Sunday, March 30, 2014

MARKETING MIX VALUE GRID TO CREATE THE OPTIMAL MARKETING STRATEGY


A successful marketing effort requires the creation of value for a company, its customers and its collaborators. The only way this value can be created is through the mix of the four marketing Ps. The mix that is successful provides a profit for the company and a product or service that is acceptable to a set of customers. The greatest creation of value to all concerned is based on the optimal value of the 4Ps used in concert.  The Marketing Mix Grid (Grid 1) below provides an approach to identify the optimal marketing mix.

MARKETING MIX VALUE GRID – Grid 1
AREA ABOVE AND TO THE RIGHT OF DIAGONAL row of black boxes CREATES VALUE FOR COMPANY, AREA TO THE LEFT AND BELOW the DIAGONAL row of black boxes CREATES VALUE FOR CUSTOMERS AND COLLABORATORS.


Copyright GWR Research
PRICE
PLACE
PRODUCT
PROMOTION
PRICE
OPTIMAL PRICE
1B. PRICE CHARGED FITS WITH COSTS TO GET PRODUCT TO CUSTOMER LOCATION
2B. PRICE CHARGED PROVIDES NEEDED MARK UP TO COVER COSTS AND PROFIT NEEDS
3B. PRICE CHARGED COVERS ALL MARKETING COSTS
PLACE
1C. CUSTOMER’S PRICE FITS WITH THE SEARCH TIME INTENSITY CUSTOMER IS WILLING TO EXPEND
OPTIMAL PLACE
4B. LOCATION AND LOGISTICS MAXIMIZE ABILITY TO EFFICIENTLY DISTRIBUTE PRODUCT TO CUSTOMER

5B. LOCATION AND LOGISTICS TIES WITH BRANDING AND COMMUNICATION EFFORTS

PRODUCT
2C. PRODUCT IS PRICED TO FIT CUSTOMERS BUDGET AND AMOUNT WILLINGLY PAID FOR VALUE RECEIVED

3C. LOCATION AND LOGISTICS MATCH CUSTOMERS EXPECTATIONS FOR PRODUCT ACQUISISTION

OPTIMAL PRODUCT
6B. PRODUCT LENDS ITSELF TO PROMOTION EFFORTS THAT CAN SUPPORT NEEDED REVENUES AN VOLUMES

PROMOTION
4C. PROMOTION SUPPORTS VALUE INDICATED BY PRICE PAID BY CUSTOMER

5C. PROMOTION UTILIZES LOCATION AND LOGISTICS ARE INTERPRETED AS CUSTOMER BENEFITS AND ARE PART OF PROMOTION EFFORTS

6C. PRODUCT PROMOTION FOCUSES ON CUSTOMERS’ EXPECTATIONS OF PRODUCT DOING THE JOB THEY NEED DONE

OPTIMAL PROMOTION




To find the Optimal marketing mix simply line up the horizontal and vertical squares leading to each of the four Ps. For example, to find the optimal Place to create customer value, squares 1C, 3C and 5C would have to be addressed. To find the optimal Place to create value for the company, squares 1B, 4B and 5B would have to be addressed.  The location and logistics that addresses the requirements for the customer and company value creating squares combined yields the optimal Place (location and logistics) strategic component of the marketing mix and assures that the resulting Place strategy for creating customer value is in alignment with the Place strategy for creating value for the company. Repeating this for each of the four Ps determines the optimal value for each element of the marketing mix that assures alignment in creating value for the customer and the company. The resulting matrix provides the best strategy that supports company, customer and collaborator success.

Company Value

The value for the company rests on its ability to capture the value created for the customer in the form of profits. The best approach to address the requirements for the company value creating squares (those above and to the right of the diagonal column of the Optimal Ps, in green) is to determine a clear understanding of the direct costs and the mark up provided by the price willingly paid by the customer for the products and services offered and the size of the market. This understanding provides the strategist with an estimate of the cash flows that will be available to sustain the organization.

A situation analysis that is part of the marketing plan regimen usually requires that an assessment of the customer base, competition, industry and so forth take place before any marketing goals are set. This would be critical in determining potential price ranges, competition and size of the market.

Once direct costs are understood then a break-even analysis can help determine the strategy used for fixed costs. This approach allows the potential cash flows that result from providing customer value to drive the nature of the strategy rather than a preconceived notion of how the organization should be developed that might be have an emotional foundation.

Customer Value

Creating customer value is by providing products or services that fulfill a need and for which a customer is willing to pay a certain price and expend a certain amount of effort to acquire. To assess the appropriate customer value creating squares (those below and to the left of the diagonal column of optimal, in red) a clear understanding of forces that cause customers to purchase a product or service. Here a set of Consumer Adoption Drivers developed by GWR Research and based on research studies by Gerald Zaltman and Nan Linn prove useful.

To determine the best approach to address the requirements for customer value creation squares, each square should be measured against the Consumer Adoption Drivers shown below (CAD).

The CAD list is as follows:

1)    Group Influence Intensity – relates to peer pressure exerted on customers
2)    Perish ability – the length of time the product is deemed useful,
3)    Psychological appeal – status associated with the product
4)    Price sensitivity – the need for the customer to budget for the purchase,
5)    Relative Price Influence – the attractiveness of other products as a substitute when price is a consideration,
6)    Frequency of Purchase – The frequency with which the customer purchases the product,
7)    Search Time Intensity – the amount of time invested in the search for the “right” product,
8)    Tangible Differentiability – physical differences between products,
9)    Intangible differentiability – non-physical differences between products (guarantees, relationships with company, branding etc.),
10)Technical Complexity – the need for training before a customer can use the product. This may be a factor in determining the type of sales force that will be required.

For example, square 1C would be considered against each CAD. It might be that the product is frequently purchased and there may be several products easily attainable that could be used as a substitute. It might also be found that peer influence or psychological appeal plays an important decision in where the customer shops. These attributes along with other CAD attributes might impact the time and effort a customer is willing to locate the “right” product. This can help describe the location and logistics that will create the greatest overall value. This can also contribute to the price a customer is willing to pay.

Usually the best approach to understanding the CADs for a potential market is to conduct focus groups or surveys of potential customers to determine the importance of each of the CADs as they relate to the proposed product or service.  These measures can then be applied to each of the four Ps to determine the optimal characteristics for each of the 4 Ps to create value for the customer.

Collaborator Value

Collaborator value is best determined by providing a structure that allows the vendors, brokers, alliance members and other contributors to benefit when the optimal value is created for the customer and company. This, in most cases requires an organization that can create value by providing value to the customer. For this reason having collaborators aligned with creating value for customers is most advantageous.


Strategy Development

To begin the development of a strategy it is necessary to understand how the requirements for each element of the optimal marketing mix would be achieved through the deployment of organizational resources.

The Marketing Mix Organizational Impact Grid (Grid 2) shown below allows a strategist to measure organizational resource requirements against each of the Optimal 4 Ps developed in the marketing mix grid.

Using this grid the strategist can begin developing a strategy that is within the company’s resources. For example, the workforce would have to be available for the logistics and location to provide the optimal Place value for customers and the organization. If workforce availability or costs are problematic the strategist might consider outsourcing certain tasks or forming alliances that can provide workforce needs that meet the company and customer value creation requirements. 

MARKETING MIX ORGANIZATIONAL IMPACT GRID (Grid 2)
Copyright GWR Research
OPTIMAL PRICE
OPTIMAL PLACE
OPTIMAL PRODUCT
OPTIMAL PROMOTION
WORKFORCE – EMPLOYEES, CONTRACTORS, ALLIANCES, PARTNERS
WORKFORCE COSTS ARE WITHIN ACCEPTABLE LEVELS TO PRODUCE NEEDED PROFIT WITH PROJECTIED OPTIMAL PRICING AND SALES VOLUMES
WORKFORCE IS AVAILABLE FOR OPERATION OF OPTIMAL LOCATION AND LOGISTICS
WORKFORCE CAN EFFICIENTLY PRODUCE OPTIMAL PRODUCTS WITHIN ACCEPTABLE QUALITY REQUIREMENTS
WORKFORCE CAN PRODUCE AND DELIVER OPTIMAL PROMOTION/SALES CAMPAIGNS WITH HIGH DEGREE OF EFFICACY
CASH REQUIREMENTS
REVENUES GENERATED WITH OPTIMAL PRICING PROVIDES SUFFICIENT CASH FLOWS AND PROFITS TO MEET GROWTH GOALS
OPTIMAL LOCATION AND LOGISTICS ENHANCE CASH FLOWS AND MINIMIZE CASH OUTLAYS
OPTIMAL PRODUCT MAXIMIZES OPERATING MARGINS, INVENTORY TURNS AND CASH FLOWS.
OPTIMAL PROMOTION UTILIZES MIX OF MEDIA AND APPROACHES TO EFFICIENTLY BUILD AND MOVE CUSTOMERS TO ACTION
OPERATING PROCEDURES
OPTIMAL PRICE IS MANAGED BY SETTING PROPER SALES GOALS, DISCOUNTS AND ESTABLISHING METRICS TO ASSURE PROPER CONTIRBUTION PER UNIT.
OPTIMAL PLACE IS MANAGED BY ESTABLISHING METRICS FOR REVENUE/RENT, INVENTORY COSTS, PROFIT/ SQ.FT. ETC.
OPTIMAL PRODUCT IS MANAGED BY ESTABLISHING METRICS FOR COST PER PRODUCT, R&D COSTS ETC.
OPTIMAL PROMOTION IS MANAGED BY CREATING METRICS FOR PROMO COST PER CUSTOMER, SALES INCREASE PER PROMOTION ETC.
FIXED ASSETS
OPTIMAL PRICE SUPPROTS REQUIRED FIXED ASSTS
OPTIMAL PLACE MAXIMIZES PRODUCTIVITY OF REQUIRED ASSETS
OPTIMAL PRODUCT MAXIMIZES PRODUCTIVITY OF REQUIRED ASSETS
OPTIMAL PROMOTION MAXIMIZES PRODUCTIVITY OF REQUIRED ASSETS


Execution and Control

Once the Optimal Marketing Mix and the strategic organizational resources have been identified, the marketing strategist can begin assembling a plan for implementation and developing control metrics to assure that the strategic focus is maintained and the execution of the strategy results in creating the optimal value for the company, its customers and collaborators.

The Strategic Organizational Development Grid (Grid 3) allows the strategist to measure create processes to plan, organize, direct and control the execution of the strategy.

STRATEGIC ORGANIZATIONAL DEVELOPMENT GRID-TACTICS(Grid 3)

Copyright GWR Research
STRATEGIC WORKFORCE
STRATEGIC CASH REQUIREMENTS
STRATEGIC OPERATING PROCEDURES
STRATEGIC FIXED ASSETS
PLANNING
DEVELOP JOB DESCRIPTIONS AND JOB STANDARDS TO REACH OPTIMUM STRATEGY
DEVLOP ACCOUNTS RECEIVABLE AND PAYABLE PROGRAMS THAT ENHANCE CASH FLOWS
DEVELOP PROCESSES THAT ENSURE BEST WORKFORCE, QUALITY CONTROL AND VALUE DELIVERY
DEVELOP PROCESS OF IDENTIFYING BEST USE OF ASSETS (E.G. LEASE OR PURCHASE) ASSETS PLACED FOR MAXIMUM PRODUCTIVITY.
ORGANIZING
WORKFORCE SHOULD BE ORGANIZED IN MANNER THAT MOST EFFICIENTLY MATCHES OPTIMUM STRATEGY
ESTABLISH FINANCIAL MECHANISMS TO MAXIMIZE EFFICIENT USE OF CASH
ORGANIZATIONAL DEPARTMENTS SHOULD BE ORGANIZED TO OPTIMIZE OVERALL RESULTS
ASSETS ORGANIZED TO SUPPORT ORGANIZATIONAL PRODUCTIVITY.
DIRECTING
STNDARDS OF PERFORMANCE TIED TO NEEDED OUTCOMES
CASH FLOW TO HIGHEST AND BEST USE AREAS OF THE ORGANIZATION
OPERATING PROCESSES SUPPORT OPTIMUM STRATEGIC GOALS
ASSETS DELIVERED TO NEEDED AREA WHEN MOST PRODUCTIVE
CONTROLLING
METRICS FOR PAY AND BONUSES TIED TO STANDARDS OF PERFORMANCE
METRICS DESIGNED AND MANAGED TO DEFINE EFFICIENT CASH USEAGE
METRICS DESIGNED AND MANAGED TO ASSURE PROCESSES ARE EFFICIENT AND EFFECTIVE
METRICS DESIGNED AND MANAGED TO ASSURE EFFCIENT USE OF ASSETS

The overall process from developing the optimal marketing mix through the execution plan for strategy deployment provides an organization with an approach that focuses on creating optimal value for customers, collaborators and the company.

Saturday, March 1, 2014

WHICH OF THE FOUR Ps OF MARKETING IS MOST IMPORTANT?



The marketing mix of Price, Place, Product and Promotion is essential in every marketing strategy. The emphasis on components will shift with the circumstance or objective.

Getting the “right” marketing mix can be difficult but is easier to approach if the strategist recognizes that an increase in the value of one component affects the needed emphasis on the remaining components.

Below are some examples of situations where each of the components of the marketing mix may assume the dominant role in developing a marketing strategy

Product

Some instances in which Product becomes the dominant P in the marketing mix can be:
1)   The introduction of a new product that is anticipated by the consumers (new restaurant opening, electronic devices such as the Ipad),
2)   When a new product is the basis of the organization’s success, for example for college education the curriculum is critical,
3)   When a product is unique and delivers uncommon value. (it is important to remember here that value can be in a myriad of ways from improved productivity to an increase in status),
4)   When a product is rare, for example early beanie babies and the first Iphones created long lines of customers waiting to purchase the limited supply.

Promotion

Some instances in which promotion becomes the dominant P in the marketing mix can be:
1)   When a new product is unknown and there is a need to make the consumers aware of its existence,
2)   When a product is a commodity and requires differentiation,
3)   When a product is complicated and requires education and training of users,
4)   When success depends on continued reinforcement of brand and image.

Price

Some instances in which price becomes the dominant P in the marketing mix can be:
1)   When a product cannot be differentiated in another way and the competition can’t meet lower price ( here you shouldn’t lower the price unless you can retain the profitability through a competitive advantage),
2)   When product is exclusive or exclusively available through one distributor,
3)   When providing a “good enough” product for industry leaders least profitable customers (steel mini mills profitably providing rebar at a lower price than vertical steel mills).

Place

Some instances in which place becomes the dominant P in the marketing mix can be:
1)   When a product is exclusive to a distributor (e.g. a Lamborghini dealership),
2)   When the location is part of an experience (e.g. a hotel in the wine country),
3)   When products are readily available from several distributors at similar price points,
4)   When convenience of purchase is of primary importance (e.g. bank branches, convenience stores).

The purpose of the marketing mix

The marketing mix of price, place product and promotion are critical to capturing the value of the marketing effort. Putting the emphasis on the wrong components can be the difference between success and failure.

For most businesses the level of profitability gauges the ability of a marketing effort to capture the value that has been generated.

If, for example, a business distributes a product that can be duplicated easily by competitors then differentiation has to be built around other components of the marketing mix. In this case pricing might be an option if production or financial advantages prevent the competition from following suit.

In Texas for example, HEB Grocery Company, is able to convert value to profitability by placing emphasis on supply chain management (the place marketing component) that is difficult for competitors to copy. This has allowed HEB to keep low prices and maintain acceptable profitability levels.

HEB’s focus on having outlet’s offerings reflect the communities in which they are located has increased customer loyalty and profitability.

 An example of perhaps a marketing mix in need of attention might be the newspaper industry.  This industry has had a difficult time responding to an onslaught of competitors from the Internet. There is no question that the Internet is a productive method for delivering content – the source of value. Yet on-line newspapers such as the Huffington Post and most of the mainstream newspapers have had a difficult time capturing the value they have created with content. Turning this content into profits may be achieved by a close look at the marketing mix.

For example, promotion could be increased significantly and pricing could be modified.

Some newspaper promotion programs might include:

1)   Providing electronic readers or tablets with long term subscriptions,
2)   Daily radio and television commercials with breaking news and entertainment to be found on newspaper sites,
3)   Email blasts with news updates,
4)   Billboard advertising promoting customized information feeds,
5)   Coordinated co-op programs with advertisers who promote or include the newspaper sites in their ad campaigns.

Some pricing programs that might be include:

1)   Pricing by content category (sport, comics, legal ads etc),
2)   Pricing by delivery type (doorstep, on-line edition, combination)
3)   Elite pricing for specialty content (congress, local government, industry, legal advertising etc.)

These changes might improve the demand for the content and provide value for the consumer.

Conclusion

Basic marketing concepts revolve around creating business value by occupying a market space that is differentiated from competitors in such a way that profits are generated. The only way this can be achieved is by finding the optimum combination of the marketing mix of price, place, product and promotion.

It is important to understand that over the life cycle of a company or marketing effort the emphasis on the various components of the marketing mix is likely to change. Competition, customer tastes, technology and the legal environment are just a few of the market characteristics that can change and require a marketing mix review.

A thoughtful, disciplined review process has the best chance of developing a marketing strategy that effectively uses the marketing mix.