In this chapter we will take a closer look at marketing mix elements in order to be able to differentiate later different strategies and to provide a well-arranged survey of areas that need to be strategically changed and supported. A marketing program should be developed on the basis of all above gathered information, that is on set principles and strategic objectives.
Positioning is based on choosing the right combination of „marketing mix“. This term stands for a group of typical items which determine the scope of marketing activities and on which a marketing strategy can be based. The 4 P´s therefore do not only include a short description of their role in marketing, but mainly specify strategies being used in connection with them.
Product mix includes all products being offered. Length or total number of items within a line, depth or number of versions of each product and width or number of different product lines – all these figures set together each product mix. Before suggesting strategy every company should carry out product portfolio analysis.
This analysis should first explain where each product or product group is to be found among competitive brans in one of the perceptual maps coming from approaches mentioned above (such as BCG, GE analysis etc.) and then it also should specify the product life cycle phase. While the position of products within a field of competitors can change very slowly and usually only slightly depending on the perception of customers, and is very hardly predictable, life cycle of a product is planned in advance, so the reaction on a change rising from this movement can be either prevented entirely or at least the effects and result can be reduced to acceptable minimum. Marketing strategy therefore greatly derives from the combination and ratio of stages of products on offer.
Since every product consists of its core and additional layers expressing its general utility, functionality, design and quality and further characteristics, marketing differentiation can appear through any of these features. Regarding product lifecycle, enlargement of sofar provided qualities or reduction of price, as well as geographical spread and change in promotion are all in play. The company can also make modifications with width, length, depth and consistency of product lines.
TAB. 16 Strategies of Product Lifecycle – Product
Stage of the life cycle
Offer basic product
Offer product modifications, services and warranty
Resource: Kotler, P. Marketing Management, p. 316 Product strategies such as product lining (offering for sale several related products), product bundling (combining several products into one), line filling (adding new products into the existing range) must come out of thorough and ongoing research on customers needs and perception of company, or better its products.
Price is the only element in marketing mix which produces revenue. Therefore it is important to pay attention to both external and internal factors influencing it. Prices generally do not depend only on economic conditions such as boom or recession, taxes, interest rates, inflation etc., but also on the type of the market and relations between competitors customer or on
perception of ratio value for money. Internally, price is influenced by factors such as cost, marketing objectives and marketing mix strategy. So as not to get into a vicious circle, we will consider price one of features that can be changed on a product in order to achieve fulfillment of a specific strategy. Therefore our primary attention should be paid to the way price is calculated.
where product costs are increased by amounts to cover expected revenue. Fixed costs are divided by the expected number of sold units and togehter with variable costs and percentage of revenue make together the price. This way of pricing is for the seller very convenient since the price can be set very precisely, but has its disadvantages in the dependency on selling at least the expected amount (less than expected would lead to loss) and in omitting buyer completely from price decisions.
where price should reach such an amount so that breaking entire fixed costs by the difference between price and variable costs brings up number of units expected to be sold. Disadvantage of this way of pricing is dependency on price elasticity and competitors´ prices.
where the customer is the main originator of pricing chain because he or she sets the value which is economically expressed in price. Cost are then derived from this price and determine product.
TAB. 17 Strategies of Product Lifecycle – Price
Stage of the life cycle
Use cost-based pricing
Price penetration on market
Use price against competitors
Resource: Kotler, P. Marketing Management, p. 316 Following all that is said above, there are four main positioning strategies based on price. TAB. 18 below shows there occurance further to quality. Except from those mentioned in the chart we should mention strategies for the first setting of a new or innovative product on sale.
market skimming – setting a high price for a new produkt to skim maximum revenue from the segments willing to pay the high price. The company usually makes fewer but more profitable sales
market penetration – setting a low price for a new produkt in order to attract large numbers of buyers and a large market share – when market are price sensitive, production and distribution costs must fall when sales volume increases and no strong competition
TAB. 18 Possible Positioning Strategies
Resource: Kotler, P. Principles of Marketing, p. 656 Price is generally the most flexible aspect of a strategic portfolio which a company can play with. It is however a very treacherous weapon which can easily hurt its own creator. A company labelled as low-cost company would have to go through a very difficult and long-lasting journey if it decided to remove this label. The same is through in the case of a company known as too expensive. Therefore planning strategy carefully is a very important task in this area.
Place explains through which channels is a product transmitted towards its customers. Based on nature of the company (as for its size, financial position or number of employees) and on the nature of its products, on competition and marketing environment and on marketing intermediaries (their number, type, responsibilities) we can basicaly come to three strategies falling back on the type of the product: intensive distribution (for convenience goods), selective distribution (for shopping goods) and exclusive distribution (for specialty goods). Further strategies are to be based in product life cycle, as TAB. 19 below shows.
TAB. 19 Strategies of Product Lifecycle – Channels
Stage of the life cycle
Selectively build distribution
Build intensive distribution
Build intensive distribution
Selective exclude non-profit distribution places
Resource: Kotler, P. Marketing Management, p. 316 Considering distribution net there is always space for either improvements of quality of services in current channels or for extension in quantity (or both together). Since we mentioned the distribution as for its size and extensiveness before, let us concentrate on quality issues. Two important things should not be omitted – quality of the channels itself (i.e. how well retailers and other intermediaries provide their services to end customers) and quality of communication among them including company itself (establishment of business processes, setting up rules and introduction of control points for feedback of customers). To ensure quality of channels a company should implement strategy of orientation on qualitatively high intermediaries. There are many ways of ensuring a healthy distribution policy, though most of them rely upon databases (as is e.g. CRM – see below) or certification. Internal cleaning in terms of defining processes and best practices to be used on the other hand ensures that flows, be it information to or from customers, goods or financial means, will go through channels as smoothly as possible.
For a company there is usually an option of having channels under its control completely (own forces) or only partly (delegation of some duties onto an agency). Which strategy a company finally chooses depends on costs (managerial, flexibility and economy of scale). According to Kotler (2001, p.503) a company should use different distribution channels for different customers segments. Attention however must be paid to costs occuring through conficts of ownership or a certain level of differentiation. Both problems can be though eliminated if using database software, e.g. any CRM application, and together having well organised flows.
As well as in discussing product, price and place strategies, promotion also can be based on the stages of the lifecycle. Kotler suggests dividing strategies according to the main communication mix tools – advertising and sales promotion. Both may exist separately but may also coexist in order to support each other and together than sales. There are three more communication tools: public relations, personal selling and direct marketing. All five elements represent space for evolving strategic behaviour.
TAB. 20 Strategies of Product Lifecycle – Promotion
Stage of the lifecycle
Mind penetration of early accepters and dealers
Use strong sales promotion for creating interest to try
Resource: Kotler, P. Marketing Management, p. 316 Strategies suggested for the promotional improvement differ as for their receipients. As mentioned some chapters above B2B sector reacts in a different manner that B2C does. Is there a slight emphasis put into price building when keeping in mind the first or the second, then in promotion we will experience much bigger difference. According to Kotler, for B2B segment by far the most money is spent on personal selling, followed by sales promotion, advertising and public relations. When trying to persuade customers from B2C sector a company invests money into sales promotion and advertising, far less in personal selling and public relations. (2001, p. 559)
However generally can a company always accept either push or pull strategy. To push a product to customers requires the use of a motivation programme for intermediaries (such as discounts or word-of-mouth power. Companies usually resort to this strategy if customers lack loyalty or if the product is of a general kind. Pull strategy, on the other hand, tries to create loyal customers through direct interface with the end user, such as advertising or sales promotion. This strategy can be accompanied by a less extensive distribution channel and does not require the best knowledge of customers, while push strategy must usually be accompanied by data mining on potential and existing customers. Being very similar to database marketing, CRM software and its application in a company has showed as a good solution (see in the following chapter).
In this chapter on Marketin Programme Development we aimed to identify guidelines for further application in practice. A company whose top management is creating a new or changing its existing marketing strategy chooses, based upon previous marketing analysis, a combination of strategic ways in corresponding marketing mix tools.