes.
I did the numbers, and convinced the marketing manager, and MD to overrule the sales manager, and we put the price of Fountain up, so it was on shelf at .81 cents, and we started advertising: ‘Rich Red Fountain Tomato Sauce’
The logic was that Fountain at .72 and No Frills at .69, were very close, so the consumer found it sensible and easy to save a few cents, as after all, they must be pretty much the same if the price was so similar.
However, at a price difference of .12 cents, very substantial in percentage terms, but not particularly significant in the mix of a weekly shop, consumers figured that they had to be very different. Fountain had to be the far better product, and the advertising we did confirmed that view. More tomatoes, no filler, ‘Rich Red Fountain tomato sauce’. Our volumes did drop marginally, and our profits went up.
This outcome was not just instinct, it was based on research and experience.
‘No Frills’ margarine was the very first cheap housebrand on the Australian market. It was proposed and supplied by the business that at the time owned Meadow Lea margarine, my employer. I had done quite a bit of research after the launch of No Frills margarine to understand the consequences, and so was lucky to be in a position where I had some understanding of the dynamics that were at play, without at that time having any solid idea of the psychology that drove them.
Later, both Fountain and Meadow Lea allowed the retailers to dictate their strategies, so redirected advertising funds into price promotions, boosting the retailers margins and destroying their brands. Both Fountain and Meadow Lea are now just ‘also-rans’ in their markets, (judging by shelf presence) and neither would be anywhere near as profitable as they were in their heyday.
The lesson is that the intense pressure to reduce price as a competitive reaction is almost always a very bad choice. Resist the pressure and protect profit, without which you will be out of business.
Sep 13, 2021 | Branding, Marketing, Strategy
One of the most quoted of quotes is attributed to Ralph Waldo Emerson: ‘Build a better mousetrap, and the world will beat a path to your door’
Unfortunately, Mr Emerson got it almost entirely wrong.
The better product, on its own, never wins. Just being ‘better’ is simply not enough to win that competitive battle with incumbent but technically inferior products. I am sure there are a few exceptions, I just cannot think of any.
Why is it so?
Several common reasons pop up as I survey the field of my experience.
Customers must care.
What is the value of being different, technically superior in some way if customers do not recognise the value of that differentiation to them? If customers do not care then you will fail, despite the supposed superiority of the alternate. Customer indifference is often the reality, uncoloured as they are by the marketers enthusiasm for the new, improved features.
Peer pressure
We are social animals, and while we do like being one up on the next person, being a long way up puts us outside the herd, and therefore vulnerable to all sorts of attack.
Risk aversion
Doing what you have always done is safe, you know it works, so there is no risk. A change of any type invites risk, which we are shaped by evolution to avoid. While risk aversion varies enormously between individuals, it takes a significant effort to change from the riskless to the riskier, even if the change is slight. In addition, often we simply do not see the alternatives. Consider your own behaviour in a supermarket in commonly purchased categories. There might be something new, perhaps better, but you simply do not see it in the process of pushing the trolley down the aisle trying to get out as quickly as possible.
Habit.
Doing simple things without thought frees up cognitive space to spend in more productive ways. We develop habits, repeated relatively mindless actions as the tool to enable this more productive use of our cognitive capacity. As with risk aversion, it is an outcome of evolutionary psychology that we leave as much capacity as possible free to react quickly and decisively in a tough situation.
Incumbents leverage entrenched distribution channels.
Combined with the four above, incumbents have a huge advantage in that they have access to distribution channels that newcomers must buy their way into somehow. While it is a standard barrier to entry, it costs money to overcome, which leaves less cash available for other activities designed to counter the four above. Again, consider supermarkets. In this country (Australia) two supermarket chains have around 70% of FMCG sales. For a newcomer, no matter how superior to existing alternatives they may be, they must ‘buy’ distribution. This leaves less money available for advertising, and other demand generating activities. It is also easier for incumbents to ‘channel-stuff’ in the lead up to a competitive launch. I have both used this tactic, and been on the receiving end many times, and it works.
If you want to win the war on mice, do not just build a better trap, figure out a way to stop the buggars breeding in numbers in the first place. That way, the solution to the problem is both sufficiently different to be noticed, and it overcomes the value of incumbency given to the existing trap makers.
