Introduction to Market Mix Modeling
Guest blog post by Jane Sandwood. Jane Sandwood is a professional freelance writer and editor with over 10 years’ experience. She decided to leave the corporate world and move into freelancing to take advantage of the flexibility and work-life balance it offers.
When it comes down to the absolute basics, marketing is all about one thing – getting the right offer in front of the right person at exactly the right moment.
You’d have a hard time finding a marketer who doesn’t agree with that statement.
Oddly enough, many of these same marketers don’t actually live by this creed. According to data collected by Hubspot, nearly 25% of marketers don’t know whether their efforts truly affect the outcome of a conversion.
If I were a gambling man (which I most certainly am), I’d be willing to bet many of these people implement the “spray and pray” method of marketing – that is, they try a whole bunch of tactics, on a whole bunch of target customers, all the time.
When one of the tactics works, they stick with it. When none of them do, they chalk up a loss and simply try something – anything – else.
But the problem here is they aren’t paying attention to why a certain campaign performed so well, and why another one fell flat. They don’t realize that what worked today might not work tomorrow, or what didn’twork today (that they end up scrapping entirely) might be hugely successful a few months down the road.
In short: they’re not thinking strategically.
If you’re in this boat, the first thing you need to do is take a step back and analyze your overall marketing plan. Ask yourself:
What’s working in terms of generating leads and sales? What isn’t?
At which stage of the buyer’s journey is a certain tactic working? Where is it not?
Who are your customers? What do you know about them that could help improve your marketing initiatives?
How does all of this fit together?
When you’re able to determine the answer to these questions – especially the last one – you’ll be in a much better position to create an effective marketing mix. In turn, you’ll have a better understanding of whether or not a certain offer will resonate with a certain customer persona at a given time.
The Definition and Components of Marketing Mix
A marketing mix is the tools, strategies, and tactics a company uses to promote its products or services. When discussing marketing mix, we focus on all of the controllable elements of a marketing plan.
If you’re at all familiar with the term “marketing mix,” you’ve likely heard of the “Four P’s” of marketing.
While you may have seen the terms “marketing mix” and “Four P’s of marketing” be used interchangeably, it’s important to understand the two aren’t synonymous.
While “marketing mix” refers to the strategies and tactics implemented by a marketing team to promote its brand, the “Four P’s” refer to common factors that a team analyzes in order to develop these strategies.
The reason many people use the terms interchangeably is because, in his 1960 book Basic Marketing: A Managerial Approach, marketing wizard E. Jerome McCarthy proposed the “Four P’s” approach to marketing mix, which became the gold standard in terms of forming a marketing strategy for years to come.
However, in the early 1980s, Bernard H. Booms and Mary J. Bitner recognized that the “Four P’s” essentially ignored the fact that customer service is a huge part of any company’s marketing initiatives (even product-focused companies). In turn, they developed the “7P model” of the marketing mix.
An 8th “P” has also been added over time, which we’ll discuss momentarily.
Most recently, marketing experts have begun focusing heavily on the customer side of the marketing equation (rather than taking a brand-centric approach to marketing). This led to the development of the 4C model – again, which we’ll discuss later in this post.
The point, here, is that there are many elements to a marketing mix. Which ones a company chooses to focus on depends on the company’s overall marketing objectives, the products or services it offers, and the needs of its customers.
In the following sections, we’ll dig into the “P’s” and “C’s” of the marketing mix, and explain how analyzing each of them will contribute to a better understanding of how to reach your company’s marketing objectives.
The Four P’s of Marketing
Okay, by now you’re probably wondering:
“What, exactly, are the Four P’s of Marketing?”
Well, the reason I didn’t explain this earlier is because I wanted to be sure we were on the same page in terms of understanding that there’s more to the marketing mix than just the Four P’s.
We’ll get to that 5th P (and more) soon enough.
So, now that we’re straight on that end, let’s talk about the original Four P’s of Marketing. They are:
In this section, we’ll define each of these terms in greater detail, discuss some of the questions you should ask yourself and considerations you should make regarding each one, and explain how popular brands have used each of these factors when developing a new offer.
Let’s get started.
This probably goes without saying, but the product (or service) you offer your customers largely determines how you should market your brand as a whole.
But it’s essential to remember that your product/service exists in the real world. In other words, you can’t simply assess your product/service in a vacuum.
When developing your product or service, you need to consider:
Whether or not there’s a need for it in the current marketplace
Whether or not there will be a need for it in the future (or what you’ll need to do to adapt to future needs)
The life cycle (growth, maturity, and decline) of similar products or services in the industry
Think back to when Apple released the original iPod. In no way did Steve Jobs invent the MP3 player – but he did notice that the ones that were available at the time certainly were not perfect. Even so, consumers were flocking to the new technology that did away with the need to carry around dozens of CDs at a time; clearly, there was a demand for the new product.
So Apple quickly got to work developing an MP3 player that was as close to perfect as possible at the time.
However, by today’s standards, the original iPod seems almost primitive. Of course, Apple knew this would happen – which motivated the team to create the iPod Touch, the iPad, and, of course, the iPhone. By predicting the needs of consumers in the future, Apple has managed to stay one step ahead of almost every other electronics company in the entire world.
When assessing the product or service you offer (or will offer) your customers, ask yourself the following questions:
What do customers want?
How, where, and when will they use it?
What are the essential features of the product/service?
What features are superfluous (either of your own product or of ca competitor’s)?
What sets your product/service apart from your competitors’?
Understand the answers to these questions, and you’ll have a much better idea of where your product fits in with the current market. In turn, it will be much easier to showcase the value it can bring to your target customers’ lives.
Again, pretty straightforward – to be successful in any industry, you need to offer your products or services at a price that is affordable to your customers while also allowing you to maximize returns.
How the pricing of your offer affects your profit margin
The perceived value of your product or service
Along with perceived value, your brand’s reputation throughout your industry
The price of similar products being offered by your competition
It’s also worth noting that the price you set for your products or services can inherently affect how consumers view said product or service in the first place.
On the one hand, pricing your products on the low end of the spectrum can border the line between “affordable” and “cheap”; set the price too low, and your target consumer might assume your product is rather low in quality.
On the other hand, setting your price too high will certainly turn off a decent amount of your target consumers who either refuse to spend more than a certain amount of money on the product you offer, or who literally can’t afford to pay the price you’ve set.
It’s important to understand that the price you offer your product at should never be set in stone, for a variety of reasons. For one thing, demand for your product will fluctuate (as alluded to in the previous section); for another, the cost of producing your product will likely change over time. Again, these are only two of the many factors that affect product pricing; you’ll need to revisit these factors from time to time to ensure you’ve set an optimal price for your offering.
For a detailed analysis of how coffee giant Starbucks increased its revenue from $331 million to $417 million in one quarter by raising the price of “tall” sized coffees by 1%, check out Tucker Dawson’s article featured on Price Intelligently. A 1% increase in price gave Starbucks an extra $86M revenue… in one QUARTER
In general, when determining the pricing of your products or services, you should ask yourself:
How much does it cost to produce one unit or provide one instance of service?
How much do you aim to make during a single exchange?
How much do customers expect to pay for your product/service?
Is your price hurting sales? Helping?
Is your price hurting or helping your profit margin?
While everything about your marketing initiatives is, at one point, a matter of trial and error, this is most often the case when it comes to pricing. As mentioned earlier, you should always be prepared to assess the way you’re pricing your offerings to see if there’s room for improvement.
Place (Placement and Distribution)
Place refers to the logistics of where (and how) you actually deliver your product or service to your customers.
When considering placement of your product/service, you need to know where, why, and how your target customers tend to do their shopping. Additionally, you’ll want to determine where – among all of these possible places – they’re most likely to purchase your product. Then, you’d put all of this information together to determine which channels you should use in order to maximize output while bringing in the most profit possible.
Mall vacancy is at record highs because of the current e-commerce boom. For example, say your company develops canes and walkers for elderly individuals. After doing research on your customer base, you determine that only 5% of them purchase your products via your online store, while the rest prefer to visit your brick-and-mortar locations.
Using this information, you’d know to focus your efforts on opening more physical stores, or partnering with already-existing distribution centers (such as drug stores and department stores) rather than trying to force your customers to use a channel they’re not comfortable with.
In terms of distribution, there are three main strategies to choose from, depending on your customers’ preferences and needs:
Intensive Distribution: Companies using this method of distribution attempt to get their products in front of as many eyes as possible, in a variety of places. For example, if you were in the mood for Coca Cola, you could head to any one of your local convenience stores, drug stores, or grocery stores to get a bottle or two.
Selective Distribution: A company that offers more than one product (each of which varies in quality and price) might employ a selective distribution strategy. For example, a hardware company might partner with Walmart to sell its more basic, lower-end tools, and will partner with Home Depot to sell its more advanced, specialized wares.
Exclusive Distribution: Exclusive distribution refers to instances in which a company’s product is onlyoffered at a specific store or location. For example, grocery stores such as Aldi, Whole Foods, and Trader Joe’s offer certain brands that can only be found at these respective stores. Companies that utilize exclusive distribution place high importance on building brand loyalty.
As with placement, distribution also takes into consideration how to provide a product in a way that’s most convenient for both the company and the consumer.
Promotion refers to any action, taken by a company or its customers, that gets the company’s name out in the public eye in a positive way. Such promotion can either be paid for in some way or another, or it can be organic.
Some of the most common forms of promotion are:
Public appearances and events
Discounts, sales, and freebies
Social media marketing and content marketing
When deciding on a promotion strategy, consider the following questions:
What mediums do your target consumers use (especially when in “buying mode”)?
When are they most likely to notice and come into contact with your promotion?
How are your competitors promoting their products?
What is your budget for creating and implementing these promotions?
Above all else, a successful marketing campaign is one that provides value to the consumer. This value might come in the form of a discount for frequent shoppers, or it might be a series of blog posts explaining how to get the best use out of your product. It all depends on what your customer is looking to get out of their engagement with your brand.
As mentioned earlier, the original Four P’s of marketing focused mainly on product-related marketing, and didn’t offer much in terms of best practices for marketing services.
Not only that, but even product-focused companies now tend to define their unique selling proposition based on the added services they provide (rather than just the features of their product).
Because of this, three new “P’s” (and a fourth) have been added to the marketing mix equation, which we’ll discuss in the following section.
The 7 P’s Of Marketing (And the 8th P, Too)
The four “new” P’s of Marketing, which focus more on the service side of things, are:
There’s still one more to add, too…Let’s take a look at each of these categories in greater detail.
Simply put, without qualified, competent personnel working hard behind the scenes and on the floor, no company can succeed.
But it’s really not enough for a company’s team members to be qualified; they need to also be truly dedicated to the company’s mission in order for the company to truly reach its full potential.
Not only will such alignment aid the company in terms of productivity, but – as alluded to earlier – it can also become a part of the company’s USP. Ensuring your company is full of competent, diligent, and dedicated employees will inherently improve the services you provide. In turn, this will attract consumers who are looking for that little “extra something” from their experience with your brand.
I’ve talked about Chick-fil-A in a bunch of different posts on Fieldboom’s blog, but there really is no better example of how a dedicated team of employees can make all the difference to a customer’s experience. Everyone who works at Chick-fil-A – from the fry cooks to the franchise managers (and beyond) – all embody everything CEO Dan Cathy believes the company should be.
Without such a heavy focus on customer service, Chick-fil-A may very well be just another fast food joint. For companies like Southwest, it’s all about letting employees be themselves, which attracts and retains customers.
Processes refers to all of the actions that a company implements when delivering a service to its customers. Of course, this is a rather broad definition, as essentially everything a company does ultimately goes toward providing quality services to its customers. So, for our purposes, let’s discuss the processes in which customers are directly involved.
In thinking of processes in this way, we need to think of all of the touch points a customer experiences from the moment they walk into a storefront (or log on to a website, or contact a customer service helpline…) to the moment this engagement ends. A few questions to consider:
How do your employees greet and assist your customers? Do they “assign” themselves to walk-ins, a la Apple Stores? Do they offer assistance if necessary, like most clothing stores? Or do they take a hands-off approach and make themselves available only if a customer seeks them out?
How does the checkout process work? What payment options do you offer your customers? How about options for making returns?
How does your company handle complaints? Is a manager always available during operating hours? Do you have a fully-staffed, on-site customer service department? Do you offer 24/7 support either by telephone or via email/social media?
It’s worth noticing that “processes” deals with both the planning behind a company’s operations and the people who carry out these operations. As noted in the section above, it’s often the dedicated employees of a company who bring value to said company’s customers. However, without proper guidelines in place for these employees to follow, even the most talented and dedicated individuals would have a tough time carrying out a company’s mission.
In service industries, physical evidence refers to all the tangible parts of the otherwise intangible experience customers have when they engage with a company.
Physical evidence, in this regard, refers to three different aspects of a brand:
Ambience refers to the overall “feel” of the location in which a service is rendered. This includes aspects such as color scheme, volume and genre of background music, and level of background noise. For example, a coffee shop might be decorated with relaxing colors, play instrumental music softly in the background, and have sound dampeners placed on walls to reduce echoes – allowing students and remote employees to focus and get some work done.
On the other hand, a gym would likely be decorated with “loud” colors while blasting rock and hip hop music at full blast in an effort to pump *clap* you up.
Spatial layout, quite simply, refers to how furniture and other “equipment” is placed throughout the service area. Think of the last time you went to a restaurant that was way too crowded: even if the food was amazing, you probably will at least think twice about returning any time soon.
One thing to note, here, is that proper ambience and spacing alone isn’t enough to bring in customers if the service you offer isn’t on-par. On the other hand, a sub-par ambience or spatial layout can certainly detract from the overall customer experience.
The best way to explain corporate branding is to ask the question: “If I were to be blindfolded and brought to a random service area, would I be able to tell where I was?” Or, similarly, “If I were to be brought to a website, would I immediately be able to tell which site I was on?”
Think about the differences between Target and Walmart, of McDonald’s and Wendy’s – not in terms of product or service provided, but in terms of the recognizable (sometimes trademarked) aspects of the environment that tell you right away where you are. No company understands this better than Apple – and that’s reflected in their value as a company.
Performance (Or Productivity and Quality)
Whether you call it Performance or Productivity, the 8th P of Marketing is all about how well your company operates – in the eyes of your customers – in comparison to all of the other companies in your industry.
Often, your company’s ability – and drive – to go the extra mile to ensure your customers’ satisfaction is the key differentiator that will keep them coming back whenever they’re in need of the services you offer. Performance is incredibly important in service related industries.
Note: This isn’t to say it’s not important within product-focused companies. But, for example, most consumers wouldn’t choose Pepsi over Coca Cola because of Pepsi’s superb customer service.
Businesses such as restaurants and hotels can definitely leverage performance as a selling point that sets them apart from the crowd. For example, this story of how staff members at a Marriott went above and beyond to make life a little easier for a mother who had recently given birth certainly led to some positive publicity for the hotel chain.
Performance is all about a company’s drive to really “wow” their customers, providing them with top-quality value by any means necessary. It means never being satisfied with the status quo, and always probing deeper to see what else you can do to make your customers happy.
The 4 C’s of Marketing
As mentioned earlier in this post, the marketing world has, in the past few decades, undergone a shift in focus and philosophy.
The “old way” of marketing has all but disappeared. Casting a wide net and reeling in any ol’ consumer in the hopes that they become a paying customer is no longer effective. The modern customer yearns to be treated as an individual by even the largest corporation.
Understanding this, in the early 1990s Robert F. Lauterborn developed the 4 C’s of Marketing as an updated version of the 4 P’s.
Customer wants and needs
Cost of providing value
A more modern take on the 4 P’s of marketing. Let’s dive into each, and discuss how each relates to a corresponding “P” – but does so in a way that focuses on the consumer receiving a service rather than the company providing it.
Customer Wants and Needs (Instead of “Products”)
When you think about it, focusing on products before focusing on consumer needs is sort of putting the cart before the horse, isn’t it? In the modern business world, developing a product or service before thinking about whether or not there’s a demand for said product or service in the first place will almost certainly lead to failure.
Really, it’s always been this way. The major difference today is that uncovering the needs of your vast base of target customers has never been easier. That’s not to say that doing so is easy – it’s just much easier than it was in the pre-digital age.
Rather than gambling on whether a product you’ve already developed will succeed, you can now easily validate your idea at a fraction of the cost before you sink money into developing it.
The internet gives you an opportunity to:
Reach out to your target customers to understand their wants and needs
Research customer reviews of similar products to understand where there’s room for improvement
Create content relating to your idea to see if it creates enough of a buzz to warrant development of a product
In doing so, you can enter into the world of business with a much better understanding of who your customers are, what they want, and how you can give it to them. Equinox doesn’t sell “working out” – they sell a better lifestyle.
Cost of Receiving Service (Instead of “Price”)
When you set a price for your product or service, you’re unwittingly placing your offer in a vacuum. Of course, your customers don’t live in a vacuum. They live in the real world.
If a customer purchases your product, they’ve traded a lot more than just the money they give the cashier at the register. They’ve also traded gas (and gas money) to drive to your store. They’ve traded time that could have been spent elsewhere for time spent browsing your wares. They’ve expended energy and stress wondering if your product will be worth the amount they’ve paid for it.
At first glance, it might seem like there’s not much you can do to alleviate these extra costs to your customer. But think about it – maybe you could offer free shipping for purchases made online – alleviating your customer’s need to drive to your brick-and-mortar location.
You could improve your customer service, or change your store’s physical layout, to make the process of finding and purchasing products more streamlined. Or you could offer a timed return policy or warrantee on all items, easing your customer’s worries that they might lose money on the deal. Simply put, rather than focusing on price optimization, focus on alleviating cost to the consumer.
Convenience to Buy (Instead of Place)
Amazon is the king of a high-converting buying experience when it comes to e-commerce. This goes along with the last section, and also deals with optimizing processes as well. Let’s assume that your storefront is located in a rather convenient area (or, if more applicable, your online shop is easy to navigate).
When it comes time for a customer to make a purchase, is this process just as convenient? By today’s standards, there are a ton of different ways to make payments: cash, cheque, credit card, debit card, PayPal, Apple Pay and mobile payments…the list goes on. If your company doesn’t support one (or even more) of these methods, you’re bound to lose business at some point in the near future.
Not only that, but it’s also important to consider what else is involved in the payment process. For example, do you require customers to provide ID when not using cash? Is the signup process for your mobile payment system tedious and time-consuming? Does your credit card reader accept the newly-implemented chip card?
When implementing modern methods of payment, make sure the rest of your payment process is simple and straightforward – otherwise, you may end up unintentionally making things less convenient for your customer.
Communication (Instead of Promotion)
Remember how we talked about how relatively easy it is to get in touch with your target customers nowadays? Well, because of this, the modern consumer essentially expects it from the companies they do business with.
While one-way advertisements and promotions (such as commercials and magazine ads) aren’t exactly relics of the past just yet, they certainly have taken a backseat to the more interactive forms of marketing and advertising we see today.
Content marketing, social media marketing, even email marketing…these are all two-way streets – if you allow them to be. In other words, it’s not enough to “set it and forget it” by publishing a blog post, scheduling a post on Facebook, or sending out an email blast; you need to actively engage with the members of your audience that respond to these campaigns.
In this way, you’re not simply promoting your product to consumers; you’re promoting your value to individuals who are in need of your services. In doing so, you tear down the wall that acts as a barrier between supplier and customer, and forge a more authentic relationship with the people who need you most.
A Few Notes on International Marketing Mix
Although we often discuss the idea that every consumer is an individual, we tend to do so while at the same time assuming they still have certain foundational characteristics in common.
But this only applies when discussing your company’s “domestic” customer base (even this isn’t exactly accurate, either).
When promoting your brand to an international audience, you essentially have to start from scratch. Although there are bound to be some similarities between your domestic and international audiences, failure to recognize even the most minute difference could lead to disaster for your company.
Let’s go back to the original 4 P’s of Marketing to get a feel for some of the important things to think about when marketing to an international audience:
Product: The products you offer – for a variety of reasons – may or may not resonate with a certain international group. You’ll need to consider the group’s cultural and religious background, their average level of income, their buying habits, and more. For example, McDonald’s restaurants in India don’t serve beef products in adherence to the Hindu religion.
Promotion: Again, when promoting your product or service to an international audience, you need to consider cultural and religious norms, and you need to have a firm grasp of the language of the people. For example, while a character giving the “thumbs up” sign on a billboard in America would conjure up positive thoughts, the same photo would be considered incredibly offensive in many Middle Eastern countries.
Pricing: We mentioned earlier that you’ll need to consider your international audience’s level of income when promoting your brand abroad. But, once your audience begins paying for your products, you’ll need to consider other factors, such as taxes, the exchange rate, and the cost of transporting your items throughout the world.
Place: Domestically, the chain of product transfer generally goes: manufacturer, wholesaler, retailer, consumer. In many other countries, this chain can be more like a tree, in that it branches off in certain areas (such as involving multiple wholesalers). Without a clear understanding of how your product will be delivered, there’s little chance of being able to optimize your reach in a certain area.
Whether marketing your product or service domestically or internationally, it’s essential that you clarify as much information as possible. In doing so, you’ll be able to avoid everything from minor setbacks to major pitfalls while ensuring your customers get the most value possible from your brand.
Attempting to market your product or service without knowing and understanding what will or won’t work is a fool’s errand. Sure, you might get lucky and gain some major publicity through a single campaign. But even if this does happen, you’ll have little to no idea why it worked – and won’t be able to replicate the results in the future.
On the other hand, if you work to understand your market – and the individuals who make up the consumer side of this market – you’ll have a much better chance of creating something that your target audience will find valuable.
And, even if you miss the mark, you’ll at least be able to pinpoint why you fell short of your goals…
Originally posted here.
Link: Introduction to Market Mix Modeling