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Introduction

In recent years the rise of global competition and the prevalence of continuous innovation
have combined to redefine market structures, reshape industries and give customers unprece-
dented value and choice. In this area of consumer sovereignty there is a tremendous amount
of pressure on organizations to adopt the principles of the marketing concept and to develop
a much sharper strategic focus. For most companies, however, this strategic shift involves rad-
ical changes in fundamental business processes and profound transformations in organiza-
tional design and culture. To address this marketing ’fact of life’ firms readily express their
desire to become ’market driven’ and they often demonstrate a strong determination to act
’strategically’. There is little doubt that companies are aware of the organizational challenges
this entails and no claim is made that their strategc aspirations are not genuine. Serious con-
cerns do arise, however, when one questions the existence of appropriate levels of organiza-
tion-wide competencies which are essential for a ’marketing-led’ company to exist and thrive.
In a truly market-driven organization everybody does marketing and, logically, there is no
need for a ‘marketing’ department. In reality, however, marketing is frequently marginalized
as a functional activity and the marketing philosophy remains an ephemeral idea in many
companies. The key to solving this dilemma is education and a shared vision of what is actu-
ally meant by marketing. If the marketing philosophy is to permeate the organization there is
no doubt that the inspiration should emanate from senior executives. The CIM Handbook of
Strategic Marketing addresses this audience and aims to develop their knowledge of how
designing and implementing effective marketing strategies can considerably improve busi-
ness performance.

The book
The CIM Handbook of Strategic Marketing aims to play a key role in disseminating the market-
ing philosophy throughout organizations. It is one of a series of handbooks which introduce
the principles and practice of marketing to people at all levels in organizations, from senior
executives to sales personnel. The texts within the series serve two key functions: (i) as a ref-
erence source to guide effective marketing practice; and (ii) as supportive material to man-
agers and employees who are building their marketing competencies by attending training
programmes. Taken together these twin roles will underpin the CIM Continuing Professional
Development initiative, itself a reflection of the generic need for continuous improvement in
contemporary business practice.
The CIM Handbook of Strategic Marketing is written for senior executives responsible for shap-
ing and managing the company’s strategic direction. The strategic dimensions of marketing
management are strongly emphasized, as is the critical importance of matching the company’s
capabilities with genuinely attractive market sectors. The guiding philosophy of this hand-
book is based on its strategic perspective and pragmatic outlook, twin themes which pervade
the text and underpin its practical foundations.
viii Introduction

The contributors
Each contributor was asked to reflect on key issues in their own field of expertise. As market-
ing experts with extensive academic and practical experience, each of the authors focuses here
on a specific topic but always with reference to the broader strategic marketing context.

The homily
Economists have a superb 'get out' clause when making observations of what should or
should not be done, what is right and what is wrong. The Latin phrase ceteris paribus has
spared many blushes for economists who have been proved spectacularly wrong! Meaning
'other things being equal', it allows predictions to be made on the basis of clearly stated
assumptions. Unlike the 'pure' sciences, the social science base of marketing (economics, psy-
chology, sociology, cultural anthropology) can accommodate exceptions to the rule without
necessarily breaking the rule. Fortunately, when the rule is broken there are quite sophisticated
quantitative and qualitative techniques to explain why.
Strategic and marketing lecturers are often accused by their students of enjoying the 'bene-
fit' of hindsight. In contrast, the essence of strategic marketing management is to deploy the
skills of foresight, competencies which are grounded in the models, methods and frameworks
introduced throughout this handbook. Marketing is a normative subject, quick to offer pre-
scriptions about what firms should do if they wish to survive and prosper in a competitive
environment. But, as you will see throughout this book, all contributors acknowledge the
organizational constraints which can sometimes conspire to prevent the best marketing inten-
tions from ever reaching fruition. In this sense, strategic marketing has two dimensions: (i)
content, i.e. the actual strategies which are formulated; and (ii) process, i.e. the decision-
making actions and activities which lead to the development of the strategies. These twin
forces evolve in a particular context, i.e. a marketing environment which is in a constant state
of flux, a turbulent and sometimes hostile place within which to devise competitive strategies.
All these issues are addressed throughout this book. The philosophy of the handbook is based
upon the premise that while strategic marketing decision making is difficult, it is entirely pos-
sible to employ structured and systematic methods to enhance competitiveness and deliver
superior performance.

Networking
The editors would welcome feedback. Those who read this volume will respond to its pro-
positions and observations in the light of their own experience with their industry/ organization
background. We, the editors, welcome your responses - all will be acknowledged in the next
edition. We are as close as your laptop. E-mail us at:

[email protected]
[email protected]
The CIM Handbook of Strategic Marketing

The Chartered Institute of Marketing/ Butterworth-Heinemann Marketing Series is the most

comprehensive, widely used and important collection of books in marketing and sales cur-
rently available worldwide.

As the CIMs official publisher, Butterworth-Heinemann develops, produces and publishes

the complete series in association with the CIM. We aim to provide definitive marketing books
for students and practitioners that promote excellence in marketing education and practice.

The series titles are written by CIM senior examiners and leading marketing educators for pro-
fessionals, students and those studying the CIMs Certificate, Advanced Certificate and
Postgraduate Diploma courses. Now firmly established, these titles provide practical study
support to CIM and other marketing students and to practitioners at all levels.

The Chartered
Institute of Marketing

Formed in 1911, The Chartered Institute of Marketing is now the largest professional market-
ing management body in the world with over 60,000 members located worldwide. Its primary
objectives are focused on the development of awareness and understanding of marketing
throughout UK industry and commerce and in the raising of standards of professionalism in
the education, training and practice of this key business discipline.
A strategic perspective on the marketing
mix

Professor David Jobber, University of Bradford

Manaaement Centre

This chapter examines a key element in marketing strategy development:

the creation of an effective marketing mix. First, the classical marketing
mix consisting of product, promotion, price and place (distribution) will
be described. Each of these 4Ps as they are termed will be analysed from
a strategic perspective. Then, the extended marketing mix which was developed for a
services context will be considered. People, physical evidence and process are the
additional variables that form the extended marketing mix. Finally, the key ingredients
necessary for the development of a marketing mix that satisfies customers better than the
competition will be analysed.

A key element in creating an effective mar- These four strategies comprise the cZassicaZ
keting strategy is the choice of target market. marketing mix otherwise known as the 4Ps.
A target market consists of a group of poten- The objective is to blend the four strategy ele-
tial customers with similar characteristics ments into a consistent package that satisfies
(e.g. similar needs or price sensitivities)that a the requirements of the chosen target mar-
company has chosen to serve. The means by ket(s) better than the competition and in a
which it serves each target market is through way that meets the company’s objectives be
its marketing mix. Although the creation of they profit or non-profit orientated.
satisfaction among a group of potential cus- Although understanding how to create
tomers involves making dozens of decisions, individual product, promotion, price and dis-
marketing decision making can usefully be tribution strategies is important it is the com-
categorized into four strategies: product, pro- bination and integration of these strategies
motion, pricing and place (distribution). into a coherent whole that determines the
32 The CIM Handbook of Strategic Marketing

needs of their customers before they develop

their marketing mix. Customer needs can be
economic based such as performance, relia-
bility or productivity, or psychologically
based, for example the desire for a certain
self-image, a quiet life or convenience. The
link between customer needs and the mar-
keting mix is shown in Figure 2.2. Through

1 (distribution)
Place I personal experience and/or marketing
research, marketing managers must gain a
full understanding of key customer require-
Figure 2.7 The classical marketing mix ments and provide the product, at the right
price, where and when customers want to
degree of marketing success. Figure 2.1 sum- buy it and communicated in a manner that
marizes the discussion so far. The key point is creates awareness and the right image for the

,
that each target market will have a uniquely target market segment. Without such an
blended marketing mix. As companies understanding, making marketing mix deci-
decide to target different groups of potential sions will be like shooting in the dark with
customers (market segments) so the market- little hope that the resulting mix will achieve
ing mix will need to be modified to accom- its objectives.
modate their differing characteristics. The next section examines in turn the key
elements of the classical marketing mix to
identify some of the key influences on deci-
sion making. Analysing each marketing mix
element separately should not mislead the
Identify the target markets that you reader into believing that decisions can be
serve. Each target market will differ in made without reference to each other ele-
some way that affects the marketing of ment in the marketing mix. As we shall see
products and services to it. To what when exploring the key issues in developing

-
extent has your company developed a an effective marketing mix, co-ordination
unique marketing mix that matches and integration are necessary to blend
customer requirements better than the together all of the 4Ps.
competition? Try to think of ways of
better matching customer requirements.
Product strategy

-
4 major consequence of the discussion so far A product is anything that is capable of satis-
is that companies need to understand the fying customer needs. Both goods and ser-
Customer needs

Economic Psychological Classical

Value Status marketing
Performance Quiet life mix
Productivity Convenience Key customer Product
Life cycle Belonging requirements Promotion
costs Self-image Price
Reliability Risk Plan
Delivery Reduction

Figure 2.2 Customer needs and the classical marketing mix

 A strategic perspective on the marketing mix 33

vices are products with goods being tangible

(e.g. a computer) and services intangible (e.g.
a medical examination). Branding is the
process by which companies distinguish Market Product
Existing
their products from the competition. Brands penetration development
Markets
are created by creating a distinctive name,
packaging and design. Branding affects per- New Market Diversification
ceptions since it is well known that in blind development
product testing people may fail to distinguish
between two products yet when the same test
is carried out with the brands identified clear Figure 2.3 Product growth strategies: the
preferences become apparent. Ansoff matrix
Product strategy is the choice of what
goods and services to market and the man- making short-term cut-backs. The objective is
agement of the chosen products over time. It to make existing customers more brand loyal
also involves decisions regarding brand (brand switch less often) and/or make new
names, warranties, packaging, the services customers in the same market begin to buy
that should accompany the product offering, our brand. Higher penetration can also be
and how to build brands. achieved by increasing brand usage through
frequency (eg. wash hair more often) or
quantity (e.g. two teabags instead of one).
Product development: growth can also
come from developing new products for
You may regard the product you supply existing markets. New products giving extra
as being essentially tangible. However, benefits based on new features can be the
your customers may choose between motor for increased sales and market share.
competing offerings on the basis of Japanese camcorder manufacturers are con-
accompanying services. Is there sistently upgrading their products by adding
anything you could do to improve the features.
services you supply with each Market development:existing products in
product? new markets is a third option. Moving into
new international markets may be feasible or
into new market segments.
The choice of what goods and services to Diversification: h s strategy involves the
offer on the marketplace, from a strategic per- development of new products for new mar-
spective, can be greatly aided by what has kets and consequently is the most risky of the
become known as the Ansoff matrix (see four options. Levi's ill-fated move into suits
Figure 2.3). By combining present and new was an example of a diversification strategy
products, and present and new markets into that failed, whereas Heinz' development of a
a 2 x 2 matrix, four product strategies are new service 'Weight Watchers' to support a
revealed. As such it is a useful framework for new product range (low-calorie foods and
thinking about the ways in which growth can drinks) proved successful.
be achieved through product strategy. A second key product strategy issue is how
Market penetration:brand building is one to manage brands and product lines over
way of achieving greater penetration of exist- time. A useful tool for thinking about the
ing markets with existing products. Brand changes that occur while a product is on the
building can be achieved by such means as market is called the product life cycle (PLC).
improved quality, better communications This states that a product passes through four
and positioning, and providing consistently stages: introduction, growth, maturity and
high levels of brand investment rather than decline (see Figure 2.4).
34 The CIM Handbook of Strategic Marketing

The end of the growth period is often associ-

ated with competitive shake-out whereby
weaker suppliers cease production.
Think of ways in which your existing Maturity: eventually sales peak and flatten
products could be marketed to new as saturation occurs, hastening competitive
groups of customers. Also consider new shake-out. The survivors battle for market
products for existing markets and new share by product improvements, advertising
products for new markets. Thinking in and sales promotional offers, dealer discount
this way may reveal new opportunities and price cutting; the result is a strain on
for growth. profit margins particularly for follower
brands. The need for effective brand building
is acutely recognized during maturity as
Introduction: when first introduced on to brand leaders are in the strongest position to
the market a product's sales growth is typi- resist the pressure on profit margins.
cally low and losses are incurred because of Decline: sales and profits fall during the
heavy development and promotional costs. decline stages as new technology or changes
Companies will be monitoring the speed of in consumer tastes work to reduce demand
product adoption and if disappointing may for the product. Suppliers may cease produc-
terminate the product at this stage. tion completely or reduce product depth.
Growth: this stage is characterized by a Promotional and product development bud-
period of faster sales and profit growth. Sales gets may be slashed and marginal distribu-
growth is fuelled by rapid market acceptance tors dropped as suppliers seek to maintain
and, for many products, repeat purchasing. (or increase) profit margins.
Profits may begin to decline towards the lat- The PLC has a number of uses for product
ter stages of growth as new rivals enter the strategy. First, the stages emphasize the need
market attracted by the twin magnets of fast to review marketing objectives and strategies
sales growth and high profit potential. The in order to adapt them to changing market
personal computer market is an example of and competitive conditions. For example,
this during the 1980s when sales growth was build objectives which aim to increase sales
mirrored by a vast increase in competitors. and market share may be sensible in the

Sales
and
profit

Sales

Growth Maturity Decline

Introduction

Figure 2.4 The product life cycle

 A strategic perspective on the marketing mix 35

introduction and growth stages. Once a prod-

uct enters maturity, however, the costs of Practical tip
building may exceed the likely returns lead-
ing to a hold objective. In decline, products Examine your products from the point of
may be managed for cash until their eventual view of the product life cycle. How
demise. Product strategy may also change many appear to be in the introduction,
over the product life cycle. The introduction growth, maturity and decline stages. Too
of a new product may necessitate a basic many products in the latter two stages,
design which becomes more elaborate during and too few in the first two stages may
growth and maturity in an attempt to differ- mean healthy profits now but an
entiate it as competition becomes more uncertain future.
intense. Consistent with a 'managed for cash'
objective, the product line may be rational-
ized during decline. misleading. Strategy should take account of
The PLC also emphasizes the need to all of the relevant factors not just the PLC
prune product lines and replace them with stage. Finally, not all products pass through
new products. The danger is that manage- the four stages. Fads (e.g. skateboards) 'rise
ment may become emotionally attached to like a rocket and then fall like a stick' and
star products of yesterday and be reluctant to classics (e.g. Cadbury's Milk Tray) have sur-
terminate them. The PLC underlines the fact vived for decades with no indication that
that management needs to face the harsh they may enter the decline stages. As such the
realities of commercial life and that most PLC should be regarded as an aid to manage-
products will enter the decline stage eventu- rial decision making and a stimulus to strate-
ally. gic thinking. As a prescriptive tool it is

-
Third, the concept warns against the dan- undoubtedly blunt. Marketing management
ger of assuming growth will last forever. It is needs to consider all of the relevant issues
easy during the growth phase to become over before drawing up product marketing plans.
optimistic about future prospects leading to
over investment in production facilities. The
PLC reminds managers that growth will tend Promotion strategy
to be followed by maturity. Unfortunately, a
limitation of the PLC is that it does not pre- Promotion strategy is concerned with deci-
dict when growth will turn into maturity. sions which focus on the methods of commu-
Finally, the PLC stresses the need to nication with target customers. Key methods
analyse the balance of products that a com- include advertising, personal selling, sales
pany markets from the perspective of the promotion (incentives to the consumer or
four stages. One danger is that a company trade which are designed to stimulate pur-
with all of its products in the mature stage chase), publicity, direct marketing, exhibi-
may be generating profits today but as they tions and sponsorship. Marketing managers
enter the decline stage future prospects may need to create the most effective promotional
look bleak. The PLC provokes management blend from these tools.
into considering products as an interrelated The starting point is not to ask 'should we
set of profit-bearing assets that need to be spend an extra €200,000 on advertising or the
managed as a portfolio. sales force?'. A more fundamental question
Before leaving the PLC we should note a needs to be asked: what is our competitive
few limitations. First, the concept does not positioning? This requires the choice of a tar-
predict when products will move from one get market (where we compete) and the cre-
stage to the next. Second, stylised marketing ation of a differential advantage (how we
objectives and strategies based upon the plac- compete). Once these decisions are taken
ing of products in particular stages may be more specific promotion decisions can be
36 The CIM Handbook of Strategic Marketing

Competitive positioning

b 1. Target market
2. Differential advantage

Promotion Strategy

1. Identify target audience(s)

-b 2. Set communication objectives
3. Create message
4. Select promotion mix
5. Set promotion budget

I
w
I I
Evaluate promotion effectiveness
I
Figure 2.5 Determining promotion strategy

made, and the strategy executed (see Chapter the group. The decider has the power to
7 for a full discussion of competitive posi- make the final decision regarding which
tioning). This sequence is shown in Figure product to buy. The buyer is the person who
2.5. Each of the promotion strategy issues conducts the transaction including making
will now be examined. payment. Finally the user is the actual con-
Identifying the target audience(s):clearly sumer of the product. The implication is that
the more we know about our target audi- the key people taking on these roles need to
ences the better we can communicate with be identified and communications directed at
them. Three questions that need to be asked them since each has a role to play in the deci-
are: sion-making process.
An interesting fact about the decision-mak-
0 Who are they? ing unit is that different people who play dif-
What are their choice criteria? fering roles may be evaluating supplier’s
0 What do they think of us? products along completely different choice
criteria. For example, in an organizational
In both organizational and consumer mar- purchase a purchasing manager may be
kets, many buying decisions are in the hands much more price conscious than an engineer
of a decision-making unit. The initiator who may be more concerned with technical
begins the process of considering a purchase. issues. The choice criteria used by people
An influencer attempts to persuade others in need to be understood so that the correct
 A strategic perspective on the marketing mix 37

When You Can Have Silk‘. Such perceptual

Practical tip positioning needs to have a clear message
and to be credible so that people notice and
Think of a product which you market. retain the association. Once the association
Identify the target audience and the has been established the objective may
people who play each of the above change to reminding and reinforcing. Top-of-
roles in the decision-making unit. How the-mind awareness and favourable associa-
do you communicate to them? Consider tions are vital to maintaining market
new ways of reaching them in a more leadershp of such brands as McDonald’s and
cost-effectivemanner. Coca-Cola.

message can be communicated. For example, Practical tip

a salesperson would spend more time dis-
cussing cost efficiency to a purchasing man- Commission a market research survey to
ager, and more time discussing technical find out the positive and negative
issues with an engineer. Choice criteria, associations related to some of your key
therefore, influence the selection of the products/brands. You may be surprised
appropriate message to send to individuals. at the n u m b e r of misconceptions held by
It is also useful to know what the target some people. Communications can be
audience think of our company and its prod- used to send the correct signals if the
ucts vis-his the competition. This can reveal problem is acute.
misconceptions which may be corrected
through communications. For example, a sig-
nificant proportion of the target audience Relationship building is another possible
may believe our product’s performance to be communication objective. Direct marketing
inferior when in reality it is superior. can be used to develop, sustain and exploit
Independently generated performance statis- personalized relationships with customers.
tics could be communicated through adver- Salespeople should be trained to foster close
tisements, direct mail, salespeople, etc. to relationships rather than simply attempting
correct the misconception. to close the sale.
Setting communication objectives: pro- Creating the message: the choice of mes-
motional tools can be used to achieve a wide sage will be influenced by what is important
range of communication objectives. to the target audience (choicecriteria) and the
Awareness is an objective that can be differential advantage of the product. The
achieved through all promotion tools message should be clear, credible and consis-
although advertising is often used when the tently sent to the target audience. Television
target audience is large. Stimulating trial is messages are often built upon the single-
another objective which depends upon minded proposition since the brief duration
awareness but may also influence the choice of commercials mean that sending multiple
of message. For example, Jameson, the Irish messages may reduce the clarity of the com-
whiskey brand ran an advertisement which munication. The flexibility of using sales-
claimed ’You’ll never know until you’ve tried people to communicate with customers
it. Jameson, the spirit of Ireland’. means that they can change the emphasis of
Communicators have a major role to play the message they convey depending on the
in positioning brands in the minds of target choice criteria of each individual in the
customers. Advertising is often used to gen- decision-making unit.
erate positive associations (Aaker et al., 1992) Three processes are used by people to
such as BMW ’The Ultimate Driving reduce the enormous number of messages
Machine’ and Galaxy ’Why have Cotton into a manageable quantity. First, selective
38 The CIM Handbook of Strategic Marketing

attention is used to screen out messages that ket size and concentration influences choice.
are not meaningful or consistent with our If the market is large and geographically dis-
experiences and beliefs. We are more likely to persed advertising or direct marketing is
notice messages that relate to our needs and likely to be more cost effective than personal
those that provide surprises such as a price selling. However, for small, concentrated
reduction. Second, selective attention is the markets, personal selling may be feasible.
process where people distort messages Second, when customers require complex
according their existing beliefs and attitudes. technical information, personal selling may
Messages may be interpreted in ways very be required. Where the key ingredient is
different to the communicator’s wishes. By brand image, advertising may be preferred.
presenting evidence to support a sales mes- This often means that industrial goods com-
sage the scope for distortion is reduced. panies spend more on personal selling than
Finally, selective retention means that only a advertising while consumer goods compa-
proportion of messages are retained in mem- nies often do the reverse. Third, resources can
ory. Messages that are in line with existing also affect choice. Where resources are lim-
beliefs and attitudes are more likely to be ited the expense of a national advertising
remembered than those that conflict. It is, campaign may rule this promotional tool out.
therefore, important to understand those Other less expensive tools such as sales pro-
beliefs and attitudes for messages not to be motion or publicity may be preferred.
too out-of-line with them. The exception is Finally, companies using a push strategy
when convincing evidence can be drawn where the emphasis is on selling into channel
upon to support the new message. Under intermediaries may opt for personal selling
those circumstances it can be highly memo- and trade promotions. Those favouring a pull
rable. strategy (where communication is direct to
Selecting the promotion mix: four factors consumers), advertising, and consumer pro-
have a major bearing on choice of promotion motions may be preferred. By reference to
mix elements (e.g. advertising, sales promo- these criteria marketing messages may select
tion, publicity, personal selling, sponsorship, an appropriate blend of promotion mix tools.
direct marketing and exhibitions). First, mar- When implementing the strategy they must

Checklist 2.1

1. Do not under-emphasize the need to understand the target audience in terms of who
they are, their choice criteria and how they perceive our company and brands vis-a-
vis the competition.
2. Set clear communication obiectives. These will guide later decisions.
3. Create a message based on what i s important to the target audience. It should focus
on our differential advantage.
4. Ensure that the promotion mix communicates a consistent message.
5 . Do not use formula-based promotion budget methods. Take new communication needs
into account.
 A strategic perspective on the marketing mix 39

ensure that the message projected is consis- the basis of costs. The more a product costs to
tent between tools to provide a strong mes- develop, manufacture and market the higher
sage to the target audience. the price. Two methods tend to be used: full
Setting the promotional budget: four cost pricing (where all costs are taken into
methods may be used to set promotional account) and direct cost pricing (where only
budgets. First, the affordable method considers direct costs which vary with output are
how much the company can afford and bases used). These internally orientated methods
the budget on that figure. Second, the suffer from a number of limitations (Fisher,
percentage-of-sales method bases the budget 1976). First, full cost pricing leads to a price
on a specified percentage of sales. This rise if sales fall as the same overhead (fixed
method keeps promotional expenditure in costs) is being divided into smaller unit sales.
line with sales revenue changes. However, it Second, full cost pricing requires a sales esti-
pays no account of what might be the opti- mate to be made before price is set. Since
mum budget given a set of communication demand usually depends on price this a
objectives. The third method is called com- severely flawed procedure. Third, it focuses
petitive parity and is based on how much com- on internal costs rather than customer’s will-
petitors spend on promotion. An advantage ingness to pay. Fourth, direct cost pricing
is that it discourages price wars but the (where only direct costs such as labour and
assumption that competitors know what is materials are taken into account) leads to
the correct promotional expenditure is weak. losses in the long term since full costs are not
Finally, the objective and task method covered. Finally, although it can be useful
begins with setting objectives, establishing when the objective is to fill spare capacity, full
the tasks required to achieve them, and esti- cost pricing gives no indication of the best
mating the cost of conducting the tasks. price attainable when business is buoyant.
While this is a logical approach to promo-
tional budgeting, in practice working out the
relationship between objectives and tasks can
be problematic. In reality, setting the promo-
tional budget is a political activity with dif- Do you price any of your products or
ferent functions within a company arguing services using a cost-based method.
their case (Piercy, 1987). One group may use Identify those which are priced by full or
’affordable’ arguments to keep the expendi- direct cost pricing. Are you really
ture down, while another may argue that making the most profit potential from
new communication requirements demand them? Could the market stand a higher
an increase in the promotional budget. price for some? Is there potential for
advantageous market share gains by
reducing the price of others? If so
Pricing strategy consider making price modifications.

Pricing is a major element of the marketing

mix because it is the only one that directly The second approach used by managers to
generates revenue. It costs money to design, set prices is competitor-orientated pricing.
develop and manufacture products, adver- This can take two forms: going-rate pricing
tise and sell them (promotion) and transport and competitive bidding. When a product is
and distribute them (place).Marketers, there- not differentiated from the competition (e.g. a
fore, need to be very aware of the issues particular grade of coffee bean) the supplier
which affect pricing strategy. may have to take the going-rate (market)
Shapiro and Jackson (1978) discovered that price since customers may be unwilling to
three methods are used by managers to set pay more for an identical offering. Such ’com-
prices. The first approach is to set prices on modity’ situations are anathema to a market-
40 The CIM Handbook of Strategic Marketing

ing-orientated approach which implies the a low price if quality perceptions are
search for competitive advantage. The mes- impaired. However, the focus of this chapter
sage is that going-rate pricing should be is on strategic perspectives of the marketing
avoided by differentiating through some mix so we shall now examine in more depth
other element of the marketing mix when- the influence of two strategic influences on
ever possible. Better service, distribution, and pricing strategy. These are positioning strat-
communication may be possible and thereby egy and the setting of strategic objectives.
justify a higher price. Some companies mar- Positioning strategy: product positioning
ket their products through a competitive bid- involves the choice of target market (where
ding process. Potential suppliers bid for a we compete) and the creation of a differen-
contract by quoting a price which is confi- tial advantage (how we compete). The differ-
dential to themselves and the buyer. ential advantage needs to be clearly
Although statistically based competitive bid- communicated to the target audience to cre-
ding models have been developed most suf- ate a distinct position in their minds. These
fer from unrealistic assumptions and data decisions need to be taken before price is set
inadequacies. A key ingredient of pricing (see Chapter 7).
under competitive bidding situations is an Often management has a choice when
efficient information system which provides selecting the target market for a new product.
data on past successful bid prices of competi- A usual scenario is the identification of a
tors. Such information can be a useful start- lower volume, price insensitive market seg-
ing point for future bids. ment and a higher volume price sensitive seg-
ment. In the ice-cream market, for example, a
premium segment exists which has lower vol-
ume than the lower priced high volume mar-
ket for standard quality ice-creams. Clearly
If you market products or services the choice of target market has a fundamental
through sealed bid competitive tendering effect on the price that can be charged.
consider training your salespeople to Similarly by creating a differential advantage
find out from buyers the successful bid within the chosen segment there is scope for
price for each contract. Store the setting a higher price than competitive offer-
information on computer so that it is ings. In these ways, positioning strategy influ-
available as input when you are next ences pricing strategy and places constraints
asked to tender for a contract. on the price that can be charged. Setting price
without reference to positioning strategy is
fundamentally flawed since both target mar-
Both cost-based and competitor-orientated ket and differential advantage are major influ-
pricing suffer from only taking a restricted ences on the pricing decision.
number of issues into account. Marketing-
orientated pricing, the third approach, has no
such limitation. Marketing managers need to tical tip
take into account a range of factors when set-
ting prices. A key consideration is the value Choose three products or services that
customers place on the product/service offer- your company supplies. Identify their
ing. The higher the value (which is linked to target market segments. Commission a
the extent of its differential advantage) the marketing research study to identify the
higher the price which can be charged. extent of their differential advantage
Price-quality relationships need also to be over the competition (if any). Readjust
considered since customers’ perceptions of prices to reflect the extra (or lower)
quality can be influenced by price. This means value that your products/services
that demand for a product can be lower with provide.
 A strategic perspective on the marketing mix 41

Strategic objectives: the pricing of existing Conversely, price rises would be quickly fol-
products should be consistent with strategic lowed.
objectives. The value of setting them for
products was established by the work of the
Boston Consultancy Group (1977). The three
strategic objectives that affect the pricing
decision are build, hold and harvest. By explic- Begin to think of your products/services
itly deciding upon the appropriate strategic in terms of the three strategic obiectives:
objective, pricing strategy and management build, hold and harvest. Assign an
reaction to competitor moves will be facili- objective to each of them (note that it
tated. may make sense to use product lines to
In price sensitive markets, a build objective do this). Manage your pricing strategy
implies a price lower than the competition. including reactions to competitive moves
Our reaction to competitors who raise their in line with your chosen strategic
price would be to not follow them if at all objective. You will find future pricing
possible. Conversely a price fall would be decisions much easier.
matched. Where the strategic objective is to
hold sales and/or market share, the appro-
priate pricing strategy is to maintain or Developing clear strategic objectives aids
match price relative to the competition. With pricing strategy for existing products as the
a hold objective, a price rise or fall by a com- above examples show. Marketing managers
petitor would be matched. should resist the temptation of simply asking
A harvest objective focuses on the mainte- 'How much can I get for this product?. The
nance or enhancement of profit margin even process should start by asking for new prod-
though this may result in a sales and/or mar- ucts 'How is this product going to be posi-
ket share reduction. Products bound by a har- tioned in the marketplace?'. For existing
vest objective will have premium prices. If products the question 'What is the most sen-
the competition cut prices there would be sible strategic objective for this product?
much greater reluctance to follow them than should be asked. Once these issues are iden-
if a build or hold objective were being used. tified the pricing decision can be taken.

Checklist 2.2

1. Calculate costs but do not slavishly set prices on the basis of them.
2. For new products, determine the positioning strategy (choice of target market and
extent of differential advantage) before setting price.
3. For existing products, set strategic objectives (build, hold or harvest) for each product
or product line. Make each pricing decision consistent with the strategic obiective.
4. Consider commissioning market research to measure the value which your products or
services give to customers over the competition. This will be useful information when
considering price changes.
 -
42 The CIM Handbook of Strategic Marketing

Distribution strategy position to undertake these activities particu-

larly when it has the resources to provide
Distribution is the place element of the mar- local service centres.
keting mix. Products need to be available in Unavailability or unwillingness of distrib-
the correct quantities, in convenient locations utors to carry a product obviously influences
and at times when customers want to pur- the channel decision. In such circumstances
chase them. Suppliers must not only consider direct distribution may be the only option.
the needs of their ultimate customer but also Where distributors are available the profit
the requirements of those organizations margins and commissions expected by them
called channel intermediaries who help with will also affect their attractiveness as inter-
the distribution of products to consumers. mediaries. Finally, the location and geo-
The choice of the most effective channel of graphic concentration of customers also
distribution is a key question in distribution affects channel choice. Direct distribution is
strategy. Other important issues in distribu- more likely when customers are more clus-
tion strategy are selecting the most appropri- tered, few in number and buy large quanti-
ate level of distribution intensity and the ties. Conversely a large number of
degree of channel integration (see Figure 2.6). geographically dispersed customers who buy
Each of these will now be considered. small quantities is likely to favour the use of
Channel selection: it is important to group intermediaries.
the factors that affect channel selection. The A key supplier factor is the availability of
most basic decision is whether to use channel resources. Lack of financial and/or mana-
intermediaries or supply consumers direct. gerial resources may mean that the expense
Market, supplier, product and competitive of recruiting a sales force and setting up
factors will influence this decision. regional offices or servicing facilities is pro-
Market-based considerations are buyer hibitive. Distributors or sales agents may
expectations and needs, distributor availabil- have to be used instead. Where suppliers lack
ity and demands and the location/ concentra- the required skills to sell and service cus-
tion of customers. Buyer expectations may tomers, intermediaries may be the only feas-
shape channel selection. Buyers may prefer to ible alternative. Also, wide product mixes
buy in a particular type of shop and in a con- may make direct distribution cost effective
venient location. Failure to take these into whereas a narrow mix may require the ser-
account can lead to marketing failure. vices of a sales agent or distributor. Finally,
Buyers’ needs may extend beyond the supply direct distribution may be favoured when
of the product to include information, instal- suppliers require control of operations. Using
lation and technical assistance. In some situa- powerful intermediaries such as supermar-
tions, distributors may have the expertise kets may result in loss of market power on
and commitment to fulfil these requirements. the part of suppliers.
In others, the supplier may be in a better Product issues also affect channel selection.
Large complex products which require close
personal contact between supplier and cus-
Distribution tomer are often sold direct. The high prices
strategy charged also mean that direct distribution is
economically feasible. The short supply
chains required for perishable products also
favour direct distribution as do bulky or dif-
ficult to handle products if there are storage
Distribution or display problems.
selection integration Where the competition control traditional
channels of distribution, a supplier may go
Figure 2.6 Key elements of distribution strategy direct or set up its own distribution network.
 A strategic perspective on the marketing mix 43

Suppliers should not unthinkingly accept tra- customers’ bargaining power when buying a
ditional ways of distributing products. car for example. Close working relationships
can be built up between supplier and inter-
mediary. A distributor may demand exclusive
distribution as a condition for stocking a
product. Alternatively, suppliers may agree to
Have another look at the way you exclusive distribution only if the distributor
distribute your products and services. agrees not to stock competing products.
Are there more innovative approaches Channel integration: suppliers also need
that would give you a competitive to consider the degree of channel integration
advantage in the marketplace? they require to distribute their products effec-
tively. Three options are: (i) independence
between supplier and intermediary; (ii) fran-
Distributive intensity:this requires the choice chising; and (iii) channel ownership by the
of intensive, selective or exclusive distribu- supplier. Independence means that the sup-
tion. Intensive distribution involves the use of plier usually has no formal control over the
all available outlets to gain saturation cover- intermediary and conflicts of interest can
age. Where consumers are reluctant to go to arise. However, where the supplier or retailer
another outlet if the first does not stock the dominates the market with brand leaders it
product intensive distribution can make sense. can hold considerable power which results in
Selective distribution involves the use of a an administered marketing system. These
limited number of outlets in each geographi- days many retailers such as Marks & Spencer
cal area. Distributors prefer this method to control the ’supply chain’ system.
intensive distribution since competition is A franchise is a legal contract which speci-
reduced. The advantages to the supplier are fies each member’s rights and obligations.
clear working relationships and lower trans- The supplier usually provides marketing,
portation costs. It is feasible when people are managerial, technical and financial services
willing to shop around, thus making inten- in return for a fee. The franchisee provides
sive distribution unnecessary. the energy and motivation of a locally owned
Where only one channel intermediary per outlet. Conflicts can still occur when the sup-
geographical area is used, exclusive distribu- plier may believe the outlet is not providing
tion is practised. Restricting outlets lowers the satisfactory standards of service or when the

Checklist 2.3

1. Review your channels of distribution for cost efficiency and customer effectiveness.
2. Do not slavishly accept traditional channels. Innovation can lead to competitive
advantage.
3. Consider different levels of distributive intensity. For example exclusive distribution
may be a luxury you can no longer afford.
4. Would you like more formal control of your channels or would this lead to less
flexibility? Consider alternative levels of channel integration.
44 The CIM Handbook of Strategic Marketing

franchisee believes that marketing support is consumption of many physical goods (eg.
inadequate. A franchise is a form of a con- cars, televisions, soap powders) many ser-
tractual vertical marketing system. vices are produced and consumed simultane-
Channel ownership clearly gives the sup- ously (e.g. a holiday, haircut, music concert).
plier control over the activities of the interme- The people involved in the production of the
diary and provides a ready-made outlet for its service are an integral part of the satisfaction
products. However, purchasing intermediaries gained by the customer. The service must not
such as fast-food restaurants can be expensive only be provided at the right time and in the
and stretch the capabilities of management too right place but also in the right way. This

-
thinly. However, the establishmentof such cor- means that the selection, training, controlling
porate vertical marketing systems can be suc- and rewarding of staff who come into contact
cessful as in the oil industry. with customers is of immense importance to
the achievement of high levels of service
quality. Even in restaurants where the pro-
The extended marketing mix duction staff do not come into direct contact
with customers their presence in the same
The analysis of the marketing mix so far has building means that their behaviour needs to
examined the classical 4P framework prod- be controlled: noise from the kitchen can be
uct, promotion, price and place (Booms and very distracting to those eating a meal.
Bitner, 1981). However, work in the services Without training and control, service
marketing area extended the marketing mix providers can be variable in their perfor-
to include three additional variables - people, mance leading to inconsistent service quality.
physical evidence and process (see Table 2.1). A key issue is that the service provider
While the classical 4P framework is capable adopts a customer-first attitude rather than
of accommodating these issues (for example, putting their own pleasure and convenience
process could be considered part of the prod- in front of customer satisfaction.
uct offering) the importance of peopZe (often Service providers also need to recognize
representing the service), process (how the that customer satisfaction can be impaired by
service is delivered to the customer) and the presence of other customers in the service
physical euidence (the surroundings in which interaction. This is so because the consump-
the service takes place) are so crucial to tion of many services such as restaurant meals,
success in services marketing that they war- music concerts and hotel accommodation
rant individual treatment. Each of the addi- takes place in the presence of other customers.
tional variables will now be analysed. The minimization of potential sources of inter-
People: one of the characteristics of ser- customer conflict needs to be achieved. For
vices is the inseparability of production and example, non-smoking areas in restaurants,
consumption. Unlike the production and air and rail travel need to be provided.

Table 2.1 Elements of the marketing mix

0 Classical marketing mix Consider your view on employing

- Product service staff. Are you too cost-focused?
- Promotion t o w pay in service operations may result
- Price in lower service quality. Observe how
- Place
your service providers perform.
Supermarkets employ mystery shoppers
Extension to the classical marketing mix
- People
to evaluate service quality. Identify
- Process training needs to improve standards of
- Physical evidence service at the customer interface.
 A strategic perspective on the marketing mix 45

Process: service providers need to consider desired in a service environment. For exam-
how best to deliver the service to customers. ple, a feeling of calmness is provided by the
For example, the process of delivering food use of pastel colours in passenger aircraft.
to customers is very different in a restaurant Occasionally there can be conflict between
to a fast-food outlet. The degree of self service efficiency and effectiveness in service opera-
needs to be thought out. Some customers pre- tions. The desire to create greater potential
fer to serve themselves because it is quicker output (efficiency) may tempt a restaurant
than waiting for the service to be provided by owner to add more tables even though this
someone else. Many hotel breakfast bars are leaves only the minimum of gaps between
now self service for this very reason. Service them.
providers must consider ways to reduce
queuing (a common complaint in many
banks). A trade-off needs to be made between
the costs of employing extra staff and the
length of queues. Flexibility in deploying Reassess the service environment you
staff to reduce queuing at peak periods also provide. Maybe the decor is a bit
reduces the problem. Many supermarkets laded. Perhaps the dress of your front-
employ part-time staff at peak periods. Other line service people i s in need of
service providers use differential pricing to replacement. Consider the impression i t
encourage consumption during off-peak gives to your customers. Perhaps the
periods. Lower priced theatre seats for after- expense will be worth i t creating the
noon performances is one example. If queu- right ambience for your customers.
ing and delays cannot be avoided service
providers should consider how the waiting
can be made more tolerable by providing
seats and free refreshments, for example. Creating an effective marketing
mix
Whether the 4 or 7Ps’ framework is appropri-
ate a key strategic consideration is the need to
Reevaluate the delivery process that mould a marketing m i x that creates higher
your company uses. Is there greater customer satisfaction than the competition.
scope for customer involvement? What Table 2.2 shows the guidelines for creating a
are the major problems as seen by your marketing mix that brings strategic success.
customers? What do they value highly? Customer needs must be understood and the
(channel resources here). What i s of less marketing mix designed to match them.
importance to them? (take resources Effort should be put in to create a competitive
from here). Talk to customers or use advantage. Consistency between the ele-
marketing research to see your service ments of the marketing mix should be
operation from their viewpoint. achieved. Finally, the marketing mix should
take account of corporate resources (Jobber,
1995).
Physical evidence: this refers to the sur- Understanding and matching customer
roundings in which the service is provided needs: in Figure 2.1 the link between cus-
and any tangible factors that facilitate the tomer needs and the marketing mix was
performance and delivery of the service. For shown. Customer needs can be economic or
example, the dress of waiters and the decor of psychological. Economic needs include high
the restaurant are used by customers as tan- performance, high productivity, low life
gible clues to service quality. Since colour has cycle costs, reliability and fast delivery.
meaning it can be used to create the ambience Psychological needs include status, the desire
46 The CIM Handbook of Strategic Marketing

Tab/e 2.2 Guidelines for creating a n effective marketing mix

1 . Understand and match customer needs

2. Create a differential advantage
3. Blend the marketing mix variables to produce consistency
4. Ensure that the marketing mix matches corporate resources

for a quiet life, convenience and the feeling of treated as a standalone element. They
belonging to a social group. The needs of should be considered together to form a
individuals define their choice Criteria which consistent blend. We have already discussed
are used to evaluate one product offering the need to take into account price-quality
against another. Consequently the starting relationships. Price, then, should reflect
point for developing an effective marketing where the product is to be positioned in the
mix is to understand customer needs: only marketplace. Superior quality products may
then can a marketing mix be developed benefit from having a price that reflects that
which matches those needs and is successful superiority. The promotional element of the
in the marketplace because it reflects the marketing mix should be consistent with
choice criteria used by customers. positioning strategy and the individual
Creating a differential advantage: the strands of promotion - advertising, selling,
usual way of creating a differential advan- sales promotion and public relations - should
tage is by marketing mix manipulation. themselves be sending a consistent message
Customers buy benefits not product features to customers. The selection of distribution
so it is important to design products that con- channels should also reflect the overall
fer the desired customer benefits. By under- positioning of the product. High class prod-
standing customer needs and choice criteria, ucts (e.g. cosmetics) are usually sold in exclu-
suppliers have an insight into the benefits sive outlets to reinforce their upmarket
customers are seeking. The key is to create a positioning.
marketing mix that provides a greater bundle Matching corporate resources: the market-
of benefits than the competition are offering. ing mix must reflect the financial and man-
The result is a differential advantage, a rea- agerial resources of the company. Whereas
son to buy from us rather than our rivals. It Laker Airlines had insufficient financial
can be derived from all elements of the mar- resources to compete with British Airways
keting mix. Better product performance can and TWA in a price war, Virgin Atlantic
lead to lower costs, higher revenues and Airways’ resources were bolstered by the
enhanced status. Better distribution through resources of the Virgin Group of companies
location can provide more convenience and including the cash generated by the sale of
lower costs. More creative promotion can Virgin Records. This gave them greater mus-
result in stronger brand personality and a cle in the marketing mix battle against British
better trained sales force can mean superior Airways. The marketing mix must also take
problem solving. Finally, lower prices can account of the skills and competencies of the
give better value, and higher prices can pro- company’s personnel. For example, a market-
mote an image of superior quality. It is the ing mix strategy requiring excellent sales
search for differential advantage which sepa- management and selling skills may be too
rate the world-class marketers from the also- ambitious for companies who are deficient in
rans. these areas. An alternative strategy, for exam-
Blending marketing mix variables: ple using the skills of sales agents or distrib-
each marketing mix variable should not be utors, may be required as a result.
 A strategic perspective on the marketing mix 47

References and further reading I

Summary
Aaker, D. A., Batra, R. and Myers, J. G. (1992),
This chapter has provided a strategic Advertising Management, New York:
perspective on the marketing mix. Each Prentice-Hall.
of the classical marketing mix elements - Booms, B. H. and Bitner, M. J. (19811,
product, promotion, price and place ’Marketing strategies and organization
(distribution) - have been analysed to structures for service firms’, in Donnelly, J.
show their contribution to effective H. and George, W. R. (eds), Marketing of
strategy. The realization that this Services, Chicago: American Marketing
framework in services marketing may Association, pp. 47-51.
lead to the neglect of three additional Fisher, L. (1976), Industrial Marketing,
variables - people, process and London: Business Books.
physical evidence - promoted the Hedley, B. (1977), ’Boston Consulting Group
establishment of the extended marketing approach to the business portfolio’, Long
mix framework. Finally, this chapter Range Planning, February, pp. 9-15.
provides guidelines for auditing the Jobber, D. (1995), Principles and Practice of
effectiveness of a marketing mix Marketing, Maidenhead: McGraw-Hill.
strategy. Does i t match customer needs Piercy, N. (1987), ’The marketing budgeting
in a way that creates a differential process: marketing management implica-
advantage? Is it blended to produce a tions’, Journal of Marketing, 51(4), 45-59.
consistent package? Does it match Shapiro, B. P. and Jackson, B. B. (1978),
corporate recourses (both financial and ‘Industrial pricing to meet customer
ma nager ia I)? needs’, Harvard Business Review,
I November-December, pp. 119-127.