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Competitive advantage of a firm is measured by how much more value the firm is able to provide to its customers as compared to its rival firms. The prime aim of an organization is to clearly differentiate its offering from that of its competitor towards gaining sustainable competitive advantage.

Competitive Advantage When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage. Michael Porter identified two basic types of competitive advantage: •

cost advantage

•

differentiation advantage

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation. A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation. The following diagram combines the resource-based and positioning views to illustrate the concept of competitive advantage: A Model of Competitive Advantage Resources

Distinctive Competencies

Cost Advantage or Differentiation Advantage

Value Creation

Capabilities

Resources and Capabilities According to the resource-based view, in order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear. Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily. The following are some examples of such resources: •

Patents and trademarks

•

Proprietary know-how

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Installed customer base

•

Reputation of the firm

•

Brand equity

Capabilities refer to the firm's ability to utilize its resources effectively. An example of a capability is the ability to bring a product to market faster than competitors. Such capabilities are embedded in the routines of the organization and are not easily documented as procedures and thus are difficult for competitors to replicate. The firm's resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage. Cost Advantage and Differentiation Advantage Competitive advantage is created by using resources and capabilities to achieve either a lower cost structure or a differentiated product. A firm positions itself in its industry through its choice of low cost or differentiation. This decision is a central component of the firm's competitive strategy. Another important decision is how broad or narrow a market segment to target. Porter formed a matrix using cost advantage, differentiation advantage, and a broad or narrow focus to identify a set of generic strategies that the firm can pursue to create and sustain a competitive advantage. Value Creation The firm creates value by performing a series of activities that Porter identified as the value chain. In addition to the firm's own value-creating activities, the firm operates in a value system of vertical activities including those of upstream suppliers and downstream channel members. To achieve a competitive advantage, the firm must perform one or more value creating activities in a way that creates more overall value than do competitors. Superior value is created through lower costs or superior benefits to the consumer (differentiation). Recommended Reading Porter, Michael E., Competitive Advantage: Creating and Sustaining Superior Performance

Positioning As Popularized by Al Ries and Jack Trout In their 1981 book, Positioning: The Battle for your Mind, Al Ries and Jack Trout describe how positioning is used as a communication tool to reach target customers in a crowded marketplace. Jack Trout published an article on positioning in 1969, and regular use of the term dates back to 1972 when Ries and Trout published a series of articles in Advertising Age called "The Positioning Era." Not long thereafter, Madison Avenue advertising executives began to develop positioning slogans for their clients and positioning became a key aspect of marketing communications. Positioning: The Battle for your Mind has become a classic in the field of marketing. The following is a summary of the key points made by Ries and Trout in their book. Information Overload Ries and Trout explain that while positioning begins with a product, the concept really is about positioning that product in the mind of the customer. This approach is needed because consumers are bombarded with a continuous stream of advertising, with advertisers spending several hundred dollars annually per consumer in the U.S. The consumer's mind reacts to this high volume of advertising by accepting only what is consistent with prior knowledge or experience. It is quite difficult to change a consumer's impression once it is formed. Consumers cope with information overload by oversimplifying and are likely to shut out anything inconsistent with their knowledge and experience. In an over-communicated environment, the advertiser should present a simplified message and make that message consistent with what the consumer already believes by focusing on the perceptions of the consumer rather than on the reality of the product. Getting Into the Mind of the Consumer The easiest way of getting into someone's mind is to be first. It is very easy to remember who is first, and much more difficult to remember who is second. Even if the second entrant offers a better product, the first mover has a large advantage that can make up for other shortcomings. However, all is not lost for products that are not the first. By being the first to claim a unique position in the mind the consumer, a firm effectively can cut through the noise level of other products. For example, Miller Lite was not the first light beer, but it was the first to be positioned as a light beer, complete with a name to support that position. Similarly, Lowenbrau was the most popular German beer sold in America, but Beck's Beer successfully carved a unique position using the advertising, "You've tasted the German beer that's the most popular in America. Now taste the German beer that's the most popular in Germany." Consumers rank brands in their minds. If a brand is not number one, then to be successful it somehow must relate itself to the number one brand. A campaign that pretends that the market leader does not exist is likely to fail. Avis tried unsuccessfully for years to win customers, pretending that the number one Hertz did not exist. Finally, it began using the line,

"Avis in only No. 2 in rent-a-cars, so why go with us? We try harder." After launching the campaign, Avis quickly became profitable. Whether Avis actually tried harder was not particularly relevant to their success. Rather, consumers finally were able to relate Avis to Hertz, which was number one in their minds. Another example is that of the soft-drink 7-Up, which was No. 3 behind Coke and Pepsi. By relating itself to Coke and Pepsi as the "Uncola", 7-Up was able to establish itself in the mind of the consumer as a desirable alternative to the standard colas.

When there is a clear market leader in the mind of the consumer, it can be nearly impossible to displace the leader, especially in the short-term. On the other hand, a firm usually can find a way to position itself in relation to the market leader so that it can increase its market share. It usually is a mistake, however, to challenge the leader head-on and try to displace it. Positioning of a Leader Historically, the top three brands in a product category occupy market share in a ratio of 4:2:1. That is, the number one brand has twice the market share of number two, which has twice the market share of number three. Ries and Trout argue that the success of a brand is not due to the high level of marketing acumen of the company itself, but rather, it is due to the fact that the company was first in the product category. They use the case of Xerox to make this point. Xerox was the first plain-paper copier and was able to sustain its leadership position. However, time after time the company failed in other product categories in which it was not first. Similarly, IBM failed when it tried to compete with Xerox in the copier market, and CocaCola failed in its effort to use Mr. Pibb to take on Dr. Pepper. These examples support the point that the success of a brand usually is due to its being first in the market rather than the marketing abilities of the company. The power of the company comes from the power of its brand, not the other way around. With this point in mind, there are certain things that a market leader should do to maintain the leadership position. First, Ries and Trout emphasize what it should not do, and that is boast about being number one. If a firm does so, then customers will think that the firm is insecure in its position if it must reinforce it by saying so. If a firm was the first to introduce a product, then the advertising campaign should reinforce this fact. Coca-Cola's "the real thing" does just that, and implies that other colas are just imitations. Another strategy that a leader can follow to maintain its position is the multibrand strategy. This strategy is to introduce multiple brands rather than changing existing ones that hold leadership positions. It often is easier and cheaper to introduce a new brand rather than change the positioning of an existing brand. Ries and Trout call this strategy a single-position strategy because each brand occupies a single, unchanging position in the mind of the consumer. Finally, change is inevitable and a leader must be willing to embrace change rather than resist it. When new technology opens the possibility of a new market that may threaten the existing one, a successful firm should consider entering the new market so that it will have the first-mover advantage in it. For example, in the past century the New York Central Railroad lost its leadership as air travel became possible. The company might have been able to maintain its leadership position had it used its resources to form an airline division. Sometimes it is necessary to adopt a broader name in order to adapt to change. For example, Haloid changed its name to Haloid Xerox and later to simply Xerox. This is a typical pattern of changing Name 1 to an expanded Name 1 - Name 2, and later to just Name 2. Positioning of a Follower Second-place companies often are late because they have chosen to spend valuable time improving their product before launching it. According to Ries and Trout, it is better to be first and establish leadership. If a product is not going to be first, it then must find an unoccupied position in which it can be first. At a time when larger cars were popular, Volkswagen introduced the Beetle with the slogan "Think small." Volkswagen was not the first small car, but they were the first to claim that position in the mind of the consumer. Other positions that firms successfully have claimed include: •

age (Geritol)

•

high price (Mobil 1 synthetic engine lubricant)

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gender (Virginia Slims)

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time of day (Nyquil night-time cold remedy)

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place of distribution (L'eggs in supermarkets)

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quantity (Schaefer - "the one beer to have when you're having more than one.")

It most likely is a mistake to build a brand by trying to appeal to everyone. There are too many brands that already have claimed a position and have become entrenched leaders in their positions. A product that seeks to be everything to everyone will end up being nothing to everyone. Repositioning the Competition Sometimes there are no unique positions to carve out. In such cases, Ries and Trout suggest repositioning a competitor by convincing consumers to view the competitor in a different way. Tylenol successfully repositioned aspirin by running advertisements explaining the negative side effects of aspirin. Consumers tend to perceive the origin of a product by its name rather than reading the label to find out where it really is made. Such was the case with vodka when most vodka brands sold in the U.S. were made in the U.S. but had Russian names. Stolichnaya Russian vodka successfully repositioned its Russian-sounding competitors by exposing the fact that they all actually were made in the U.S., and that Stolichnaya was made in Leningrad, Russia. When Pringle's new-fangled potato chips were introduced, they quickly gained market share. However, Wise potato chips successfully repositioned Pringle's in the mind of consumers by listing some of Pringle's non-natural ingredients that sounded like harsh chemicals, even though they were not. Wise potato chips of course, contained only "Potatoes. Vegetable oil. Salt." As a resulting of this advertising, Pringle's quickly lost market share, with consumers complaining that Pringle's tasted like cardboard, most likely as a consequence of their thinking about all those unnatural ingredients. Ries and Trout argue that is usually is a lost cause to try to bring a brand back into favor once it has gained a bad image, and that in such situations it is better to introduce an entirely new brand. Repositioning a competitor is different from comparative advertising. Comparative advertising seeks to convince the consumer that one brand is simply better than another. Consumers are not likely to be receptive to such a tactic. The Power of a Name A brand's name is perhaps the most important factor affecting perceptions of it. In the past, before there was a wide range of brands available, a company could name a product just about anything. These days, however, it is necessary to have a memorable name that conjures up images that help to position the product. Ries and Trout favor descriptive names rather than coined ones like Kodak or Xerox. Names like DieHard for a battery, Head & Shoulders for a shampoo, Close-Up for a toothpaste, People for a gossip magazine. While it is more difficult to protect a generic name under trademark law, Ries and Trout believe that in the long run it is worth the effort and risk. In their opinion, coined names may be appropriate for new products in which a company is first to market with a sought-after product, in which case the name is not so important. Margarine is a name that does not very well position the product it is describing. The problem is that it sounds artificial and hides the true origin of the product. Ries and Trout propose that "soy butter" would have been a much better name for positioning the product as an alternative to the more common type of butter that is made from milk. While some people might see soy in a negative light, a promotional campaign could be developed to emphasize a sort of "pride of origin" for soy butter. Another everyday is example is that of corn syrup, which is viewed by consumers as an inferior alternative to sugar. To improve the perceptions of corn syrup, one supplier began calling it "corn sugar", positioning it as an alternative to cane sugar or beet sugar. Ries and Trout propose that selecting the right name is important for positioning just about anything, not just products. For example, the Clean Air Act has a name that is difficult to oppose, as do "fair trade" laws. Even a person's name impacts his or her success in life. One study showed that on average, schoolteachers grade essays written by children with names like David and Michael a full letter grade higher than those written by children with names like Hubert and Elmer. Eastern Airlines was an example of a company limited by its name. Air travel passengers always viewed it as a regional airline that served the eastern U.S., even though it served a much wider area, including the west coast. Airlines such as American

and United did not have such a perception problem. (Eastern Airlines ceased operations in 1991.) Another problem that some companies face is confusion with another company that has a similar name. Consumers frequently confused the tire manufacturer B.F. Goodrich with Goodyear. The Goodyear blimp had made Goodyear tires well-known, and Goodyear frequently received credit by consumers for tire products that B.F. Goodrich has pioneered. (B.F. Goodrich eventually sold its tire business to Uniroyal.) Other companies have changed their names to something more general, and as a result create confusion with other similar-sounding companies. Take for instance The Continental Group, Inc. and The Continental Corporation. Few people confidently can say which makes cans and which sells insurance. The No-Name Trap People tend use abbreviations when they have fewer syllables than the original term. GE is often used instead of General Electric. IBM instead of International Business Machines. In order to make their company names more general and easier to say, many corporations have changed their legal names to a series of two or three letters. Ries and Trout argue that such changes usually are unwise. Companies having a broad recognition may be able to use the abbreviated names and consumers will make the translation in their minds. When they hear "GM", they think "General Motors". However, lesser known companies tend to lose their identity when they use such abbreviations. Most people don't know the types of business in which companies named USM or AMP are engaged. The same applies to people's names as well. While some famous people are known by their initials (such as FDR and JFK), it is only after they become famous that they begin using their initials. Ries and Trout advise managers who aspire for name recognition to use an actual name rather then first and middle initials. The reason that initials do not lead to recognition is that the human mind works by sounds, not by spellings. Most companies began selling a single product, and the name of the company usually reflected that product. As the successful firms grew in to conglomerates, their original names became limiting. Ries and Trout advise companies seeking more general names to select a shorter name made of words, not individual letters. For example, for Trans World Airlines, they favored truncating it simply to Trans World instead removing all words and using the letters TWA. The Free-Ride Trap A company introducing a new product often is tempted to use the brand name of an existing product, avoiding the need to build the brand from scratch. For example, AlkaSeltzer named a new product Alka-Seltzer Plus. Ries and Trout do not favor this strategy since the original name already in positioned in the consumer's mind. In fact, consumers viewed Alka-Seltzer Plus simply as a better Alka-Seltzer, and the sales of Alka-Seltzer Plus came at the expense of Alka-Seltzer, not from the market share of the competition. Some firms have built a wide range of products on a single brand name. Others, such as Procter & Gamble have selected new names for each new product, carefully positioning the product in a different part of the consumer's mind. Ries and Trout maintain that a single brand name cannot hold multiple positions; either the new product will not be successful or the original product bearing the name will lose its leadership position. Nonetheless, some companies do not want their new products to be anonymous with an unrecognized name. However, Ries and Trout propose that anonymity is not so bad; in fact, it is a resource. When the product eventually catches the attention of the media, it will have the advantage of being seen without any previous bias, and if a firm prepares for this event well, once under the spotlight the carefully designed positioning can be communicated exactly as intended. This moment of fame is a one-shot event and once it has passed, the product will not have a second chance to be fresh and new. The Line Extension Trap Line extensions are tempting for companies as a way to leverage an existing popular brand. However, if the brand name has become near generic so that consumers

consider the name and the product to be one and the same, Ries and Trout generally do not believe that a line extension is a good idea. Consider the case of Life Savers candy. To consumers, the brand name is synonymous with the hard round candy that has a hole in the middle. Nonetheless, the company introduced a Life Savers chewing gum. This use of the Life Savers name was not consistent with the consumer's view of it, and the Life Savers chewing gum brand failed. The company later introduced the first brand of soft bubble gum and gave it a new name: Bubble Yum. This product was very successful because it not only had a name different from the hard candy, it also had the the advantage of being the first soft bubble gum. Ries and Trout cite many examples of failures due to line extensions. The consistent pattern in these cases is that either the new product does not succeed, or the original successful product loses market share as a result of its position being weakened by a diluted brand name. When Line Extensions Can Work Despite the disadvantages of line extensions, there are some cases in which it is not economically feasible to create a new brand and in which a line extension might work. Some of the cases provided by Ries and Trout include: •

Low volume product - if the sales volume is not expected to be high.

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Crowded market - if there is no unique position that the product can occupy.

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Small ad budget - without strong advertising support, it might make sense to use the house name.

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Commodity product - an undifferentiated commodity product has less need of its own name than does a breakthrough product.

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Distribution by sales reps - products distributed through reps may not need a separate brand name. Those sold on store shelves benefit more from their own name.

Positioning Has Broad Applications The concept of positioning applies to products in the broadest sense. Services, tourist destinations, countries, and even careers can benefit from a well-developed positioning strategy that focuses on a niche that is unoccupied in the mind of the consumer or decision-maker.

The Marketing Mix (The 4 P's of Marketing) The major marketing management decisions can be classified in one of the following four categories: •

Product

•

Price

•

Place (distribution)

•

Promotion

These variables are known as the marketing mix or the 4 P's of marketing. They are the variables that marketing managers can control in order to best satisfy customers in the target market. The marketing mix is portrayed in the following diagram:

The Marketing Mix

Product

Place

Target Market

Price

Promotion

The firm attempts to generate a positive response in the target market by blending these four marketing mix variables in an optimal manner. Product The product is the physical product or service offered to the consumer. In the case of physical products, it also refers to any services or conveniences that are part of the offering. Product decisions include aspects such as function, appearance, packaging, service, warranty, etc.

Price

Pricing decisions should take into account profit margins and the probable pricing response of competitors. Pricing includes not only the list price, but also discounts, financing, and other options such as leasing. Place Place (or placement) decisions are those associated with channels of distribution that serve as the means for getting the product to the target customers. The distribution system performs transactional, logistical, and facilitating functions. Distribution decisions include market coverage, channel member selection, logistics, and levels of service. Promotion Promotion decisions are those related to communicating and selling to potential consumers. Since these costs can be large in proportion to the product price, a breakeven analysis should be performed when making promotion decisions. It is useful to know the value of a customer in order to determine whether additional customers are worth the cost of acquiring them. Promotion decisions involve advertising, public relations, media types, etc. A Summary Table of the Marketing Mix The following table summarizes the marketing mix decisions, including a list of some of the aspects of each of the 4Ps. Summary of Marketing Mix Decisions Product

Price

Place

Promotion

Functionality

List price

Channel members

Advertising

Appearance

Discounts

Channel motivation Personal selling

Quality

Allowances

Market coverage

Public relations

Packaging

Financing

Locations

Message

Brand

Leasing options Logistics

Warranty Service/Support

Service levels

Media Budget

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 mix—product, price, promotion, and place—consists 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. Product 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.

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 mix—product, price, promotion, and place—consists 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. Product 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 used—durability—and 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 custommade 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. Price 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 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. Place 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. Bibliography

Boone, Louise E., and Kurtz, David L. (1992). Contemporary Marketing, 7th ed. New York, NY: Dryen/Harcourt Brace. Churchill, Gilbert A., and Peter, Paul J. (1995). Marketing: Creating Value for Customers. Boston MA: Irwin. Farese, Lois, Kimbrell, Grady, and Woloszyk, Carl (1991). Marketing Essentials. Mission Hills, CA: Glencoe/McGraw-Hill. Kotler, Philip, and Armstrong, Gary (1993). Marketing: An Introduction, 3d ed. Englewood Cliffs, NJ: Prentice-Hall. Semenik, Richard J., and Bamossy, Gary J. (1995). Principles of Marketing: A Global Perspective, 2d ed. Cincinnati, OH: South-Western. ALLEN D. TRUELL Wikipedia: Marketing mix Top Sponsored Links Internet Marketing Junk There's a lot of junk about marketing online we filtered it. www.mudstuffing.com/ Home > Library > Miscellaneous > Wikipedia Not to be confused with Promotional mix. This article appears to contain a large number of buzzwords. Please help rewrite this article to make it more concrete and meaningful. This article may require cleanup to meet Wikipedia's quality standards. Please improve this article if you can. (August 2008) This article includes a list of references, related reading or external links, but its sources remain unclear because it lacks inline citations. Please improve this article by introducing more precise citations where appropriate. (March 2009)

Marketing Key concepts Product / Pricing / Promotion Distribution / Service / Retail Brand management Account-based marketing Marketing ethics Marketing effectiveness Market research Market segmentation Marketing strategy Marketing management Market dominance Promotional content Advertising / Branding Direct marketing / Personal Sales Product placement / Publicity Sales promotion / Gender in advertising Underwriting Promotional media Printing / Publication / Broadcasting Out-of-home / Internet marketing Point of sale / Novelty items Digital marketing / In-game Word of mouth This box: view

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The four main fields of the Marketing mix.

The marketing mix is generally accepted as the use and specification of the 'four Ps' describing the strategy position of a product in the marketplace. One version of the marketing mix originated in 1948 when James Culliton said that a marketing decision should be a result of something similar to a recipe. This version was used in 1953 when Neil Borden, in his American Marketing Association presidential address, took the recipe idea one step further and coined the term "marketing-mix". A prominent marketer, E. Jerome McCarthy, proposed a 4 P classification in 1960, which has seen wide use. The four Ps concept is explained in most marketing textbooks and classes.

Contents [hide] •

1 Definition

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2 Four Ps

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3 Extended marketing mix

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4 Four Cs

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5 Four Cs in 7Cs COMPASS MODEL

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6 References

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7 External links

Definition The 'marketing mix' is a set of controllable, tactical marketing tools that work together to achieve company's objectives

Four Ps Elements of the marketing mix are often referred to as 'the four Ps': •

Product - A tangible object or an intangible service that is mass produced or manufactured on a large scale with a specific volume of units. Intangible products are often service based like the tourism industry & the hotel industry or codes-based products like cellphone load and credits. Typical examples of a mass produced tangible object are the motor car and the disposable razor. A less obvious but ubiquitous mass produced service is a computer operating system.

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Price – The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition,

material costs, product identity and the customer's perceived value of the product. The business may increase or decrease the price of product if other stores have the same product. •

Place – Place represents the location where a product can be purchased. It is often referred to as the distribution channel. It can include any physical store as well as virtual stores on the Internet.

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Promotion – Promotion represents all of the communications that a marketer may use in the marketplace. Promotion has four distinct elements advertising, public relations, word of mouth and point of sale. A certain amount of crossover occurs when promotion uses the four principal elements together, which is common in film promotion. Advertising covers any communication that is paid for, from cinema commercials, radio and Internet adverts through print media and billboards. Public relations are where the communication is not directly paid for and includes press releases, sponsorship deals, exhibitions, conferences, seminars or trade fairs and events. Word of mouth is any apparently informal communication about the product by ordinary individuals, satisfied customers or people specifically engaged to create word of mouth momentum. Sales staff often plays an important role in word of mouth and Public Relations (see Product above).

Broadly defined, optimizing the marketing mix is the primary responsibility of marketing. By offering the product with the right combination of the four Ps marketers can improve their results and marketing effectiveness. Making small changes in the marketing mix is typically considered to be a tactical change. Making large changes in any of the four Ps can be considered strategic. For example, a large change in the price, say from $19.00 to $39.00 would be considered a strategic change in the position of the product. However a change of $130 to $129.99 would be considered a tactical change, potentially related to a promotional offer. The term 'marketing mix' however, does not imply that the 4P elements represent options. They are not trade-offs but are fundamental marketing issues that always need to be addressed. They are the fundamental actions that marketing requires whether determined explicitly or by default.

Extended marketing mix There have been attempts to develop an 'extended marketing mix' to better accommodate specific aspects of marketing. For example, in the 1970s, Nickels and Jolson suggested the inclusion of packaging. In the 1980s Kotler proposed public opinion and political power and Booms and Bitner included three additional 'Ps' to accommodate trends towards a service or knowledge based economy: •

People – all people who directly or indirectly influence the perceived value of the product or service, including knowledge workers, employees, management and consumers.

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Process – procedures, mechanisms and flow of activities which lead to an exchange of value.

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Physical evidence – the direct sensory experience of a product or service that allows a customer to measure whether he or she has received value. Examples might include the way a customer is treated by a staff member, or the length of time a customer has to wait, or a cover letter from an insurance company, or the environment in which a product or service is delivered.[1][2][3]

Four Cs The Four Ps is also being replaced by the Four Cs model, consisting of consumer, cost, convenience, and communication. The Four Cs model is more consumer-oriented and fits better in the movement from mass marketing to niche marketing.[4][5] The product part of the Four Ps model is replaced by consumer or consumer models, shifting the focus to satisfying the consumer. Another C replacement for Product is Capability. By defining offerings as individual capabilities that when combined and focused to a specific industry, creates a custom solution rather than pigeon-holing a customer into a product. Pricing is replaced by cost, reflecting the reality of the total cost of ownership. Many factors affect cost, including but not limited to the customers cost to change or implement the new product or service and the customers cost for not selecting a competitors capability. Placement is replaced by the convenience function. With the rise of internet and hybrid models of purchasing, place is no longer relevant. Convenience takes into account the ease to buy a product, find a product, find information about a product, and

several other considerations. Finally, the promotions feature is replaced by communication. Communications represents a broader focus than simply promotions. Communications can include advertising, public relations, personal selling, viral advertising, and any form of communication between the firm and the consumer.[6]

Four Cs in 7Cs COMPASS MODEL A formal approach to this customer-focused marketing mix is known as 4C(Commodity, Cost, Channel, Communication) in 7Cs COMPASS MODEL. This system is basically the four Ps[7] renamed and reworded to provide a customer focus. The four Cs Model provides a demand/customer centric version alternative to the well-known four Ps supply side model (product, price, place, promotion) of marketing management. • ○

Product→ Commodity

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Price → Cost

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Place → Channel

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Promotion→ Communication

The four elements of the “7Cs COMPASS MODEL” are: •

1.Commodity: the product for the consumers or citizens.

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2.Cost: total marketing cost.

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3.Channel: marketing channels.

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4.Communication: not promotion, marketing communication.

7Cs Compass Model is in a customer oriented marketing mix. Framework of 7Cs Compass Model[8][9] •

7Cs:(C1)Corporation (and Competitor), (C2)Commodity, (C3)Cost, (C4)Communication, (C5)Channel, (C6)Consumer, (C7)Circumstances

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Compass: ○

to Consumer: N = Needs, W = Wants, S = Security, E = Education

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Circumstances: N = National and International, W=Weather, S = Social and Cultural, E = Economic

(C1) Corporation( and competitor) is the core of 4Cs. 1) It is necessary to place more emphases on the organization of the companies; 2) It is necessary to execute marketing plans in conjunction with the company's objectives; 3) It is necessary to tackle the internal communication related problems like corporate communication or corporate identity system(CIS), etc. In the market, there are the companies of the same business, the competitors. But at the time of economics downturn, companies or corporations produce the convenient (C2)“commodities” for the consumers or citizens with the consideration of the total marketing(C3) “cost”, and first of all gain their consents through the sufficient (C5)“communications” and then their confidences by selecting the effective(C4) “channels” in conjunction with the uncontrollable external circumstances. This is the way to survive in the period of low growth economics. (C6) Consumer Consumers are those people encircling the companies. Instead of just the customers of 4P marketing model, they are the ordinary citizens nurtured by the motto of the consumerism. However of course they are also including the customers and the potential customers. •

four directions marked on the compass: the factors related to the consumer can be explained by the first characters of four directions marked on the Compass.(N,W,S,E)

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N = Needs: companies can offer more alternatives to meet the various needs of the consumers.

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W = Wants: the substantiated needs to expect the accordingly commodities.

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S = Security: the safety of the commodities, the safety of the production process and the adequate after-sell warranty.

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E = Education: consumer right to know the information of the commodities.

(C7)Circumstances Besides the customers, there are also various uncontrollable external environmental factors encircling the companies. The same as the factors of the consumers, they can also be explained the first character of the four directions marked on the compass. (N,W,S,E) •

N= National and International Circumstances

The National Circumstances are related to politic and law. International environment now also becomes important. •

W=Weather

For most of the natural disasters, the companies can do little but try to predict when they will happen and adjust the marketing plans. •

S=Social and Cultural Circumstances

When exploring a new oversea market, it is essential to study the social circumstances of that nation. •

E=Economic Circumstances: economics climate is changing due to many other uncontrollable factors like energy, resources, international income and expense, financial circumstances and economic growth etc.

References 1. ^ http://www.12manage.com/methods_booms_bitner_7Ps.html 2. ^ http://www.cim.co.uk/filestore/resources/canons/servicesmkting.pdf 3. ^ http://fredmba.blogspot.com/2008/05/marketing-7ps.html 4. ^ http://www.scs.unr.edu/~khalilah/eMarketing.pdf 5. ^ [1] 6. ^ [2] 7. ^ [E.Jerome McCarthy(1975)”Basic Marketing:A Managerial Approach," fifth edition, Richard D. Irwin, Inc.,p.37.] 8. ^ [Koichi Shimizu (2009)"Advertising Theory and Strategies,"16th edition, Souseisha Book Company.(Japanese)] 9. ^ [Koichi Shimizu (2003)"Symbiotic Souseisha Book Company. (Japanese)]

Marketing

Strategy,"4th

edition,

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Kotler, Philip, Keller, Lane (2005) "Marketing Management", Prentice Hall, ISBN 0131457578.

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Barlon, Kimuli. (2006) "The concept of the marketing mix" Presentation on marketing management, vol 1, September, 2006, pp 2–7-Turku university -Finland - The same article can also be found in: Schwartz, G. (ed), Science in Marketing, John Wiley, New York, 1965, pp 386–397 - and also in: Enis, B. and Cox, K. (1991) Marketing Classics, A selection of influential articles, Allyn and Brown, Boston, 1991, pp 361–369.

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Bitner, J. and Booms, B. (1981) Marketing strategies and organizational structures for service firms, in Donnelly, J. and George, W. Marketing, American Marketing Association, Chicago, 1981.

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Borden, N. H. (1964), “The Concept of the Marketing Mix”, Journal of Advertising Research, June, Vol. 4, pp. 2–7. Available in Schwartz G. Science in Marketing. John Wiley & Sons, NY 386-97

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Culliton, J. W. (1948), The Management of Marketing Costs, Graduate School of Business Administration, Boston, Mass: Harvard University.

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Frey, A. (1961) Advertising, 3rd ed., Ronald Press, New York, 1961.

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Hammer, M. and Champy, J. (1993) Reengineering the Corporation: A Manifesto for Business Revolution, Harper Business Books, New York, 1993, ISBN 0-06-662112-7

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Hughes, M. (2005) "Buzzmarketing: Get People To Talk About Your Stuff", Penguin/Portfolio, New York, 2005 Website

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Lauterborn, R (1990) "New Marketing Litany: 4 Ps Passe; C words take over", Advertising Age, October 1, 1990, pg 26.

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McCarthy EJ (1960) Basic Marketing: A Managerial Approach. Homewood IL: Irwin.

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McCarthy, J. (1960 1st ed.), Basic Marketing: A managerial approach, 13th ed., Irwin, Homewood Il, 2001.

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Nickels, William G. & Jolson, Marvin A. (1976) 'Packaging - The Fifth 'P' In The Marketing Mix', Advanced Management Journal, Winter, Vol. 41, Iss. 1, p. 13.

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