CHAPTER TWO

THEOROTICAL ASPECTS OF “MARKETING MIX”

2.1 BACKGROUND/ HISTORY OF MARKETING MIX

Marketing mix usually refers to E. Jerome McCarthy's 4P classification for developing an

effective marketing strategy, which encompasses: product, price, placement (distribution) and
promotion. When it's a consumer-centric marketing mix, it has been extended to include three
more Ps: people, process and physical evidence, and three Cs: cost, consumer and competitor.
Depending on the industry and the target of the marketing plan, marketing managers will take
various approaches to each of the four Ps.

Investopedia says:

The term "marketing-mix," was first coined by Neil Borden, the president of the American
Marketing Association in 1953. It is still used today to make important decisions that lead to
the execution of a marketing plan. The various approaches that are used have evolved over
time, especially with the increased use of technology. Combination of marketing elements
used in the sale of a particular product. The marketing elements center around four distinct
functions, sometimes called the Four Ps: product, price, place (of distribution), and
promotion. All these functions are considered in planning a marketing strategy, and any one
may be enhanced, deducted, or changed in some degree in order to create the strategy
necessary to efficiently and effectively sell a product. The term "marketing mix" was coined
in 1953 by Neil Borden in his American Marketing Association presidential address.
However this was actually a reformulation of an earlier idea by his associate, James Culliton,
who in 1948 described the role of the marketing manager as a "mixer of ingredients", who
sometimes follows recipes prepared by others, sometimes prepares his own recipe as he goes
along, sometimes adapts a recipe from immediately available ingredients, and at other times
invents new ingredients no one else has tried. A prominent marketer, E. Jerome McCarthy,
proposed a Four P classification in 1960, which has seen wide use.

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2.2 DEFINITION OF MARKETING MIX

The marketing Mix and the 4ps, of Marketing are often used as synonyms for each other. In
fact, they are not necessarily the same thing.

“Marketing Mix” is a general phrase used to describe the different kinds of choices
organizations have to make in the whole process of bringing a product or service to market.
The 4 ps is one way- probably the best-known way- of defining the Marketing Mix.

Among the other marketing mix models have been developed over the years is Boom and
Bitner’s 7ps, something called the extended marketing mix which includes the first 4ps, plus
people, process and physical evidence.

2.3 7P'S OF THE MARKETING MIX

Figure 2.3: Marketing Mix (7P’s)

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  The Product

It has been said that a good product will sell itself. However, since there are many good
products available today for any given use, it becomes more important for the seller to ensure
that his product is, indeed, what the buyer wants. The marketer must define the characteristics
of his product or service that meets the needs of his customers. Function, quality, appearance,
packaging, brand, service, support and warranty all come into play.

A product is anything that can satisfy the need, want, or demand of the customer. The product
aspects of marketing deal with the specifications of the actual goods or services, and how it
relates to the end-user's needs and wants. The scope of a product generally includes
supporting elements such as warranties, guarantees, and support. Every product is subject to a
life-cycle including a growth phase followed by a maturity phase and finally an eventual
period of decline as sales falls. Marketers must do careful research on how long the life cycle
of the product they are marketing is likely to be and focus their attention on different
challenges that arise as the product moves through each stage. The marketer must also
consider the product mix. Marketers can expand the current product mix by increasing a
certain product line's depth or by increasing the number of product lines. Marketers should
consider how to position the product, how to exploit the brand, how to exploit the company's
resources and how to configure the product mix so that each product complements the other.
The marketer must also consider product development strategies.

When an organization introduces a product into a market they must ask themselves a number
of questions.

1. Who is the product aimed at?

2. What benefit will customers expect?

3. How does the firm plan to position the product within the market?

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 4. What differential advantage will the product offer over their competitors?

We must remember that Marketing is fundamentally about providing the correct bundle of
benefits to the end user, hence the saying ‘Marketing is not about providing products or
services it is essentially about providing changing benefits to the changing needs and
demands of the customer’ (P.Tailor 7/00)

Kotler suggested that a product should be viewed in three levels-

Level 1: Core Product: What is the core benefit your product offers? Customers who
purchase a camera are buying more than just a camera they are purchasing memories.

Level 2: Actual Product: All cameras capture memories. The aim is to ensure that your
potential customers purchase your one. The strategy at this level involves organizations
branding, adding features and benefits to ensure that their product offers a differential
advantage from their competitors.

Level 3: Augmented product: What additional non-tangible benefits can you offer?
Competition at this level is based around after sales service, warranties, delivery and so on.
John Lewis a retail departmental store offers free five year guarantee on purchases of their
Television sets, this gives their `customers the additional benefit of peace of mind over the
five years should their purchase develop a fault.

Product Decisions

When placing a product within a market many factors and decisions have to be taken into
consideration. These include:

Product Decision

Product Will the design be the selling point for the organization as we have seen with the ipad, The
design new VW Beetle or the Dyson Ball vacuum cleaner?

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Product Quality has to consistent with other elements of the marketing mix. A premium based pricing
quality strategy has to reflect the quality a product offers
Product What features will you add that may increase the benefit offered to your target market? Will
features the organization use a discriminatory pricing policy for offering these additional benefits?
One of the most important decisions a marketing manager can make is about branding. The
Product
value of brands in today’s environment is phenomenal. Brands have the power of instant
branding
sales; they convey a message of confidence, quality and reliability to their target market.

Product life cycle

As products move through the four stages of the product lifecycle different promotional
strategies should be employed at these stages to ensure the healthy success and life of the
product Stages and promotion strategies employed.

Figure: Product life cycle

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Introduction

When a product is now the organizations objective will be to inform the target audience of its
entry. Television, radio, magazine, coupons etc may be used to push the product through the
introduction stage of the lifecycle. Push and Pull Strategies will be used at this crucial stage.

Growth

As the product becomes accepted by the target market the organization at this stage of the
lifecycle the organization works on the strategy of further increasing brand awareness to
encourage loyalty.

Maturity

At this stage with increased competition the organization take persuasive tactics to encourage
the consumers to purchase their product over their rivals. Any differential advantage will be
clearly communicated to the target audience to inform of their benefit over their competitors.

Decline

As the product reaches the decline stage the organization will use the strategy of reminding
people of the product to slow the inevitable.

 The price

The amount of money charged for a product or service, or the sum of the values that
consumers exchange for the benefit of having or using the product of service.

The price is the amount a customer pays for the product. The price is very important as it
determines the company's profit and hence, survival. Adjusting the price has a profound
impact on the marketing strategy, and depending on the price elasticity of the product, often it
will affect the demand and sales as well. The marketer should set a price that complements

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the other elements of the marketing mix. When setting a price, the marketer must be aware of
the customer perceived value for the product. Three basic pricing strategies are: market
skimming pricing, market penetration pricing and neutral pricing. The 'reference value'
(where the consumer refers to the prices of competing products) and the 'differential value'
(the consumer's view of this product's attributes versus the attributes of other products) must
be taken into account. Pricing is a fundamental aspect of financial modeling, and is one of the
four Ps of the marketing mix. Price is the only revenue generating element amongst the four
Ps, the rest being cost centers. Pricing factors are manufacturing cost, market place,
competition, market condition, quality of product.

Pricing Strategies

Pricing is one of the most important elements of the marketing mix, as it is the only mix,
which generates a turnover for the organization. The remaining 3p’s are the variable cost for
the organization. It costs to produce and design a product; it costs to distribute a product and
costs to promote it. Price must support these elements of the mix. Pricing is difficult and must
reflect supply and demand relationship. Pricing a product too high or too low could mean a
loss of sales for the organization. Pricing should take into account the following factors:

1. Fixed and variable costs.

2. Competition

3. Company objectives

4. Proposed positioning strategies.

5. Target group and willingness to pay.

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 Figure: Pricing Strategy

Types of Pricing Strategies

Penetration pricing:

Here the organization sets a low price to increase sales and market share. Once market share
has been captured the firm may well then increase their price. Ex-A television satellite
company sets a low price to get subscribers then increases the price as their customer base
increases.

Skimming pricing:

The organization sets an initial high price and then slowly lowers the price to make the
product available to a wider market. The objective is to skim profits of the market layer by
layer. Ex-A games console company reduces the price of their console over 5 years, charging
a premium at launch and lowest price near the end of its life cycle.

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 Competition pricing:

Setting a price in comparison with competitors, really a firm has three options and these are
to price lower, price the same or price higher. Ex-Some firms offer a price matching service
to match what their competitors are offering.

Product Line Pricing:

Pricing different products within the same product range at different price points. Ex-An
example would be a DVD manufacturer offering different DVD recorders with different
features at different prices e.g. A HD and non HD version. The greater the features and the
benefit obtained the greater the consumer will pay. This form of price discrimination assists
the company in maximizing turnover and profits.

Bundle Pricing:

The organization bundles a group of products at a reduced price. Common methods are buy
one and get one free promotions or BOGOF's as they are now known. Within the UK some
firms are now moving into the realms of buy one get two free can we call this BOGTF i
wonder? Ex-This strategy is very popular with supermarkets who often offer BOGOF
strategies.

Psychological pricing:

The seller here will consider the psychology of price and the positioning of price within the
market place. Ex-The seller will therefore charge 99p instead £1 or $199 instead of $200. The
reason why this methods work, is because buyers will still say they purchased their product
under £200 pounds or dollars, even thought it was a pound or dollar away. My favorite
pricing strategy.

Premium pricing:

The price set is high to reflect the exclusiveness of the product. An example of products using
this strategy would be Harrods, first class airline services, Porsche etc.

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 Optional pricing:

The organization sells optional extras along with the product to maximize its turnover. T This
strategy is used commonly within the car industry as i found out when purchasing my car.

Cost Based Pricing:

The firms take into account the cost of production and distribution, they then decide on a
markup which they would like for profit to come to their final pricing decision. If a firm
operates in a very volatile industry, where costs are changing regularly no set price can be set,
therefore the firm will decide on their mark up to confirm their pricing decision.

Cost plus Pricing:

Here the firm adds a percentage to costs as profit margin to come to their final pricing
decisions. For example it may cost £100 to produce a widget and the firm adds 20% as a
profit margin so the selling price would be £120.00.

 The place/ Distribution

Distribution (or Placement): refers to how the product gets to the customer; for example,
point-of-sale placement or retailing. This third P has also sometimes been called Place,
referring to the channel by which a product or service is sold (e.g. online vs. retail), which
geographic region or industry, to which segment (young adults, families, business people),
etc. also referring to how the environment in which the product is sold in can affect sales.
Place - refers to providing the product at a place which is convenient for consumers to access.
Place is synonymous with distribution. Various strategies such as intensive distribution,
selective distribution, exclusive distribution and franchising can be used by the marketer to
complement the other aspects of the marketing mix. Delivery and timing are important
aspects, carrying lot of weight with the consumer. If an order is received late or with missing
items, or if one must wait two to three weeks for delivery, a customer may be lost.

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Place strategies

This refers to how an organization will distribute the product or service they are offering to
the end user. The organization must distribute the product to the user at the right place at the
right time. Efficient and effective distribution is important if the organization is to meet its
overall marketing objectives. If an organization underestimate demand and customers cannot
purchase products because of it, profitability will be affected.

What channel of distribution will they use?

Two types of channel of distribution methods are available. Indirect distribution involves
distributing your product by the use of an intermediary for example a manufacturer selling to
a wholesaler and then on to the retailer.. Direct distribution involves distributing direct from a
manufacturer to the consumer For example Dell Computers providing directly to its target
customers. The advantage of direct distribution is that it gives a manufacturer complete
control over their product.

Above indirect distribution (left) and direct distribution (right)

Figure: Distribution strategies

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Distribution Strategies

Depending on the type of product being distributed there are three common distribution
strategies available:

1. Intensive distribution: Used commonly to distribute low priced or impulse purchase

products e.g. chocolates, soft drinks.

2. Exclusive distribution: Involves limiting distribution to a single outlet. The product is

usually highly priced, and requires the intermediary to place much detail in its sell. An
example of would be the sale of vehicles through exclusive dealers.

3. Selective Distribution: A small number of retail outlets are chosen to distribute the
product. Selective distribution is common with products such as computers, televisions
household appliances, where consumers are willing to shop around and where manufacturers
want a large geographical spread.

If a manufacturer decides to adopt an exclusive or selective strategy they should select a

intermediary which has experience of handling similar products, credible and is known by the
target audience.

 The promotion

Promotion represents all of the methods of communication that a marketer may use to
provide information to different parties about the product. Promotion comprises elements
such as: advertising, public relations, personal selling and sales promotion.

Advertising covers any communication that is paid for, from cinema commercials, radio and
Internet advertisements through print media and billboards. Public relations is where the

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communication is not directly paid for and includes press releases, sponsorship deals,
exhibitions, conferences, seminars or trade fairs and events. Word-of-mouth is any apparently
informal communication about the product by ordinary individuals, satisfied customers or
people specifically engaged to create word of mouth momentum. Sales staff often plays an
important role in word of mouth and public relations On the other hand, promotion cannot
long succeed if the other elements of the marketing mix are unsatisfactory. The best of ALL
the other P’s will do little good, if the consumer isn’t made aware. Today, this is quite
possibly the most important factor of all.

Promotion Strategies

Promotion means activities that communicate the merits of the product and persuade the
target consumer to buy. For example, Company, they influence their customer by offering
special promotion. They convince customer for their product. Such as-

Figure: Promotion Strategy

A successful product or service means nothing unless the benefit of such a service can be
communicated clearly to the target market. An organizations promotional mix strategy can
consist of:

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Types of promotion

Advertising: Advertising means any paid form of non-personal promotion and

presentation of ideas; goods or services buy an individual sponsor. For example,
Visual advertisement of Grameen Phone is “ Stay Close”
Personal selling: Personal presentation by the firms sells force for the purpose of
making sells and building customer relationship. Example, home services.
Sales promotion: Sales promotion means short-term incentives to encourage the
purchase or sell of a product or service. For example, free talk’s time in whole day
with Robi Partner.
Public relation: Public relation indicates building good relations with the companies
various publics by obtaining favorable publicity building up a good corporate image
and handling or heading of unfavorable rumors and stories or events. For example,
press release, sponsorships and special events.
Direct marketing: Direct marketing means the direct communication with carefully
targeted individual consumers-the use of telephone, mail, fax, e-mail, the Internet, and
other tools to communicate with specific consumers.
Internet marketing: Internet marketing indicates a vast web of computer networks,
which connect users of all types all around the world to each other and to an
amazingly large information repository. For example- World Wide Web, Internet
Forums, E-mail.

 The People

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Particularly when the offering is a service, the people involved in the offering, including the
consumer, take on an importance that should not be ignored, as they can offer significant
additional value to the product or service. People are all people directly or indirectly
involved in the service encounter, namely the firm's contact employees, personnel and other
customers. Due to the inseparability of production and consumption for services which
involves the simultaneous production and consumption of services, service firms depend
heavily on the ability of contact employees to deliver the service. Contact employees
contribute to service quality by creating a favorable image for the firm, and by providing
better service than the competitions. Service providers (such as hair stylists, personal
trainers, nurses, counselors and call centre personnel) are involved in real time production
of the service. They are the “service”. Much of what makes a service special derives from
the fact that it is a lived-through event.

 The Process

The manner of handling sales, order processing and after-sale service can also be essential
elements of the overall marketing strategy. Process is referred to the procedures,
mechanisms and flow of activities by which the service is delivered i.e. the service
delivery and operating systems. The process of travelling with a budget air line is very
different from that with a full-fledged premium airline.

 Physical Evidence

Satisfied customers can be the best advertisement, with either tangible products or services.
The marketing strategy should include effectively communicating their satisfaction to
potential customers. Physical evidence affects the customer’s satisfaction. Often, services
being intangible, customers depend on other cues to judge the offering. This is where
physical evidence plays a part. Would you like eating at a joint where the table is greasy or
the waitresses and cooks look untidy and wear a stained apron?

After Koichi Shimizu proposed a four Cs classification in 1973, this was expanded to the
seven Cs compass model to provide a more complete picture of the nature of marketing in

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1981. It attempts to explain the success or failure of a firm within a market and is somewhat
analogous to Michael Porter's diamond model, which tries to explain the success and failure
of different countries economically.

The seven Cs compass model are:

 (C1)Corporation – The core of four Cs is corporation (company and nonprofit

organization). C-O-S (Organization, Competitor, Stakeholder) within the Corporation.
The company has to think of compliance and accountability as important. The
competition in the areas in which the company competes with other firms in its
industry.

The four elements in the seven Cs compass model are:

 A formal approach to this customer-focused marketing mix is known as Four Cs

(Commodity, Cost, Channel, Communication) in “the seven Cs compass model. The
four Cs Model provides a demand/customer centric version alternative to the well-
known four Ps supply side model (product, price, place, promotion) of marketing
management.[9]
o Product → Commodity

o Price → Cost

o Place → Channel

o Promotion → Communication

 (C2)Commodity – (Original meaning of Latin: Commodus=convenient): the goods

and services for the consumers or citizens. Steve Jobs has been making the goods with
which people are pleased. It is not "product out".

 (C3)Cost – (Original meaning of Latin: Cons tare= It makes sacrifices): There is not
only producing cost and selling cost but purchasing cost and social cost.

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  (C4)Channel – (Original meaning is a Canal): marketing channels. Flow of goods.

 (C5)Communication – (Original meaning of Latin: Communio=sharing of meaning):

marketing communication: Not only promotion but communication is important.

The compass of consumers and Circumstances (environment) are:

 (C6)Consumer – (Needle of compass to Consumer)

The factors related to consumers can be explained by the first character of four directions
marked on the compass model. These can be remembered by the cardinal directions, hence
the name compass model:

o N = Needs
o W = Wants

o S = Security

o E = Education:(consumer education)

 (C7)Circumstances – (Needle of compass to Circumstances )

In addition to the consumer, there are various uncontrollable external environmental factors
encircling the companies. Here it can also be explained by the first character of the four
directions marked on the compass model:

o N = National and International

o W = Weather

o S = Social and Cultural

o E = Economic

These can also be remembered by the cardinal directions marked on a compass. The seven Cs
compass model is a framework in co-marketing (symbiotic marketing). It has been criticized
for being little more than the four Ps with different points of emphasis. In particular, the
seven Cs inclusions of consumers in the marketing mix are criticized, since they are a target
of marketing, while the other elements of the marketing mix are tactics. The seven Cs also

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include numerous strategies for product development, distribution, and pricing, while
assuming that consumers want two-way communications with companies.

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