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Marketing 101. Chapter 3: The Marketing Mix

One of the core fundamentals of marketing is the marketing mix also known as the four P's. The marketing mix is used to determine your target market and to guide development of your strategic marketing plan. While additional elements have been added and the original ones renamed by those trying to make their stamp and in efforts to update the model for new markets and means of marketing, the classic framework has proven durable and still useful.

1. Product

Your product is whatever you sell or offer. This could be a physical thing like handmade jewelry, it could be your writing, or it could be a service like coaching, consulting or photography.

Form is an integral consideration of the product element. Writing could be offered in a bound book, a downloadable e-book or it could be a service you offer such as say copywriting or take the form of speeches that you or others deliver. If it is a tangible item then things like packaging are part of the product element. Other considerations include the product name, features, quality of materials, and more.

2. Price

Decisions about how to price your product include choosing basics like the suggested or list price (including zero or free). Beyond that, additional considerations include discounts such as for volume, such as buy three get one free or price drops with every 10 units purchased, e.g. the per hour cost of your time is lower if a client purchases 10-20 hours vs. 1-9 hours; or a giving a discount if you receive an early payment.

3. Place (Distribution)

Distribution is called place so that it neatly fits the framework without disrupting the alliteration and because it refers to the place(s) where you sell your product. If you are selling a tangible product you might sell it in a brick and mortar store or at an online store. Let's think about the example of shoes from Chapter 1. Shoes are sold in many places including in department stores, boutiques, shoe stores, online via sites like Zappos or through auction at sites like eBay.

Considerations for distribution include delivery and logistics and questions such as do you send products to a retailer's warehouse, use drop shipping or ship from your inventory to customers; do customers buy your services directly from you or through a broker (such as an agency); do you restrict (exclusive dealers) or expand (affiliates) sales; and whether or not to take returns.

4. Promotion

This is the stuff many people think of when they think marketing. Promotion includes advertising, public relations (PR), giveaways, events, and coupons.

Homework:

Define your four P's and list every relevant element you can think of. Then define your target market accordingly.

For example, one episode of CNN's late show The Turnaround in which small business owners were mentored by successful business people at large companies featured a small bakery. The baker had a small shop but offered a wide range of baked goods. Using a 4P framework, brand managers from Dreyer's ice cream showed her how they used it to help guide the marketing of Dibs as a new product. Applying it to her baked goods, the bakery owner, Denise, was able to see that weddings cakes were her most promising target market and she could focus accordingly.

Previous Chapters

Chapter 1: Introduction
Chapter 2: Setting Goals and Creating a P&L Statement

Additional Resources

Marketing 101. Chapter 2: Setting Goals

Businesses are concerned with making a profit. Very simplified, profit is what you make when your revenue or income exceeds your expenses. When expenses exceed your revenue, you have a loss. These elements are tracked through a profit and loss (or P&L) statement.

Thus there are two ways to make or increase a profit: either bring in more money or spend less. This is often referred to as either top-line or bottom-line growth. Marketing helps you grow your top-line and can be used to manage some bottom-line expenses.

In order to guide your marketing efforts, it is helpful to first establish your goals. Once you set a target for how much you want to make, you can then figure out the steps to take in order to reach your goal.

There are two primary routes to generating revenue. The first is sometimes called Household Penetration. Let's say you earn $1 each time you sell a widget. The more families who buy your widget, the more you make. The other approach is often called Frequency. Let's say there are 100 people who buy from you, and they buy once a year. If some of those same 100 people bought from you twice a year, you would increase your revenue without having to find any new customers.

So, when you set your top-line growth goals, decide if you want to increase your household penetration (customer base, membership, readership, reach ...), frequency or size of purchase, or both. Do you need to find more new customers or sell more to existing ones?

You can apply these formulas to non-business concerns as well. For instance, in your personal finances, you can increase your income or cut your expenses. With your blog, you might want to focus on finding more new readers or having your existing community read your posts more regularly.

In order to set your goals, you first need to know where you are starting. Collect some data. Determine all your sources of revenue -- or readers -- or whatever it is that you want to grow. Do some measurement over time. Establish a baseline - how many customers do you have in a year? How often do they buy from you on average? What is the amount that they spend in an average transaction?

See if the 80-20 rule (or some variation) applies; i.e., do 20% of your customers drive 80% of your sales? If so, what do their stats look like? For example, maybe 20% of your customers buy from you 10 times a year and the other 80% buy one time. What do your projections look like if you find new one-time buyers and what do they look like if your 10-time-a-year buyers increase to 12 times a year, or the existing one-time-a-year buyers increase to two times a year? Play around with the numbers. And if you are just starting out, look at what others are doing and make some estimates of what you could potentially achieve in one month, six months, one year, five years.

Next, list out all your expenses, such as the cost of materials; anything you are paying to employees; what it costs to operate your workspace; fees for services; and so on. Look at which ones are the same no matter how much you sell and which ones vary as sales go up. If you find more readers for your blog, eventually you might have to pay for more bandwidth. If you create aprons that you sell on Etsy, finding a source of lower-cost fabric would reduce your expenses. In both cases, your attorney fees for incorporating or securing a trademark would be the same regardless of how many readers you have or aprons you sell.

Once you've gathered this data and made a simple P&L statement,it should be easier to see whether your goal should be to increase household penetration, frequency or both. And once you have your goals in place, you can start to plan how marketing can help you reach them.

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Thanks for your questions so far, please keep them coming!

Previously:

Chapter 1: Introduction

Additional Resources:

TSH at Simple Mom: Manage the Family Finances by Cutting Expenses AND Increasing Income

Tricia Okin at The Marketing Mix: What's your ideal day?

Reviewing that schedule, it looks like roughly 5 hours a day, or 25 hours a week, is dedicated to client work besides email. How many clients do I or you need to bring in each month or each quarter to fit an ideal day? How much marketing do we have to do to attract those clients?

As it stands with my current need to meet $5,000 a month, I would need to bring in roughly 2 projects a month....

To get those projects and clients, Dani and I calculated: 2 projects/month = 10 proposals/month = talking to 60 people/month. This means I have to speak to or follow up with 2 new people per day to reach my goal.

Julie Chance at WebProNews: Reach Vs. Frequency

Seth Godin in his book Permission Marketing uses an analogy of seeds and water to demonstrate the importance of assuring adequate frequency in your promotional campaigns. If you were given 100 seeds with enough water to water each seed once would you plant all 100 seeds and water each one once or would you be more successful if you planted 25 seeds and used all of the water on those 25 seeds?...

When faced with the decision of mailing one direct mail piece to 10,000 people or mailing to 2,500 people four times think about the fate of those 100 seeds you can water only once. Unless you have water rights and can obtain additional water, opt for less reach and more frequency.

Eddie Yoon at Harvard Business Review: Tap into Your Super-Consumers

In any product category, roughly 10% of the consumers account for more than 50% of the profits. These super-consumers, as we call them, are the hot dog buyers who eat five pounds of hot dogs a month, wolfing down as many as 4 per sitting. They are the stapler users who own 8 different staplers. They know what they want, they'll buy a lot of it, and they'll pay a premium for it. They're passionate and engaged — sometimes even a little obsessive — and they exist in every category, from soft drinks and air travel to fast-food and oral care products....

We've found that companies that listen to their super-consumers and use their insights to refine their message ultimately grow sales and margins across all segments. These companies aren't trying to convert light users into heavy users. Rather, they're figuring out what it is the super-consumers like so much and then offering it to them.

Phil Weslow at Feedback Secrets: Contact Adhesion in Social Networking

In banking circles you’ll often hear marketing VPs talk about household penetration. The concept refers to the number of the bank’s products and services that a given household currently has. One of the ongoing goals, from the banks point of view is to increase household penetration....

So let’s extend this idea to social media marketing (SMM). If you are starting out in a SMM campaign your first goal is to build a list of contacts. Your second goal is to develop a decent level of interaction with as many of these contacts as possible.

Cross posted at BlogHer.

Mobile, Search and Product Placement

Each of these continues to grow in either practice or importance. I always sit up and take notice when others agree with my perspective and so allow me to share with you a few affirmations I've noticed of late of my focus on two of the three.

On the mobile front I'm no savant when it comes to noticing that the new Google Phone, the Nexus One, screams that Google is all about seeing mobile as the future. Both Google and Apple have purchased mobile ad companies recently which only reinforces what I (and many others) have been seeing and saying for years now:

Here's my prediction. I think it's all about mobile. It's about making mobile faster, easier, smaller, more powerful. It's about carrying the Internet in your pocket.

Virginia DeBolt at BlogHer: Voice Apps: Have You Talked *To* Your Phone Yet?

Personally, I saw our mobile everything-on-our-phones future by observing my niece. So let me amend my previous statement. Mobile and children are our future.

As is product placement. Amanda Congdon brought the idea up in the panel we held on the future of television in a digital world at new comm forum a couple years ago and ever since it has become increasingly evident. latest data point comes from return of the show Chuck.

Ultimately, Subway may have saved “Chuck” when it struck a sponsorship deal for the show’s third season, helping to offset the hundreds of thousands of dollars that producers agreed to cut from their per-episode budgets. (As they did last season, Subway sandwiches and stores will turn up in logical places in Chuck’s life, like the mall where he works.) Dave Itzkoff at The New York Times Pulling Out All the Stops to Rescue a TV Hero

I'm certain that as video entertainment shifts to the web that product placement will grow as a key method of financing production costs for all forms of television whether it be delivered via broadcast, cable or internet allowing advertising outside the show to do less of the heavy lifting and deliver profits.

G.E. and Comcast Strike a Deal for NBC: What It Could Mean for the Future of TV and the Internet

The General Electric Company has agreed to sell a controlling stake in NBC Universal to cable giant Comcast. Comcast will own 51% of a new joint venture with G.E. retaining 49%.

While rumors of the pending deal have been swirling for months, the new venture still faces a regulatory confirmation process that deal watchers estimate will take anywhere from 9 to 18 months to complete.

Although what new media landscape might emerge from this deal is, at this time, speculative, Comcast has created a microsite about the acquisition and Chairman and CEO, Brian L. Roberts, is blogging about the announcement.

The desire to own a media content creation company is not new for Comcast. In 2004 Comcast attempted a hostile takeover of Disney that ultimately failed.

Comcast's interest in this area is not difficult to discern. Television and media watchers like myself have long seen some writing on the wall: winners in the new world will be the ones that can deliver any and all content to viewers on the device and at the time of their choosing.

Several solutions have been developing but none have been completely satisfactory. Comcast has developed its "On-Demand" service, Netflix has partnered with device makers in order to stream content directly to televisions, Apple makes its Apple TV box and using iTunes you can purchase television shows to download to your iPod, DVRs like TiVo allow time shifting of recorded shows, sites like Hulu and Clicker aggregate television content to facilitate one-stop online viewing of free over-the-air and cable television without the subscription or the television set, and television manufacturers are working on developing internet enabled televisions that will cut out the service provider and device middlemen.

However content creators still hold some important cards in this poker game for the future. Mailing physical DVDs is not the future and no company is more aware of this than Netflix (Full disclosure: I am a former employee of Netflix). That's why they've been developing their on-demand streaming services and what allows them to lead in this arena is the existing relationships they have with studios, from their original DVD-rentals-by-mail business, with whom they must negotiate to get the rights to stream their content.

Each new change in technology requires a new round of standards, permissions and deals to be made. As both the content creator (Universal Studios, NBC Television and the plethora of cable channels NBC and Comcast each own) and deliverer (Comcast's cable and internet services) Comcast positions itself to better take advantage of an ability to provide whatever consumers want, wherever they gravitate as broadcast TV, DVD and other media models rapidly decline. If they could manage to acquire a mobile phone service provider and device manufacturer, Comcast could completely dominate where I think we are headed: i.e., everything must be accessible via a handheld device like a cell phone. And in negotiation with themselves they can not only better control the process but profit from it as well.

BlogHer co-founder and CEO, Lisa Stone, sees the potential for an exciting future with the new Comcast:

Full disclosure: GE/NBCU are investors in BlogHer through the Peacock Equity Fund. But that doesn't change my opinion that, from the outside, the synergy of media assets between NBCU and Comcast is pretty exciting. The joint venture will be a video powerhouse immediately, but it seems to me that the sleeper opportunity is digital. Just imagine what one could accomplish for women online with the multimedia and .com assets of E! and DailyCandy to iVillage, BravoTV, and Oxygen, not to mention MSNBC and CNBC.com.

No crystal ball is without some clouds in the picture, however. The merger of AOL and Time Warner in an effort to dominate the future media world provides an important cautionary tale. Nevertheless it seems to make smart business sense for both Comcast and G.E.. The potential for monopoly power, however, frightens a number of observers, especially supporters of net neutrality principles who are particularly concerned given Comcast's previous troubles with the FCC over their perceived attempts to throttle the internet and to limit and control and, some believe, ultimately tier access.

As a keen observer of television (content and hardware) and opiner on its digital future (delivery, consumption and business models), I will be watching this deal and how the changes it ultimately will bring about play out. What possibilities do you see? Are you concerned about regulatory, monopoly or net neutrality issues? What opportunities could this deal create for women online?

Integrating Social Media With Marketing And Across The Company

Jeremiah Owyang has an excellent article in Forbes calling on CMOs to learn and deploy social tools to connect with consumers. His arguments support a couple of points that I've advocated for a while now.

First, marketing is the function that needs to lead companies into understanding, adopting and integrating social media tools into their mix. Second, that there needs to be an internal group that educates companies on how to spread the use of social media tools across company functions such as customer service. In either case, social tools cannot only be relegated to the province of outside agencies to implement in short term campaigns.

Two excerpts from the article:

CMOs must think of social marketing as a horizontal effort across all of their digital marketing assets--not as an independent experiment.

and

Dedicated social roles should be enablers, not controllers. We now know that social technologies are pervasive and affect all digital assets. Yet to be successful, CMOs should appoint dedicated staffers to coordinate efforts. Success will require these people to teach, provide resources and select technologies on behalf of multiple business units. Take, for example, Intel's Social Media Center of Excellence, which is a team that trains, helps, and enables other business units with this new medium.

It's no surprise to me that Owyang highlights consumer brands as leading the way in integrating social tools into their marketing mix. At many leading CPG companies it is marketing that leads the business, understands the consumers who purchase their products and owns the P&L for the brands. The marketing function therefore is not only is the natural function to begin the adoption and integration process but to lead company-wide education efforts.

I, for one, am fascinated to watch as this change starts to build.

IDEO: Sharing Ideas

Fast Company reports on the latest innovation in idea sharing from the ultra-cool design firm in "Open-Source Innovation: IDEO's Human-Centered Design Toolkit" by Alissa Walker:

A series of PDFs that are free to download, the Human-Centered Design Toolkit hopes to empower organizations and design firms by giving them their field-tested tools for social impact in a way that focuses more on sharing information than authorship.

I've used IDEO's Method Cards for years now when developing consumer research design. Their approach is not just useful for designing products. I love that rather than holding their innovative approaches tight they are distributing and sharing them. IDEO is unique and highly successful in what they do and sharing in this way is in no way a threat to their business. Rather it helps up everybody's game and builds their brand and business in the process.

Selling Content in a Free World

Newspapers are on a long, sad death spiral. The rise of the Kindle leads reactionary publishers to eye the failed journey of the music business as a model for how to throw tantrums and demand protection for an existing business model on their way to oblivion.

I don't have the answer but I suspect it lies in rethinking what is advertising and what is value people are willing to pay for. I was thinking about music videos which started out as advertising for recordings. Although music videos can be useful tools in selling music, they no longer do much for selling recordings. In this digital era, recordings now serve as advertisements for live concerts in many cases. Recordings can be pirated, experiences cannot.

Publishers, like record companies, seem fixated on being paid for developing and packaging content. Fair or not, consumers have made it pretty clear that they don't see value in that proposition and are no longer willing to pay for it. Therefore, content creators and publishers need to figure out what their content and value-added production and packaging can sell.

iTunes did a great job for years of selling iPods until Amazon figured out how to sell iPods, any other MP3 player, content and Amazon itself much as they are doing with the Kindle. Now apps sell iPods and iPhones and iPhones sell AT&T cell phone service. Cell phone service, other than at the margins, is equally unpleasant regardless of which carrier you choose. There is not much to differentiate carriers other than price for the majority of consumers. Except if you want an iPhone.

Eric Pfanner at The New York Times is musing along the same lines: Pay Walls Alone Won't Save Newspapers.

How about you - any bright ideas on how content, publishing and value can be rethought and what they could sell other than packaged content itself?

Maybe I am a Social Media Expert!

How Knowledgeable Are Marketers With No Social Media Experience?

Marketing Sherpa's Chart of the Week:

Majority of Marketers Believe No Experience is Needed to be a Social Media Expert

Much like Beth Harte and Michelle Tripp, I steer clear of calling myself a Social Media Expert - I consider myself a marketer (one with a record of success and several years of experience working with social and new media) - and for many of the same reasons as they express in their posts. Proclaiming oneself as an expert implies that one believes they no longer have anything to learn. Also, knowing how to use the tools does not mean you know anything about marketing and marketing strategy. Social media marketing is still marketing but with new tools. You need to know both and any "social media expert" who can only help you learn how to use the tools but not also understand why, when and where to use them is not going to be able to help you adopt and utilize them in an effective manner to build your brand or grow your business.

But then I saw the chart above.

Using social media tools, no matter how prolifically, does not mean you understand how to integrate them into a marketing plan. Marketing Sherpa sums it up nicely:

You may have spent a lifetime watching hours of television on a daily basis and being exposed to an infinite number of commercials in the process but, based on that, would you consider yourself knowledgeable about producing a TV commercial? Of course you wouldn’t.

However, since a majority of my fellow marketers believe that familiarity with social media is sufficient and experience using the tools in service of a marketing strategy is not a necessary condition to consider oneself knowledgeable, I can at least not cringe when well-meaning friends call me a social media expert. Though really I'm holding out for social media goddess.

Smart Marketers: Shut Up and Listen

From "Socialized Media" by Tim Manners at Fast Company.  Manners gives excellent examples of what's not working and what might.  I think two key points he makes are valuable to any marketer - 1. listen and 2. add value.  You cannot go wrong by doing those two things.  I encourage you to read the whole article.

As one respondent put it: "If you sell (unless you are a very cool web app), you lose. Don't sell. As a marketer: network. Help people. Advise. Create value and add to the conversation."

Nobody has really figured out how to do that yet. But it's worth considering the possibility that smart marketers won't even attempt to be part of the conversation, much less interrupt it. It could be that the real marketing potential of online social networks is listening, not talking.

The point is, if we're not helping people live better lives, we are not helping ourselves. If all we are doing is interrupting people who don't have time for interruptions, we can't expect their attention. If all we are doing is annoying people who have zero tolerance for annoyance, we can't earn their trust.

If all we are doing is pelting people with endlessly irrelevant messages, we can't claim their loyalty. And if we can't claim their loyalty, we don't have a prayer of a positive return-on-investment.

We can run whatever media-mix model we like, but all we're likely to achieve is a marginal improvement on what is otherwise an unmistakable downward spiral of failure.

Learning the Language of Your Consumers

Are you speaking your consumer's language?  Are you looking through their eyes?

A client recently thanked me for clearly articulating how to explain to customers how the client's services would meet the customers needs.  I thought to myself that it was easy for me to do because as a former insider I can speak the customers language fluently. 

I am always shocked by the number of marketers who advertise and who sell products to consumers unlike them who brag about their lack of familiarity with the language of the consumers to whom they advertise. "I don't know any ads because I don't watch television" they boast.  Or they sell grocery products and never set foot in a grocery store unless the sales team sets up a special field trip for them.

It is imperative that as a marketer you make an effort to listen to and understand and learn to speak the language of the people whose needs you are supposedly meeting.

Sometimes there is a huge disconnect between the people who make a product and the people who use it.

If what this New York Times article points out is true for you and/or your company and you can't learn the language then hire a translator. It will be money very well spent.