Marketing Mix (Encyclopedia of Business and Finance)
The term marketing mix refers to the four major areas of decision making in the marketing process that are blended to obtain the results desired by the organization. The four elements of the marketing mix are sometimes referred to the four Ps of marketing. The marketing mix shapes the role of marketing within all types of organizations, both profit and nonprofit. Each element in the marketing mixroduct, price, promotion, and placeonsists of numerous subelements. Marketing managers make numerous decisions based on the various subelements of the marketing mix, all in an attempt to satisfy the needs and wants of consumers.
The first element in the marketing mix is the product. A product is any combination of goods and services offered to satisfy the needs and wants of consumers. Thus, a product is anything tangible or intangible that can be offered for purchase or use by consumers. A tangible product is one that consumers can actually touch, such as a computer. An intangible product is a service that cannot be touched, such as computer repair, income tax preparation, or an office call. Other examples of products include places and ideas. For example, the state tourism department in New Hampshire might promote New Hampshire as a great place to visit and by doing so stimulate the economy. Cities also promote themselves as great places to live and work. For example, the slogan touted by the Chamber of Commerce in San Bernardino, California, is "It's a great day in San Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives, as has the idea of recycling to help reduce the amount of garbage placed in landfills.
Typically, a product is divided into three basic levels. The first level is often called the core product, what the consumer actually buys in terms of benefits. For example, consumers don't just buy trucks. Rather, consumers buy the benefit that trucks offer, like being able to get around in deep snow in the winter. Next is the second level, or actual product, that is built around the core product. The actual product consists of the brand name, features, packaging, parts, and styling. These components provided the benefits to consumers that they seek at the first level. The final, or third, level of the product is the augmented component. The augmented component includes additional services and benefits that surround the first two levels of the product. Examples of augmented product components are technical assistance in operating the product and service agreements.
Products are classified by how long they can be usedurabilitynd their tangibility. Products that can be used repeatedly over a long period of time are called durable goods. Examples of durable goods include automobiles, furniture, and houses. By contrast, goods that are normally used or consumed quickly are called nondurable goods. Some examples of nondurable goods are food, soap, and soft drinks. In addition, services are activities and benefits that are also involved in the exchange process but are intangible because they cannot be held or touched. Examples of intangible services included eye exams and automobile repair.
Another way to categorize products is by their users. Products are classified as either consumer or industrial goods. Consumer goods are purchased by final consumers for their personal consumption. Final consumers are sometimes called end users. The shopping patterns of consumers are also used to classify products. Products sold to the final consumer are arranged as follows: convenience, shopping, specialty, and unsought goods. Convenience goods are products and services that consumers buy frequently and with little effort. Most convenience goods are easily obtainable and low-priced, items such as bread, candy, milk, and shampoo. Convenience goods can be further divided into staple, impulse, and emergency goods. Staple goods are products, such as bread and milk, that consumers buy on a consistent basis. Impulse goods like candy and magazines are products that require little planning or search effort because they are normally available in many places. Emergency goods are bought when consumers have a pressing need. An example of an emergency good would be a shovel during the first snowstorm of the winter.
Shopping goods are those products that consumers compare during the selection and purchase process. Typically, factors such as price, quality, style, and suitability are used as bases of comparison. With shopping goods, consumers usually take considerable time and effort in gathering information and making comparisons among products. Major appliances such as refrigerators and televisions are typical shopping goods. Shopping goods are further divided into uniform and nonuniform categories. Uniform shopping goods are those goods that are similar in quality but differ in price. Consumers will try to justify price differences by focusing on product features. Nonuniform goods are those goods that differ in both quality and price.
Specialty goods are products with distinctive characteristics or brand identification for which consumers expend exceptional buying effort. Specialty goods include specific brands and types of products. Typically, buyers do not compare specialty goods with other similar products because the products are unique. Unsought goods are those products or services that consumers are not readily aware of or do not normally consider buying. Life insurance policies and burial plots are examples of unsought goods. Often, unsought goods require considerable promotional efforts on the part of the seller in order to attract the interest of consumers.
Industrial goods are those products used in the production of other goods. Examples of industrial goods include accessory equipment, component parts, installations, operating supplies, raw materials, and services. Accessory equipment refers to movable items and small office equipment items that never become part of a final product. Office furniture and fax machines are examples of accessory equipment. Component parts are products that are turned into a component of the final product that does not require further processing. Component parts are frequently custom-made for the final product of which they will become a part. For example, a computer chip could be produced by one manufacturer for use in computers of other manufacturers. Installations are capital goods that are usually very expensive but have a long useful life. Trucks, power generators, and mainframe computers are examples of installations. Operating supplies are similar to accessory equipment in that they do not become part of the finished product. Operating supplies include items necessary to maintain and operate the overall firm, such as cleaners, file folders, paper, and pens. Raw materials are goods sold in their original form before being processed for use in other products. Crops, crude oil, iron ore, and logs are examples of raw materials in need of further processing before being used in products. The last category of industrial goods is services. Organizations sometimes require the use of services, just as individuals do. Examples of services sought by organizations include maintenance and repair and legal counsel.
The second element in marketing mix is price. Price is simply the amount of money that consumers are willing to pay for a product or service. In earlier times, the price was determined through a barter process between sellers and purchasers. In modern times, pricing methods and strategies have taken a number of forms.
Pricing new products and pricing existing products require the use of different strategies. For example, when pricing a new product, businesses can use either market-penetration pricing or a price-skimming strategy. A market-penetration pricing strategy involves establishing a low product price to attract a large number of customers. By contrast, a price-skimming strategy is used when a high price is established in order to recover the cost of a new product development as quickly as possible. Manufacturers of computers, videocassette recorders, and other technical items with high development costs frequently use a price-skimming strategy.
Pricing objectives are established as a subset of an organization's overall objectives. As a component of the overall business objectives, pricing objectives usually take one of four forms: profitability, volume, meeting the competition, and prestige. Profitability pricing objectives mean that the firm focuses mainly on maximizing its profit. Under profitability objectives, a company increases its prices so that additional revenue equals the increase in product production costs. Using volume pricing objectives, a company aims to maximize sales volume within a given specific profit margin. The focus of volume pricing objectives is on increasing sales rather than on an immediate increase in profits. Meeting the price level of competitors is another pricing strategy. With a meeting-the-competition pricing strategy, the focus is less on price and more on nonprice competition items such as location and service. With prestige pricing, products are priced high and consumers purchase them as status symbols.
In addition to the four basic pricing strategies, there are five price-adjustment strategies: discount pricing and allowances, discriminatory pricing, geographical pricing, promotional pricing, and psychological pricing. Discount pricing and allowances include cash discounts, functional discounts, seasonal discounts, trade-in allowances, and promotional allowances. Discriminatory pricing occurs when companies sell products or services at two or more prices. These price differences may be based on variables such as age of the customer, location of sale, organization membership, time of day, or season. Geographical pricing is based on the location of the customers. Products may be priced differently in distinct regions of a target area because of demand differences. Promotional pricing happens when a company temporarily prices products below the list price or below cost. Products priced below cost are sometimes called loss leaders. The goal of promotional pricing is to increase short-term sales. Psychological pricing considers prices by looking at the psychological aspects of price. For example, consumers frequently perceive a relationship between product price and product quality.
Promotion is the third element in the marketing mix. Promotion is a communication process that takes place between a business and its various publics. Publics are those individuals and organizations that have an interest in what the business produces and offers for sale. Thus, in order to be effective, businesses need to plan promotional activities with the communication process in mind. The elements of the communication process are: sender, encoding, message, media, decoding, receiver, feedback, and noise. The sender refers to the business that is sending a promotional message to a potential customer. Encoding involves putting a message or promotional activity into some form. Symbols are formed to represent the message. The sender transmits these symbols through some form of media. Media are methods the sender uses to transmit the message to the receiver. Decoding is the process by which the receiver translates the meaning of the symbols sent by the sender into a form that can be understood. The receiver is the intended recipient of the message. Feedback occurs when the receiver communicates back to the sender. Noise is anything that interferes with the communication process.
There are four basic promotion tools: advertising, sales promotion, public relations, and personal selling. Each promotion tool has its own unique characteristics and function. For instance, advertising is described as paid, nonpersonal communication by an organization using various media to reach its various publics. The purpose of advertising is to inform or persuade a targeted audience to purchase a product or service, visit a location, or adopt an idea. Advertising is also classified as to its intended purpose. The purpose of product advertising is to secure the purchase of the product by consumers. The purpose of institutional advertising is to promote the image or philosophy of a company. Advertising can be further divided into six subcategories: pioneering, competitive, comparative, advocacy, reminder, and cooperative advertising. Pioneering advertising aims to develop primary demand for the product or product category. Competitive advertising seeks to develop demand for a specific product or service. Comparative advertising seeks to contrast one product or service with another. Advocacy advertising is an organizational approach designed to support socially responsible activities, causes, or messages such as helping feed the homeless. Reminder advertising seeks to keep a product or company name in the mind of consumers by its repetitive nature. Cooperative advertising occurs when wholesalers and retailers work with product manufacturers to produce a single advertising campaign and share the costs. Advantages of advertising include the ability to reach a large group or audience at a relatively low cost per individual contacted. Further, advertising allows organizations to control the message, which means the message can be adapted to either a mass or a specific target audience. Disadvantages of advertising include difficulty in measuring results and the inability to close sales because there is no personal contact between the organization and consumers.
The second promotional tool is sales promotion. Sales promotions are short-term incentives used to encourage consumers to purchase a product or service. There are three basic categories of sales promotion: consumer, trade, and business. Consumer promotion tools include such items as free samples, coupons, rebates, price packs, premiums, patronage rewards, point-of-purchase coupons, contests, sweepstakes, and games. Trade-promotion tools include discounts and allowances directed at wholesalers and retailers. Business-promotion tools include conventions and trade shows. Sales promotion has several advantages over other promotional tools in that it can produce a more immediate consumer response, attract more attention and create product awareness, measure the results, and increase short-term sales.
Public relations is the third promotional tool. An organization builds positive public relations with various groups by obtaining favorable publicity, establishing a good corporate image, and handling or heading off unfavorable rumors, stories, and events. Organizations have at their disposal a variety of tools, such as press releases, product publicity, official communications, lobbying, and counseling to develop image. Public relations tools are effective in developing a positive attitude toward the organization and can enhance the credibility of a product. Public relations activities have the drawback that they may not provide an accurate measure of their influence on sales as they are not directly involved with specific marketing goals.
The last promotional tool is personal selling. Personal selling involves an interpersonal influence and information-exchange process. There are seven general steps in the personal selling process: prospecting and qualifying, pre-approach, approach, presentation and demonstration, handling objections, closing, and follow-up. Personal selling does provide a measurement of effectiveness because a more immediate response is received by the salesperson from the customer. Another advantage of personal selling is that salespeople can shape the information presented to fit the needs of the customer. Disadvantages are the high cost per contact and dependence on the ability of the salesperson.
For a promotion to be effective, organizations should blend all four promotion tools together in order to achieve the promotional mix. The promotional mix can be influenced by a number of factors, including the product itself, the product life-cycle stage, and budget. Within the promotional mix there are two promotional strategies: pull and push. Pull strategy occurs when the manufacturer tries to establish final consumer demand and thus pull the product through the wholesalers and retailers. Advertising and sales promotion are most frequently used in a pulling strategy. Pushing strategy, in contrast, occurs when a seller tries to develop demand through incentives to wholesalers and retailers, who in turn place the product in front of consumers.
The fourth element of the marketing mix is place. Place refers to having the right product, in the right location, at the right time to be purchased by consumers. This proper placement of products is done through middle people called the channel of distribution. The channel of distribution is comprised of interdependent manufacturers, wholesalers, and retailers. These groups are involved with making a product or service available for use or consumption. Each participant in the channel of distribution is concerned with three basic utilities: time, place, and possession. Time utility refers to having a product available at the time that will satisfy the needs of consumers. Place utility occurs when a firm provides satisfaction by locating products where they can be easily acquired by consumers. The last utility is possession utility, which means that wholesalers and retailers in the channel of distribution provide services to consumers with as few obstacles as possible.
Channels of distribution operate by one of two methods: conventional distribution or a vertical marketing system. In the conventional distribution channel, there can be one or more independent product manufacturers, wholesalers, and retailers in a channel. The vertical marketing system requires that producers, wholesalers, and retailers to work together to avoid channel conflicts.
How manufacturers store, handle, and move products to customers at the right time and at the right place is referred to as physical distribution. In considering physical distribution, manufacturers need to review issues such as distribution objectives, product transportation, and product warehousing. Choosing the mode of transportation requires an understanding of each possible method: rail, truck, water, pipeline, and air. Rail transportation is typically used to ship farm products, minerals, sand, chemicals, and auto mobiles. Truck transportation is most suitable for transporting clothing, food, books, computers, and paper goods. Water transportation is good for oil, grain, sand, gravel, metallic ores, coal, and other heavy items. Pipeline transportation is best when shipping products such as oil or chemicals. Air transport works best when moving technical instruments, perishable products, and important documents.
Another issue of concern to manufacturers is the level of product distribution. Normally manufacturers select from one of three levels of distribution: intensive, selective, or exclusive. Intensive distribution occurs when manufacturers distribute products through all wholesalers or retailers that want to offer their products. Selective distribution occurs when manufacturers distribute products through a limited, select number of wholesalers and retailers. Under exclusive distribution, only a single wholesaler or retailer is allowed to sell the product in a specific geographic area.
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ALLEN D. TRUELL