Process Focus on: Means are: End-goal
Selling Products Promoting Profits from Sales Volume
Marketing User Needs Planning Profits from Satisfied Customers
Marketing Mix (4Ps)
Planning vs. Forecasting?
In a business plan, companies will generally make a "forecast" of sales revenue on a month-by-month basis for the next few years. How can a company say that in May of next year it will generate sales of $2.3 million from Product A? Is this a guess?
If a company says it "plans" to achieve sales of $2.3 million, it is implied that there are specific activities that have been defined that will lead to this target. To this end, the distribution channels for the product must be defined. Pricing assumptions have to be tested and adjusted. Advertising budgets and schedules must be worked out. Most importantly, the resources required to achieve the desired sales level must be calculated. How many salespersons will be needed? What level of technical support is necessary?
The 4 Ps of Marketing or the Marketing "Mix"
The 4 Ps of marketing are Product, Price, Place, and Promotion. You control the 4Ps. They are your "independent" variables. The dependent variable is sales volume. This is the output that you get by defining the inputs — i.e. the 4 Ps. How do you choose this mix? That is the challenge! These variables are all interdependent. The task is to set these variables in such a way so that sales will take place. You cannot "make" a customer pull out her credit card, but you can certainly help her in coming to a decision by setting the "right" price, the retail outlet, the level of advertising and even product attributes such as color or perceived quality. You control everything but the customer herself.
In defining your marketing mix it is also necessary to take into account your competitor's mix as well as your overall corporate objectives. The idea is to come up with a mix that will clearly differentiate your products from those of your competitors while considering your corporate goals.
What is it that you are selling? A good marketing manager will be particularly interested in knowing what "need" it addresses? Engineers would think in terms of its functional specifications and marketing people would think more in terms of its features and benefits. Manufacturing people will be thinking about how to make it and along with the accounting group they will be wondering what it costs to make (or buy). Hopefully, they won't be wondering and will defer instead to rigorous analysis. The product is what you trade for cash. In other words, your customers want your product and you want their cash and all you do in business is trade those two items.
What is price? Price is not just the sticker price or the price invoiced. It goes deeper. For example, what about terms? Can you have 30 days to pay for a purchase or as we often hear on radio commercials for household furniture, "nothing down, no interest, low monthly payments starting next year!"? A good example of clever pricing was Xerox's decision to "loan" customers the Xerox 914 and to charge them only $.05 per copy.
As a product moves through the distribution channels, e.g. from manufacturer to distributor to dealer to customer, there are prices set along the way. The manufacturer's selling price to the distributor becomes the distributor's cost. Obviously, it is important to understand pricing and margins along the distribution path. Ultimately, the price to the consumer must be competitive. Who sets this price? Does the manufacturer or the dealer have the final say? Can the manufacturer in any way control the price of his product when it hits the street? Most importantly, can the manufacturer make (or sub-contract) the product for a cost to him that allows him to meet his profit objectives given the retail price target?
How do you price a very innovative, one-of-a-kind product? Are you pricing too low and leaving money on the table? Are you pricing yourself out of the market? If demand for your product is lagging, should you drop price — especially if the product life cycle has peaked?
There are various pricing strategies. For example, markup pricing is the setting of a price based on one's cost. This may be appropriate when reselling a product used in providing a service. For example, an auto mechanic may mark up her cost of auto parts by 50%. This may be a simple way for her to determine selling price and from her experience this is in line with what other mechanics are doing.
Another pricing strategy is that of market "skimming". You start with fairly high prices (especially in the absence of competition) and you lower your prices overtime as you start to keep up with the demand or as competition begins to move in.
For so-called commodity products, a going-rate pricing approach is often followed. If you are selling gasoline to motorists, it would be very difficult to charge a price per liter which is noticeably different from that charged by gas stations nearby, unless you're the only station on a 200 km stretch of desert highway.
Place (i.e. distribution)
Placement of the product is crucial. There are often many channels, which a product can take in going from your shop to the customer. Defining a channel strategy is not simply an arbitrary matter. Bear in mind that all middlemen along the way are in partnership with you to sell something to the end-user. Therefore, your product and its other 3 Ps must be such that various resellers in your channel have their needs (e.g. margin objectives, volumes) met.
There is also the question of control. When AES Data launched the world's first word processor in the early 1970s, it signed up the Lanier company in the USA to handle U.S. sales. However, Lanier was selling the AES product under its own label, and when Lanier decided to switch to another supplier of word processors (as competition emerged), AES had little control over its U.S. customers. To gain a foothold in the U.S. market, it had to start from the beginning in a market which it created!
A good practical way to determine appropriate channels for your product would be to start at the point of final purchase. Who is the finalconsumer or user of your product? Where does that person look when buying your type of product? Once the various channels have been identified, it is easier to determine which ones make the most sense or which ones offer the path of least resistance.
Promotion is that term which many people confuse with the word "marketing". But promotion is just one of the four Ps and a good "marketer" is not just a good promoter but also a good planner and a good listener.
Promotion can take many forms: advertising in various media, events, press releases, trade shows, brochures, flyers, and Internet sites to name a few. Promotion means creating awareness although awareness is just the beginning. Good promotion compels the buyer to buy. The "need" for the product must be addressed. How does it solve the customer's needs (even needs he doesn't know he has)?
There is virtually no limit on the amount of TV, radio, and newspaper advertising that one can do. When Apple announced the Macintosh in 1984, it used "shocking" television advertisement that was aired during the American Super Bowl broadcast. What an audience! What an impact! And then it was followed up with an inundation of print advertising as well as focused trade publications and trade shows. Of course, this also resulted in extensive "free" media coverage because of the news worthiness of this innovation.Promotion is done with the purpose of not only creating demand, but building brand awareness.
Source: www.sfu.ca, Business Basics for Engineers by Mike Volker
1. forecast — прогноз, to forecast — прогнозировать
2. sales revenues — выручка от продаж
3. distribution channel — канал распределения
4. pricing — ценообразование
5. adjustment — корректировка, to adjust — корректировать
6. salesperson (salesman) — сбытовик, специалист по продажам
7. marketing mix — маркетинговая смесь
8. variable — переменная (величина)
9. retail outlet — точка розничной торговли
10. high-end — дорогой, высокого класса
11. top-of-the-line product — товар высшей категории
12. invoice — счет-фактура, to invoice — выставлять счет-фактуру
14. loan — заем
15. charge — цена, плата, денежный сбор; расход, издержки; налог, комиссия за услуги; нагрузка; руководство, ответственность; обвинение, нападение; to charge — нагружать; пропитывать; поручать, вверять, приказывать; обвинять; назначать цену, запрашивать цену; записывать в долг, относить на счет
16. selling price — продажная цена
17. lag — отставание, запаздывание, to lag — отставать, запаздывать
18. advantage — преимущество
19. markup pricing — ценообразование с надбавкой к себестоимости товара
20. "skimming" prices — цены, «снимающие сливки»
21. commodity products — товары (чаше всего сырьевые)
22. going-rate pricing — ценообразование с учетом текущего уровня цен
23. currency fluctuations — валютные колебания
24. freight — фрахт, груз, to freight — фрахтовать, грузить
25. middleman — посредник
26.to emerge — появляться, проявляться, возникать
27. awareness — знание, осознание, осведомленность
28. coverage — охват, прикрытие; освещение (событий); общая сумма риска, покрытая страхованием, cover — покрытие; гарантийный фонд; страхование; чехол, переплет; убежище, укрытие; покров, личина, to cover — покрывать, прикрывать, скрывать, обеспечить покрытие; покрывать убытки; страховать; предусматривать; освещать
1.5 Answer the following questions.
1. What is the difference between marketing and selling? 2. What should a company do to develop a forecast of sales revenues? 3. What independent variables are included in the marketing mix? 4. What main challenge do you face when you develop the marketing mix? 5. How do different categories of professionals perceive a product of their company? 6. What are the most common pricing strategies? 7. How do companies identify distribution channels? 8. What is the difference between promotion and marketing?
1.6 Find in the text 8 English equivalents of the Russian words «цель», «задача» and make sentences of your own using them.
1.7 Read and translate the text. Find Russian equivalents for different terms used to describe price. Make sentences of your own with each term.
Price is probably the most flexible variable in the marketing mix. Marketers can usually adjust their prices more easily and more quickly than they can change any other marketing mix variable. To a buyer, price is the value placed on what is exchanged. Something of value — usually purchasing power — is exchanged for satisfaction or utility. Purchasing power depends on a buyer's income, credit and wealth. It is a mistake to believe that price is always money paid or some other financial consideration. In fact, trading of products — barter — is the oldest form of exchange. Money may or may not be involved.
Price is expressed in different terms for different exchanges. For instance, automobile insurance companies charge a premium for protection from the cost of injuries or repairs stemming from an automobile accident. An officer who stops you for speeding writes a ticket that requires you to pay a fine. If a lawyer defends you, a fee is charged, and if you use a railway or taxi, a fare is charged. A toll is charged for the use of bridges or turnpikes. Oil companies pay pipeline tariffs for oil transportation, and households pay electricity and gas tariffs.
Rent is paid for the use of equipment or an apartment. A commission is remitted to an agent for the sale of real estate. Dues are paid for membership in a club or group. A deposit is made to hold or lay away merchandise. A tip helps pay waitresses or waiters for their services. Interest is charged for the loan that you obtain, and taxes are paid for government services. Scientists are paid honorariums for research papers they write, and authors of bestsellers are paid royalties by their publishers. The value of many products is called price. Although price may be expressed in many different ways, it is important to remember that the purpose of this concept is to quantify and express the value of the items in the market exchange.
Source: Marketing. Concepts and Strategies. 6th edition.
William M. Pride and O.C. Ferrell,
Houghton Mifflin Company, 1989, p. 562.
1.8 Fill in the blanks using terms given below.
The Product Life Cycle A new product (1)...... through a sequence of stages from introduction to growth, maturity, and decline. This sequence is known as the product life cycle and is associated with changes in the marketing situation, thus impacting the (2) ....... and the (3) ....... .
Introduction Stage The firm seeks to build (4) …… and develop a market for the product. The impact on the marketing mix is as follows:
— Product(5)…..and quality level are established, and intellectual property protection such as (6)…… and (7)……are obtained.
—Pricingmay be (8)….to build (9) ….rapidly, or (10)…..to recover (11)..
—Place (distribution)is (12) until consumers show acceptance of the product.
—Promotionis aimed at (13)…..and (14)…… .Marketing (15) ….. seek to build product awareness and to educate potential consumers about the product.
Growth Stage The firm seeks to build (16)................. and increase market share.
—Productquality is maintained and additional (17)….. and support services may be added.
—Pricingis maintained as the firm enjoys increasing (18)…..with little competition.
—Place (distribution channels)are added as demand increases and customers accept the product.
—Promotionis aimed at broader (19) ….. .
Maturity Stage The strong growth in sales (20) …. .Competition may appear with similar products. The primary (21)…… at this point is to defend market share while (22)….. profit.
—Product features may be enhanced to (23)…… the product from that of competitors.
—Pricingmay be lower because of new competition.
—Place (distribution) becomes more intensive and (24)…. may be offered to encourage preference over competing products.
—Promotion (25) ….. on product differentiation.
As sales decline, the firm has several options:
—(26) ….. the product, possibly rejuvenating it by adding new features and finding new uses.
—Harvest the product — (27) ….. and continue to offer it, possibly to a (28) …..
—(29) …. the product, liquidating remaining (30) ….. or selling it to another firm that is willing to continue the product.
The marketing mix decisions in the decline phase will depend on the selected strategy. For example, the price may be maintained if the product is harvested, or reduced drastically if liquidated.
inventory, discontinue, market share, loyal niche segment, low penetration pricing, objective, incentives, diminishes, differentiate, trademarks, marketing mix, product awareness, branding, patents, high "skimming" pricing, selective, early adopters, brand preference, demand, maximizing, reduce costs, progresses, marketing strategy, development costs, audience, features, maintain, focuses, communications
1.9Marketing is in many ways the central activity in business management. In commercial organizations, marketing is 'everybody's business'.
AComplete the definitions of marketing using words from the box.
demand everything people promoting services things
1 Selling _______ that don't come back to ______ who do.
2 _________a company does to influence_______ for its products and services.
B The Four Ps of marketing are now the Seven Ps, because of the increasing importance of services and customer service. Match the seven Ps to the best definition.