Part Three Managing the Marketing Function This Page Intentionally Left Blank CHAPTER 11 Managing the marketing mix PETER DOYLE But inadequate margins and excessive invest- Introduction ment requirements would make this strategy a quick route to bankruptcy. Managing the marketing mix is the central task Some writers have tried to get around this of marketing professionals. The marketing mix problem by stating that the objective is to is the set of marketing tools – often summ- devise a marketing mix that provides superior arized as the ‘four Ps’: the product, its price, customer satisfaction at a profit to the company. promotion and place – that the firm uses to achieve its objectives in its target market (McCarthy, 2001).
The key elements in the Product Price marketing mix are shown in Figure 11. The Brand List price design of the marketing mix normally forms Quality Discounts the core of all marketing courses and the Design Allowances Features Trade margins textbooks that support them. Variety Payment terms The central assumption is that if marketing Packaging Credit Service Trade-in professionals make and implement the right Support decisions about the features of the product, its Guarantees price, and how it will be promoted and dis- tributed, then the business will be successful. Unfortunately, marketers have ignored the tau- Target tological nature of this view.
What is the ‘right’ Market decision when it comes to making these choices concerning the marketing mix? Most marketing professionals would answer that the right marketing mix is the one that maximizes Promotion Place customer satisfaction and results in the highest Sales force Distribution channels sales or market share. But a moment’s reflection Direct marketing Coverage Sales promotion Assortments reveals the fallacy of this approach. Customer Advertising Locations satisfaction and sales can always be increased Public relations Inventories by offering more product features, lower prices Exhibitions Transport Internet than competition, higher promotional budgets and the immediate availability of the product, of outstanding customer service and support.1 The marketing mix 288 The Marketing Book But profit is an ambiguous goal. Are managers service’s) strategic objective.
This emerges from to aim at short- or long-term profits? Should an analysis of its strengths, weaknesses, oppor- they seek to maximize profits or achieve some tunities and threats. Marketers have found the satisficing goal? Each alternative would lead to strategic matrices developed by consultants radically different recommendations for mar- such as the Boston Consulting Group and keting mix decisions. It is fair to conclude that McKinsey to be useful (for a good summary of most of the writing on marketing has described these matrices see Grant, 2000, and the com- the marketing mix but not provided a rational ments of Robin Wensley in Chapter 4). Typi- framework for managing it.
cally, a strategic matrix has market growth or In line with the new concept of value- market attractiveness as one dimension and based management, we define the objective of competitive advantage as the other. A product marketing as the development and imple- in a highly attractive market with a strong mentation of a marketing mix that maximizes competitive advantage would normally have as shareholder value. This definition has two its strategic objective rapid sales growth. First, it aligns marketing decision- product in a poor market with no competitive making to the goals of the board and top advantage would be targeted for divesting.
The board is not interested in Step two is a detailed analysis of the sales or market share per se, but rather with target market to assess the nature of the marketing strategies that will enhance the opportunity. What is its size and potential? company’s value. Corporate value is deter- How strong is the competition and how is it mined by the discounted sum of all future free likely to evolve in the future. Step three is cash flows.
Second, shareholder value provides research into the needs of prospective custom- rational and unambiguous criteria for deter- ers. What is it that customers actually want? mining the marketing mix. The ‘right’ market- Today, this goes beyond merely asking cus- ing mix is the one that maximizes shareholder tomers what they are looking for, but value. creatively seeking to discover needs that cus- This chapter focus on marketing mix deci- tomers cannot articulate because they are una- sions for private sector firms whose major ware of the possibilities offered by new tech- objective is creating value for shareholders.
In nologies and the changing environment (see, non-profit and public sector organizations, the e., Hamel and Prahalad, 1991). To most objective is not shareholder value maximiza- marketing professionals the marketing mix is tion but attracting enough funds to perform designed to meet these customer needs and their social tasks. Each element of the mix is designed to The chapter explains the logic of this new meet a customer need. Lauterborn (1990) approach to the marketing mix and illustrates articulated this with the concept of the four its application to typical decisions about prod- Cs.
Consumers have certain needs, which can uct development, pricing, promotion and be grouped into four Cs – a customer solution, distribution. cost, convenience and communication. According to this popular view, the function of the four Ps is to match each of these Cs. The traditional approach to the marketing mix Four Cs Four Ps Customer solution Product Marketing professionals have normally been Customer cost Price taught a four-step approach to marketing mix Communication Promotion decisions.
Step one is to define the product’s (or Convenience Place Managing the marketing mix 289 An effective marketing mix is then one their inadequate economic performance. But in which offers a product that solves the custom- the 1980s the bubble burst, investors lost er’s problem, that is of low cost to the customer, confidence in the ability of Japanese companies that effectively communicates the benefits, and to earn an economic return on capital and Japan that can be purchased with the utmost entered a two-decade recession.com ‘bust’ of 2000 illustrated the The problem with this ‘marketing’ view of same sort of weaknesses. These start-ups made the marketing mix is that it ignores whether the market share their sole priority. Products and mix makes economic sense for the company.
services were given away free or below cost. While it maximizes value for customers it can Huge sums were spent on advertising and easily minimize value for shareholders. For promotion in the belief that if they achieved a example, the product that gives the best cus- dominant market position in the ‘new economy’ tomer solution is likely to be one individually everything else would fall into place. The result tailored to a specific customer, incorporating all was large number of visitors to their sites, but the features of value to that customer.
But for the companies generated no profit and even- the company, this would require a very broad tually they ran out of cash. In 2002, Yahoo! product line with high manufacturing costs and counted its global users in millions, but it substantial investment requirements. Unfortu- worked out the average spend per head amoun- nately, what customers also want is low cost, ted to less than a cup of coffee annually. It was which in most situations will mean offering hardly surprising that, despite its dominant them low prices.
Similarly, the unconstrained market share and brand leadership, the value of pursuit of convenience and communication of the company collapsed by 90 per cent. the brand’s benefits also involves higher costs Successful businesses understand that and investment. The formula of low prices, building brands that satisfy consumers is neces- high operating costs and high investment in sary but not sufficient. Without generating an promotion and distribution is not one that economic return to shareholders, a marketing builds successful businesses.
mix is not sustainable. A striking example of the problems of the marketing-led approach to the marketing mix has been the collapse of the Japanese economic The accounting approach to the miracle (Porter et al. Until the early 1980s, the Japanese were held as the paragons marketing mix of successful marketing (e. Ohmae, 1985; Hamel and Prahalad, 1994).
Japanese com- Faced with poor returns, some companies, panies such as Nissan, Matsushita, Mitsubishi, especially in the UK, adopted an accounting Komatsu and Canon appeared set to dominate approach to marketing. The marketing mix was their markets. Their formulas were similar: an seen not as an instrument for gaining and overwhelming focus on investing in market retaining customers, but rather as a tool for share, and a marketing mix based on fully- directly increasing the return on investment. featured products, low prices, aggressive pro- Return on investment can be increased in four motion and an extensive network of dealers.
ways – increasing sales, raising prices, reducing The strategy did lead to gains in market shares costs or cutting investment. The marketing mix as consumers appreciated the superior value is the central determinant of each of these that Japanese companies were offering. But the levers. profit margins and return on investment earned For example, cutting back on the number by these companies were very poor.
For a time, of product variants offered to customers will the support of the Japanese banks disguised reduce costs and investment. Raising prices 290 The Marketing Book will usually increase profitability in the short 䊉 Short- or long-term profits. Most managers are term because higher margins will offset the conscious of the dangers of focusing on volume loss. Cutting advertising and promo- short-term profits.
Cutting projects to boost tional budgets will also boost short-term prof- this year’s results can lead to permanent its. Finally, savings on distribution and service erosion of the firm’s ability to compete. But will normally have positive effects on profit- emphasizing long-term profits does not help ability, even though customers may suffer some much because they are so ill-defined. long-term profits defined over 3, 5 or 20 As illustrated in Figure 11.2, the account- years? How does one deal with the time value ing approach leads to a completely opposite of money? marketing mix to the marketing approach.
䊉 Maximum or acceptable profits. Should managers While the marketing focus, which puts the be seeking to maximize (short- or long-term) customer first, normally leads to broader prod- profits or achieving an acceptable level, e. the uct ranges, lower prices and more spending on average return in the industry? Each would give promotion and distribution, the accounting one quite different recommendations when it leads to the opposite pressures. The cost of the comes to the marketing mix.
How would marketing approach is lower profitability and shareholders respond to managers consciously cash flow, the cost of the accounting approach accepting sub-optimal returns? is the longer-term loss of market share resulting 䊉 Ambiguity of profit measurement. Unlike cash from the lack of customer focus. flow, profits are a matter of judgement. Marketers need to be aware that there are Different, but equally legally acceptable other important problems in considering prof- treatments of depreciation, stocks and the its as the objective of the business.
costs of restructuring lead to vastly different Marketing Buyer Marketing Financial Profit Objectives Expectations Mix Variables Objectives Performance Product Sales Design Strategy Costs Choice Inventory Price Margins Value Pricing Sales Discounts Debt Target Return Market Marketing Budgets on Segment Plan Investment Service Distribution Sales Delivery and Assets Credit Service Expenses Information Advertising Sales Image and Expenses Security Promotion Assets Marketing-led approach Accounting-led approach Figure 11.2 Alternative approaches to the marketing mix Managing the marketing mix 291 reported profits. Profits also fail to incorporate Disney’s overriding objective is to create share- the cost of capital. So a company can be holder value by. growing profits, but declining in value because Walt Disney Corporation it is not achieving a return above its cost of capital on new investment.
Finally, profits Our governing objective is growth in share owner value. exclude the added investments in working and Cadbury Schweppes plc fixed capital needed to support the company’s growth.