The Marketing Concept

The marketing concept is the philosophy that firms should analyze the needs of their customers
and then make decisions to satisfy those needs, better than the competition. Today most firms
have adopted the marketing concept, but this has not always been the case.

In 1776 in The Wealth of Nations, Adam Smith wrote that the needs of producers should be
considered only with regard to meeting the needs of consumers. While this philosophy is
consistent with the marketing concept, it would not be adopted widely until nearly 200 years
later.

To better understand the marketing concept, it is worthwhile to put it in perspective by reviewing

other philosophies that once were predominant. While these alternative concepts prevailed
during different historical time frames, they are not restricted to those periods and are still
practiced by some firms today.

The Production Concept

The production concept prevailed from the time of the industrial revolution until the early
1920's. The production concept was the idea that a firm should focus on those products that it
could produce most efficiently and that the creation of a supply of low-cost products would in
and of itself create the demand for the products. The key questions that a firm would ask before
producing a product were:

• Can we produce the product?

• Can we produce enough of it?

At the time, the production concept worked fairly well because the goods that were produced
were largely those of basic necessity and there was a relatively high level of unfulfilled demand.
Virtually everything that could be produced was sold easily by a sales team whose job it was
simply to execute transactions at a price determined by the cost of production. The production
concept prevailed into the late 1920's.

The Sales Concept

By the early 1930's however, mass production had become commonplace, competition had
increased, and there was little unfulfilled demand. Around this time, firms began to practice the
sales concept (or selling concept), under which companies not only would produce the products,
but also would try to convince customers to buy them through advertising and personal selling.
Before producing a product, the key questions were:

• Can we sell the product?

• Can we charge enough for it?
The sales concept paid little attention to whether the product actually was needed; the goal
simply was to beat the competition to the sale with little regard to customer satisfaction.
Marketing was a function that was performed after the product was developed and produced, and
many people came to associate marketing with hard selling. Even today, many people use the
word "marketing" when they really mean sales.

The Marketing Concept

After World War II, the variety of products increased and hard selling no longer could be relied
upon to generate sales. With increased discretionary income, customers could afford to be
selective and buy only those products that precisely met their changing needs, and these needs
were not immediately obvious. The key questions became:

• What do customers want?

• Can we develop it while they still want it?
• How can we keep our customers satisfied?

In response to these discerning customers, firms began to adopt the marketing concept, which
involves:

• Focusing on customer needs before developing the product

• Aligning all functions of the company to focus on those needs
• Realizing a profit by successfully satisfying customer needs over the long-term

When firms first began to adopt the marketing concept, they typically set up separate marketing
departments whose objective it was to satisfy customer needs. Often these departments were
sales departments with expanded responsibilities. While this expanded sales department structure
can be found in some companies today, many firms have structured themselves into marketing
organizations having a company-wide customer focus. Since the entire organization exists to
satisfy customer needs, nobody can neglect a customer issue by declaring it a "marketing
problem" - everybody must be concerned with customer satisfaction.

The marketing concept relies upon marketing research to define market segments, their size, and
their needs. To satisfy those needs, the marketing team makes decisions about the controllable
parameters of the marketing mix.
Market Segmentation

Market segmentation is the identification of portions of the market that are different from one
another. Segmentation allows the firm to better satisfy the needs of its potential customers.

The Need for Market Segmentation

The marketing concept calls for understanding customers and satisfying their needs better than
the competition. But different customers have different needs, and it rarely is possible to satisfy
all customers by treating them alike.

Mass marketing refers to treatment of the market as a homogenous group and offering the same
marketing mix to all customers. Mass marketing allows economies of scale to be realized
through mass production, mass distribution, and mass communication. The drawback of mass
marketing is that customer needs and preferences differ and the same offering is unlikely to be
viewed as optimal by all customers. If firms ignored the differing customer needs, another firm
likely would enter the market with a product that serves a specific group, and the incumbant
firms would lose those customers.

Target marketing on the other hand recognizes the diversity of customers and does not try to
please all of them with the same offering. The first step in target marketing is to identify different
market segments and their needs.

Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be evaluated
against the following criteria:

• Identifiable: the differentiating attributes of the segments must be measurable so that they
can be identified.
• Accessible: the segments must be reachable through communication and distribution
channels.
• Substantial: the segments should be sufficiently large to justify the resources required to
target them.
• Unique needs: to justify separate offerings, the segments must respond differently to the
different marketing mixes.
• Durable: the segments should be relatively stable to minimize the cost of frequent
changes.

A good market segmentation will result in segment members that are internally homogenous and
externally heterogeneous; that is, as similar as possible within the segment, and as different as
possible between segments.

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

• Geographic
• Demographic
• Psychographic
• Behavioralistic

Geographic Segmentation

The following are some examples of geographic variables often used in segmentation.

• Region: by continent, country, state, or even neighborhood

• Size of metropolitan area: segmented according to size of population
• Population density: often classified as urban, suburban, or rural
• Climate: according to weather patterns common to certain geographic regions

Demographic Segmentation

Some demographic segmentation variables include:

• Age
• Gender
• Family size
• Family lifecycle
• Generation: baby-boomers, Generation X, etc.
• Income
• Occupation
• Education
• Ethnicity
• Nationality
• Religion
• Social class

Many of these variables have standard categories for their values. For example, family lifecycle
often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids),
full-nest, empty-nest, or solitary survivor. Some of these categories have several stages, for
example, full-nest I, II, or III depending on the age of the children.

Psychographic Segmentation

Psychographic segmentation groups customers according to their lifestyle. Activities, interests,

and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables
include:

• Activities
• Interests
 • Opinions
• Attitudes
• Values

Behavioralistic Segmentation

Behavioral segmentation is based on actual customer behavior toward products. Some

behavioralistic variables include:

• Benefits sought
• Usage rate
• Brand loyalty
• User status: potential, first-time, regular, etc.
• Readiness to buy
• Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the
product itself. It is a fairly direct starting point for market segmentation.

Bases for Segmentation in Industrial Markets

In contrast to consumers, industrial customers tend to be fewer in number and purchase larger
quantities. They evaluate offerings in more detail, and the decision process usually involves
more than one person. These characteristics apply to organizations such as manufacturers and
service providers, as well as resellers, governments, and institutions.

Many of the consumer market segmentation variables can be applied to industrial markets.
Industrial markets might be segmented on characteristics such as:

• Location
• Company type
• Behavioral characteristics

Location

In industrial markets, customer location may be important in some cases. Shipping costs may be
a purchase factor for vendor selection for products having a high bulk to value ratio, so distance
from the vendor may be critical. In some industries firms tend to cluster together geographically
and therefore may have similar needs within a region.

Company Type

Business customers can be classified according to type as follows:

• Company size
• Industry
 • Decision making unit
• Purchase Criteria

Behavioral Characteristics

In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such
behavioral characteristics may include:

• Usage rate
• Buying status: potential, first-time, regular, etc.
• Purchase procedure: sealed bids, negotiations, etc.

Market Analysis

The goal of a market analysis is to determine the attractiveness of a market and to understand
its evolving opportunities and threats as they relate to the strengths and weaknesses of the firm.

David A. Aaker outlined the following dimensions of a market analysis:

• Market size (current and future)

• Market growth rate
• Market profitability
• Industry cost structure
• Distribution channels
• Market trends
• Key success factors

Market Size

The size of the market can be evaluated based on present sales and on potential sales if the use of
the product were expanded. The following are some information sources for determining market
size:

• government data
• trade associations
• financial data from major players
• customer surveys

Market Growth Rate

A simple means of forecasting the market growth rate is to extrapolate historical data into the
future. While this method may provide a first-order estimate, it does not predict important
turning points. A better method is to study growth drivers such as demographic information and
sales growth in complementary products. Such drivers serve as leading indicators that are more
accurate than simply extrapolating historical data.

Important inflection points in the market growth rate sometimes can be predicted by constructing
a product diffusion curve. The shape of the curve can be estimated by studying the characteristics
of the adoption rate of a similar product in the past.

Ultimately, the maturity and decline stages of the product life cycle will be reached. Some
leading indicators of the decline phase include price pressure caused by competition, a decrease
in brand loyalty, the emergence of substitute products, market saturation, and the lack of growth
drivers.

Market Profitability

While different firms in a market will have different levels of profitability, the average profit
potential for a market can be used as a guideline for knowing how difficult it is to make money
in the market. Michael Porter devised a useful framework for evaluating the attractiveness of an
industry or market. This framework, known as Porter's five forces, identifies five factors that
influence the market profitability:

• Buyer power
• Supplier power
• Barriers to entry
• Threat of substitute products
• Rivalry among firms in the industry

Industry Cost Structure

The cost structure is important for identifying key factors for success. To this end, Porter's value
chain model is useful for determining where value is added and for isolating the costs.

The cost structure also is helpful for formulating strategies to develop a competitive advantage.
For example, in some environments the experience curve effect can be used to develop a cost
advantage over competitors.

Distribution Channels

The following aspects of the distribution system are useful in a market analysis:

• Existing distribution channels - can be described by how direct they are to the customer.
• Trends and emerging channels - new channels can offer the opportunity to develop a
competitive advantage.
• Channel power structure - for example, in the case of a product having little brand equity,
retailers have negotiating power over manufacturers and can capture more margin.
Market Trends

Changes in the market are important because they often are the source of new opportunities and
threats. The relevant trends are industry-dependent, but some examples include changes in price
sensitivity, demand for variety, and level of emphasis on service and support. Regional trends
also may be relevant.

Key Success Factors

The key success factors are those elements that are necessary in order for the firm to achieve its
marketing objectives. A few examples of such factors include:

• Access to essential unique resources

• Ability to achieve economies of scale
• Access to distribution channels
• Technological progress

It is important to consider that key success factors may change over time, especially as the
product progresses through its life cycle.

Target Market Selection

Target marketing tailors a marketing mix for one or more segments identified by market
segmentation. Target marketing contrasts with mass marketing, which offers a single product to
the entire market.

Two important factors to consider when selecting a target market segment are the attractiveness
of the segment and the fit between the segment and the firm's objectives, resources, and
capabilities.

Attractiveness of a Market Segment

The following are some examples of aspects that should be considered when evaluating the
attractiveness of a market segment:

• Size of the segment (number of customers and/or number of units)

• Growth rate of the segment
• Competition in the segment
• Brand loyalty of existing customers in the segment
• Attainable market share given promotional budget and competitors' expenditures
• Required market share to break even
• Sales potential for the firm in the segment
 • Expected profit margins in the segment

Market research and analysis is instrumental in obtaining this information. For example, buyer
intentions, salesforce estimates, test marketing, and statistical demand analysis are useful for
determining sales potential. The impact of applicable micro-environmental and macro-
environmental variables on the market segment should be considered.

Note that larger segments are not necessarily the most profitable to target since they likely will
have more competition. It may be more profitable to serve one or more smaller segments that
have little competition. On the other hand, if the firm can develop a competitive advantage, for
example, via patent protection, it may find it profitable to pursue a larger market segment.

Suitability of Market Segments to the Firm

Market segments also should be evaluated according to how they fit the firm's objectives,
resources, and capabilities. Some aspects of fit include:

• Whether the firm can offer superior value to the customers in the segment
• The impact of serving the segment on the firm's image
• Access to distribution channels required to serve the segment
• The firm's resources vs. capital investment required to serve the segment

The better the firm's fit to a market segment, and the more attractive the market segment, the
greater the profit potential to the firm.

Target Market Strategies

There are several different target-market strategies that may be followed. Targeting strategies
usually can be categorized as one of the following:

• Single-segment strategy - also known as a concentrated strategy. One market segment

(not the entire market) is served with one marketing mix. A single-segment approach
often is the strategy of choice for smaller companies with limited resources.
• Selective specialization- this is a multiple-segment strategy, also known as a
differentiated strategy. Different marketing mixes are offered to different segments. The
product itself may or may not be different - in many cases only the promotional message
or distribution channels vary.
• Product specialization- the firm specializes in a particular product and tailors it to
different market segments.
• Market specialization- the firm specializes in serving a particular market segment and
offers that segment an array of different products.
• Full market coverage - the firm attempts to serve the entire market. This coverage can
be achieved by means of either a mass market strategy in which a single undifferentiated
marketing mix is offered to the entire market, or by a differentiated strategy in which a
separate marketing mix is offered to each segment.
The following diagrams show examples of the five market selection patterns given three market
segments S1, S2, and S3, and three products P1, P2, and P3.

Single Selective Product Market Full Market

Segment Specialization Specialization Specialization Coverage

S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3
P1 P1 P1 P1 P1
P2 P2 P2 P2 P2
P3 P3 P3 P3 P3

A firm that is seeking to enter a market and grow should first target the most attractive segment
that matches its capabilities. Once it gains a foothold, it can expand by pursuing a product
specialization strategy, tailoring the product for different segments, or by pursuing a market
specialization strategy and offering new products to its existing market segment.

Another strategy whose use is increasing is individual marketing, in which the marketing mix
is tailored on an individual consumer basis. While in the past impractical, individual marketing is
becoming more viable thanks to advances in technology.

Situation Analysis

In order to profitably satisfy customer needs, the firm first must understand its external and
internal situation, including the customer, the market environment, and the firm's own
capabilities. Furthermore, it needs to forecast trends in the dynamic environment in which it
operates.

A useful framework for performing a situation analysis is the 5 C Analysis. The 5C analysis is
an environmental scan on five key areas especially applicable to marketing decisions. It covers
the internal, the micro-environmental, and the macro-environmental situation. The 5 C analysis
is an extension of the 3 C analysis (company, customers, and competitors), to which some
marketers added the 4th C of collaborators. The further addition of a macro-environmental
analysis (climate) results in a 5 C analysis, some aspects of which are outlined below.

Company

• Product line
• Image in the market
• Technology and experience
 • Culture
• Goals

Collaborators

• Distributors
• Suppliers
• Alliances

Customers

• Market size and growth

• Market segments
• Benefits that consumer is seeking, tangible and intangible.
• Motivation behind purchase; value drivers, benefits vs. costs
• Decision maker or decision-making unit
• Retail channel - where does the consumer actually purchase the product?
• Consumer information sources - where does the customer obtain information about the
product?
• Buying process; e.g. impulse or careful comparison
• Frequency of purchase, seasonal factors
• Quantity purchased at a time
• Trends - how consumer needs and preferences change over time

Competitors

• Actual or potential
• Direct or indirect
• Products
• Positioning
• Market shares
• Strengths and weaknesses of competitors

Climate (or context)

The climate or macro-environmental factors are:

• Political & regulatory environment - governmental policies and regulations that affect the
market
• Economic environment - business cycle, inflation rate, interest rates, and other
macroeconomic issues
• Social/Cultural environment - society's trends and fashions
• Technological environment - new knowledge that makes possible new ways of satisfying
needs; the impact of technology on the demand for existing products.

The analysis of the these four external "climate" factors often is referred to as a PEST analysis.
Information Sources

Customer and competitor information specifically oriented toward marketing decisions can be
found in market research reports, which provide a market analysis for a particular industry. For
foreign markets, country reports can be used as a general information source for the macro-
environment. By combining the regional and market analysis with knowledge of the firm's own
capabilities and partnerships, the firm can identify and select the more favorable opportunities to
provide value to the customer.

Market Definition

In marketing, the term market refers to the group of consumers or organizations that is interested
in the product, has the resources to purchase the product, and is permitted by law and other
regulations to acquire the product. The market definition begins with the total population and
progressively narrows as shown in the following diagram.

Market Definition
Conceptual Diagram
Beginning with the total population, various terms are used to describe the market based on the
level of narrowing:

• Total population
• Potential market - those in the total population who have interest in acquiring the
product.
• Available market - those in the potential market who have enough money to buy the
product.
• Qualified available market - those in the available market who legally are permitted to
buy the product.
• Target market - the segment of the qualified available market that the firm has decided
to serve (the served market).
• Penetrated market - those in the target market who have purchased the product.

In the above listing, "product" refers to both physical products and services.

The size of the market is not necessarily fixed. For example, the size of the available market for a
product can be increased by decreasing the product's price, and the size of the qualified available
market can be increased through changes in legislation that result in fewer restrictions on who
can buy the product.

Defining the market is the first step in analyzing it. Since the market is likely to be composed of
consumers whose needs differ, market segmentation is useful in order to better understand those
needs and to select the groups within the market that the firm will serve.

The Marketing Process

Under the marketing concept, the firm must find a way to discover unfulfilled customer needs
and bring to market products that satisfy those needs. The process of doing so can be modeled in
a sequence of steps: the situation is analyzed to identify opportunities, the strategy is formulated
for a value proposition, tactical decisions are made, the plan is implemented and the results are
monitored.

The Marketing Process

Situation Analysis
|
V
Marketing Strategy
|
V
Marketing Mix Decisions
|
V
Implementation & Control

I. Situation Analysis

A thorough analysis of the situation in which the firm finds itself serves as the basis for
identifying opportunities to satisfy unfulfilled customer needs. In addition to identifying the
customer needs, the firm must understand its own capabilities and the environment in which it is
operating.

The situation analysis thus can be viewed in terms an analysis of the external environment and an
internal analysis of the firm itself. The external environment can be described in terms of macro-
environmental factors that broadly affect many firms, and micro-environmental factors closely
related to the specific situation of the firm.
The situation analysis should include past, present, and future aspects. It should include a history
outlining how the situation evolved to its present state, and an analysis of trends in order to
forecast where it is going. Good forecasting can reduce the chance of spending a year bringing a
product to market only to find that the need no longer exists.

If the situation analysis reveals gaps between what consumers want and what currently is offered
to them, then there may be opportunities to introduce products to better satisfy those consumers.
Hence, the situation analysis should yield a summary of problems and opportunities. From this
summary, the firm can match its own capabilities with the opportunities in order to satisfy
customer needs better than the competition.

There are several frameworks that can be used to add structure to the situation analysis:

• 5 C Analysis - company, customers, competitors, collaborators, climate. Company

represents the internal situation; the other four cover aspects of the external situation
• PEST analysis - for macro-environmental political, economic, societal, and technological
factors. A PEST analysis can be used as the "climate" portion of the 5 C framework.
• SWOT analysis - strengths, weaknesses, opportunities, and threats - for the internal and
external situation. A SWOT analysis can be used to condense the situation analysis into a
listing of the most relevant problems and opportunities and to assess how well the firm is
equipped to deal with them.

II. Marketing Strategy

Once the best opportunity to satisfy unfulfilled customer needs is identified, a strategic plan for
pursuing the opportunity can be developed. Market research will provide specific market
information that will permit the firm to select the target market segment and optimally position
the offering within that segment. The result is a value proposition to the target market. The
marketing strategy then involves:

• Segmentation
• Targeting (target market selection)
• Positioning the product within the target market
• Value proposition to the target market

III. Marketing Mix Decisions

Detailed tactical decisions then are made for the controllable parameters of the marketing mix.
The action items include:

• Product development - specifying, designing, and producing the first units of the product.
• Pricing decisions
• Distribution contracts
• Promotional campaign development

IV. Implementation and Control

At this point in the process, the marketing plan has been developed and the product has been
launched. Given that few environments are static, the results of the marketing effort should be
monitored closely. As the market changes, the marketing mix can be adjusted to accomodate the
changes. Often, small changes in consumer wants can addressed by changing the advertising
message. As the changes become more significant, a product redesign or an entirely new product
may be needed. The marketing process does not end with implementation - continual monitoring
and adaptation is needed to fulfill customer needs consistently over the long-term.

The Marketing Mix

(The 4 P's of Marketing)

Marketing decisions generally fall into the following four controllable categories:

• Product
• Price
• Place (distribution)
• Promotion

The term "marketing mix" became popularized after Neil H. Borden published his 1964 article,
The Concept of the Marketing Mix. Borden began using the term in his teaching in the late 1940's
after James Culliton had described the marketing manager as a "mixer of ingredients". The
ingredients in Borden's marketing mix included product planning, pricing, branding, distribution
channels, personal selling, advertising, promotions, packaging, display, servicing, physical
handling, and fact finding and analysis. E. Jerome McCarthy later grouped these ingredients into
the four categories that today are known as the 4 P's of marketing, depicted below:

The Marketing Mix

These four P's are the parameters that the marketing manager can control, subject to the internal
and external constraints of the marketing environment. The goal is to make decisions that center
the four P's on the customers in the target market in order to create perceived value and generate
a positive response.

Product Decisions

The term "product" refers to tangible, physical products as well as services. Here are some
examples of the product decisions to be made:

• Brand name
• Functionality
• Styling
• Quality
• Safety
• Packaging
• Repairs and Support
• Warranty
• Accessories and services

Price Decisions

Some examples of pricing decisions to be made include:

• Pricing strategy (skim, penetration, etc.)

 • Suggested retail price
• Volume discounts and wholesale pricing
• Cash and early payment discounts
• Seasonal pricing
• Bundling
• Price flexibility
• Price discrimination

Distribution (Place) Decisions

Distribution is about getting the products to the customer. Some examples of distribution
decisions include:

• Distribution channels
• Market coverage (inclusive, selective, or exclusive distribution)
• Specific channel members
• Inventory management
• Warehousing
• Distribution centers
• Order processing
• Transportation
• Reverse logistics

Promotion Decisions

In the context of the marketing mix, promotion represents the various aspects of marketing
communication, that is, the communication of information about the product with the goal of
generating a positive customer response. Marketing communication decisions include:

• Promotional strategy (push, pull, etc.)

• Advertising
• Personal selling & sales force
• Sales promotions
• Public relations & publicity
• Marketing communications budget

Limitations of the Marketing Mix Framework

The marketing mix framework was particularly useful in the early days of the marketing concept
when physical products represented a larger portion of the economy. Today, with marketing
more integrated into organizations and with a wider variety of products and markets, some
authors have attempted to extend its usefulness by proposing a fifth P, such as packaging, people,
process, etc. Today however, the marketing mix most commonly remains based on the 4 P's.
Despite its limitations and perhaps because of its simplicity, the use of this framework remains
strong and many marketing textbooks have been organized around it.
Pricing Strategy

One of the four major elements of the marketing mix is price. Pricing is an important strategic
issue because it is related to product positioning. Furthermore, pricing affects other marketing
mix elements such as product features, channel decisions, and promotion.

While there is no single recipe to determine pricing, the following is a general sequence of steps
that might be followed for developing the pricing of a new product:

1. Develop marketing strategy - perform marketing analysis, segmentation, targeting, and

positioning.
2. Make marketing mix decisions - define the product, distribution, and promotional
tactics.
3. Estimate the demand curve - understand how quantity demanded varies with price.
4. Calculate cost - include fixed and variable costs associated with the product.
5. Understand environmental factors - evaluate likely competitor actions, understand
legal constraints, etc.
6. Set pricing objectives - for example, profit maximization, revenue maximization, or
price stabilization (status quo).
7. Determine pricing - using information collected in the above steps, select a pricing
method, develop the pricing structure, and define discounts.

These steps are interrelated and are not necessarily performed in the above order. Nonetheless,
the above list serves to present a starting framework.

Marketing Strategy and the Marketing Mix

Before the product is developed, the marketing strategy is formulated, including target market
selection and product positioning. There usually is a tradeoff between product quality and price,
so price is an important variable in positioning.

Because of inherent tradeoffs between marketing mix elements, pricing will depend on other
product, distribution, and promotion decisions.

Estimate the Demand Curve

Because there is a relationship between price and quantity demanded, it is important to

understand the impact of pricing on sales by estimating the demand curve for the product.

For existing products, experiments can be performed at prices above and below the current price
in order to determine the price elasticity of demand. Inelastic demand indicates that price
increases might be feasible.

Calculate Costs
If the firm has decided to launch the product, there likely is at least a basic understanding of the
costs involved, otherwise, there might be no profit to be made. The unit cost of the product sets
the lower limit of what the firm might charge, and determines the profit margin at higher prices.

The total unit cost of a producing a product is composed of the variable cost of producing each
additional unit and fixed costs that are incurred regardless of the quantity produced. The pricing
policy should consider both types of costs.

Environmental Factors

Pricing must take into account the competitive and legal environment in which the company
operates. From a competitive standpoint, the firm must consider the implications of its pricing on
the pricing decisions of competitors. For example, setting the price too low may risk a price war
that may not be in the best interest of either side. Setting the price too high may attract a large
number of competitors who want to share in the profits.

From a legal standpoint, a firm is not free to price its products at any level it chooses. For
example, there may be price controls that prohibit pricing a product too high. Pricing it too low
may be considered predatory pricing or "dumping" in the case of international trade. Offering a
different price for different consumers may violate laws against price discrimination. Finally,
collusion with competitors to fix prices at an agreed level is illegal in many countries.

Pricing Objectives

The firm's pricing objectives must be identified in order to determine the optimal pricing.
Common objectives include the following:

• Current profit maximization - seeks to maximize current profit, taking into account
revenue and costs. Current profit maximization may not be the best objective if it results
in lower long-term profits.
• Current revenue maximization - seeks to maximize current revenue with no regard to
profit margins. The underlying objective often is to maximize long-term profits by
increasing market share and lowering costs.
• Maximize quantity - seeks to maximize the number of units sold or the number of
customers served in order to decrease long-term costs as predicted by the experience
curve.
• Maximize profit margin - attempts to maximize the unit profit margin, recognizing that
quantities will be low.
• Quality leadership - use price to signal high quality in an attempt to position the product
as the quality leader.
• Partial cost recovery - an organization that has other revenue sources may seek only
partial cost recovery.
• Survival - in situations such as market decline and overcapacity, the goal may be to
select a price that will cover costs and permit the firm to remain in the market. In this
case, survival may take a priority over profits, so this objective is considered temporary.
 • Status quo - the firm may seek price stabilization in order to avoid price wars and
maintain a moderate but stable level of profit.

For new products, the pricing objective often is either to maximize profit margin or to maximize
quantity (market share). To meet these objectives, skim pricing and penetration pricing strategies
often are employed. Joel Dean discussed these pricing policies in his classic HBR article entitled,
Pricing Policies for New Products.

Skim pricing attempts to "skim the cream" off the top of the market by setting a high price and
selling to those customers who are less price sensitive. Skimming is a strategy used to pursue the
objective of profit margin maximization.

Skimming is most appropriate when:

• Demand is expected to be relatively inelastic; that is, the customers are not highly price
sensitive.
• Large cost savings are not expected at high volumes, or it is difficult to predict the cost
savings that would be achieved at high volume.
• The company does not have the resources to finance the large capital expenditures
necessary for high volume production with initially low profit margins.

Penetration pricing pursues the objective of quantity maximization by means of a low price. It
is most appropriate when:

• Demand is expected to be highly elastic; that is, customers are price sensitive and the
quantity demanded will increase significantly as price declines.
• Large decreases in cost are expected as cumulative volume increases.
• The product is of the nature of something that can gain mass appeal fairly quickly.
• There is a threat of impending competition.

As the product lifecycle progresses, there likely will be changes in the demand curve and costs.
As such, the pricing policy should be reevaluated over time.

The pricing objective depends on many factors including production cost, existence of
economies of scale, barriers to entry, product differentiation, rate of product diffusion, the firm's
resources, and the product's anticipated price elasticity of demand.

Pricing Methods

To set the specific price level that achieves their pricing objectives, managers may make use of
several pricing methods. These methods include:

• Cost-plus pricing - set the price at the production cost plus a certain profit margin.
• Target return pricing - set the price to achieve a target return-on-investment.
• Value-based pricing - base the price on the effective value to the customer relative to
alternative products.
 • Psychological pricing - base the price on factors such as signals of product quality,
popular price points, and what the consumer perceives to be fair.

In addition to setting the price level, managers have the opportunity to design innovative pricing
models that better meet the needs of both the firm and its customers. For example, software
traditionally was purchased as a product in which customers made a one-time payment and then
owned a perpetual license to the software. Many software suppliers have changed their pricing to
a subscription model in which the customer subscribes for a set period of time, such as one year.
Afterwards, the subscription must be renewed or the software no longer will function. This
model offers stability to both the supplier and the customer since it reduces the large swings in
software investment cycles.

Price Discounts

The normally quoted price to end users is known as the list price. This price usually is
discounted for distribution channel members and some end users. There are several types of
discounts, as outlined below.

• Quantity discount - offered to customers who purchase in large quantities.

• Cumulative quantity discount - a discount that increases as the cumulative quantity
increases. Cumulative discounts may be offered to resellers who purchase large quantities
over time but who do not wish to place large individual orders.
• Seasonal discount - based on the time that the purchase is made and designed to reduce
seasonal variation in sales. For example, the travel industry offers much lower off-season
rates. Such discounts do not have to be based on time of the year; they also can be based
on day of the week or time of the day, such as pricing offered by long distance and
wireless service providers.
• Cash discount - extended to customers who pay their bill before a specified date.
• Trade discount - a functional discount offered to channel members for performing their
roles. For example, a trade discount may be offered to a small retailer who may not
purchase in quantity but nonetheless performs the important retail function.
• Promotional discount - a short-term discounted price offered to stimulate sales.

rand Equity

A brand is a name or symbol used to identify the source of a product. When developing a new
product, branding is an important decision. The brand can add significant value when it is well
recognized and has positive associations in the mind of the consumer. This concept is referred to
as brand equity.

What is Brand Equity?

Brand equity is an intangible asset that depends on associations made by the consumer. There are
at least three perspectives from which to view brand equity:
 • Financial - One way to measure brand equity is to determine the price premium that a
brand commands over a generic product. For example, if consumers are willing to pay
$100 more for a branded television over the same unbranded television, this premium
provides important information about the value of the brand. However, expenses such as
promotional costs must be taken into account when using this method to measure brand
equity.
• Brand extensions - A successful brand can be used as a platform to launch related
products. The benefits of brand extensions are the leveraging of existing brand awareness
thus reducing advertising expenditures, and a lower risk from the perspective of the
consumer. Furthermore, appropriate brand extensions can enhance the core brand.
However, the value of brand extensions is more difficult to quantify than are direct
financial measures of brand equity.
• Consumer-based - A strong brand increases the consumer's attitude strength toward the
product associated with the brand. Attitude strength is built by experience with a product.
This importance of actual experience by the customer implies that trial samples are more
effective than advertising in the early stages of building a strong brand. The consumer's
awareness and associations lead to perceived quality, inferred attributes, and eventually,
brand loyalty.

Strong brand equity provides the following benefits:

• Facilitates a more predictable income stream.

• Increases cash flow by increasing market share, reducing promotional costs, and
allowing premium pricing.
• Brand equity is an asset that can be sold or leased.

However, brand equity is not always positive in value. Some brands acquire a bad reputation that
results in negative brand equity. Negative brand equity can be measured by surveys in which
consumers indicate that a discount is needed to purchase the brand over a generic product.

Building and Managing Brand Equity

In his 1989 paper, Managing Brand Equity, Peter H. Farquhar outlined the following three stages
that are required in order to build a strong brand:

1. Introduction - introduce a quality product with the strategy of using the brand as a
platform from which to launch future products. A positive evaluation by the consumer is
important.
2. Elaboration - make the brand easy to remember and develop repeat usage. There should
be accessible brand attitude, that is, the consumer should easily remember his or her
positive evaluation of the brand.
3. Fortification - the brand should carry a consistent image over time to reinforce its place
in the consumer's mind and develop a special relationship with the consumer. Brand
extensions can further fortify the brand, but only with related products having a perceived
fit in the mind of the consumer.
Alternative Means to Brand Equity

Building brand equity requires a significant effort, and some companies use alternative means of
achieving the benefits of a strong brand. For example, brand equity can be borrowed by
extending the brand name to a line of products in the same product category or even to other
categories. In some cases, especially when there is a perceptual connection between the products,
such extensions are successful. In other cases, the extensions are unsuccessful and can dilute the
original brand equity.

Brand equity also can be "bought" by licensing the use of a strong brand for a new product. As in
line extensions by the same company, the success of brand licensing is not guaranteed and must
be analyzed carefully for appropriateness.

Managing Multiple Brands

Different companies have opted for different brand strategies for multiple products. These
strategies are:

• Single brand identity - a separate brand for each product. For example, in laundry
detergents Procter & Gamble offers uniquely positioned brands such as Tide, Cheer,
Bold, etc.
• Umbrella - all products under the same brand. For example, Sony offers many different
product categories under its brand.
• Multi-brand categories - Different brands for different product categories. Campbell
Soup Company uses Campbell's for soups, Pepperidge Farm for baked goods, and V8 for
juices.
• Family of names - Different brands having a common name stem. Nestle uses Nescafe,
Nesquik, and Nestea for beverages.

Brand equity is an important factor in multi-product branding strategies.

Protecting Brand Equity

The marketing mix should focus on building and protecting brand equity. For example, if the
brand is positioned as a premium product, the product quality should be consistent with what
consumers expect of the brand, low sale prices should not be used compete, the distribution
channels should be consistent with what is expected of a premium brand, and the promotional
campaign should build consistent associations.

Finally, potentially dilutive extensions that are inconsistent with the consumer's perception of the
brand should be avoided. Extensions also should be avoided if the core brand is not yet
sufficiently strong.

The Product Life Cycle

A product's life cycle (PLC) can be divided into several stages characterized by the revenue
generated by the product. If a curve is drawn showing product revenue over time, it may take one
of many different shapes, an example of which is shown below:

Product Life Cycle Curve

The life cycle concept may apply to a brand or to a category of product. Its duration may be as
short as a few months for a fad item or a century or more for product categories such as the
gasoline-powered automobile.

Product development is the incubation stage of the product life cycle. There are no sales and the
firm prepares to introduce the product. As the product progresses through its life cycle, changes
in the marketing mix usually are required in order to adjust to the evolving challenges and
opportunities.

Introduction Stage

When the product is introduced, sales will be low until customers become aware of the product
and its benefits. Some firms may announce their product before it is introduced, but such
announcements also alert competitors and remove the element of surprise. Advertising costs
typically are high during this stage in order to rapidly increase customer awareness of the
product and to target the early adopters. During the introductory stage the firm is likely to incur
additional costs associated with the initial distribution of the product. These higher costs coupled
with a low sales volume usually make the introduction stage a period of negative profits.

During the introduction stage, the primary goal is to establish a market and build primary
demand for the product class. The following are some of the marketing mix implications of the
introduction stage:

• Product - one or few products, relatively undifferentiated

 • Price - Generally high, assuming a skim pricing strategy for a high profit margin as the
early adopters buy the product and the firm seeks to recoup development costs quickly. In
some cases a penetration pricing strategy is used and introductory prices are set low to
gain market share rapidly.
• Distribution - Distribution is selective and scattered as the firm commences
implementation of the distribution plan.
• Promotion - Promotion is aimed at building brand awareness. Samples or trial incentives
may be directed toward early adopters. The introductory promotion also is intended to
convince potential resellers to carry the product.

Growth Stage

The growth stage is a period of rapid revenue growth. Sales increase as more customers become
aware of the product and its benefits and additional market segments are targeted. Once the
product has been proven a success and customers begin asking for it, sales will increase further
as more retailers become interested in carrying it. The marketing team may expand the
distribution at this point. When competitors enter the market, often during the later part of the
growth stage, there may be price competition and/or increased promotional costs in order to
convince consumers that the firm's product is better than that of the competition.

During the growth stage, the goal is to gain consumer preference and increase sales. The
marketing mix may be modified as follows:

• Product - New product features and packaging options; improvement of product quality.
• Price - Maintained at a high level if demand is high, or reduced to capture additional
customers.
• Distribution - Distribution becomes more intensive. Trade discounts are minimal if
resellers show a strong interest in the product.
• Promotion - Increased advertising to build brand preference.

Maturity Stage

The maturity stage is the most profitable. While sales continue to increase into this stage, they do
so at a slower pace. Because brand awareness is strong, advertising expenditures will be reduced.
Competition may result in decreased market share and/or prices. The competing products may be
very similar at this point, increasing the difficulty of differentiating the product. The firm places
effort into encouraging competitors' customers to switch, increasing usage per customer, and
converting non-users into customers. Sales promotions may be offered to encourage retailers to
give the product more shelf space over competing products.

During the maturity stage, the primary goal is to maintain market share and extend the product
life cycle. Marketing mix decisions may include:

• Product - Modifications are made and features are added in order to differentiate the
product from competing products that may have been introduced.
• Price - Possible price reductions in response to competition while avoiding a price war.
 • Distribution - New distribution channels and incentives to resellers in order to avoid
losing shelf space.
• Promotion - Emphasis on differentiation and building of brand loyalty. Incentives to get
competitors' customers to switch.

Decline Stage

Eventually sales begin to decline as the market becomes saturated, the product becomes
technologically obsolete, or customer tastes change. If the product has developed brand loyalty,
the profitability may be maintained longer. Unit costs may increase with the declining production
volumes and eventually no more profit can be made.

During the decline phase, the firm generally has three options:

• Maintain the product in hopes that competitors will exit. Reduce costs and find new uses
for the product.
• Harvest it, reducing marketing support and coasting along until no more profit can be
made.
• Discontinue the product when no more profit can be made or there is a successor product.

The marketing mix may be modified as follows:

• Product - The number of products in the product line may be reduced. Rejuvenate
surviving products to make them look new again.
• Price - Prices may be lowered to liquidate inventory of discontinued products. Prices may
be maintained for continued products serving a niche market.
• Distribution - Distribution becomes more selective. Channels that no longer are profitable
are phased out.
• Promotion - Expenditures are lower and aimed at reinforcing the brand image for
continued products.

Limitations of the Product Life Cycle Concept

The term "life cycle" implies a well-defined life cycle as observed in living organisms, but
products do not have such a predictable life and the specific life cycle curves followed by
different products vary substantially. Consequently, the life cycle concept is not well-suited for
the forecasting of product sales. Furthermore, critics have argued that the product life cycle may
become self-fulfilling. For example, if sales peak and then decline, managers may conclude that
the product is in the decline phase and therefore cut the advertising budget, thus precipitating a
further decline.

Nonetheless, the product life cycle concept helps marketing managers to plan alternate marketing
strategies to address the challenges that their products are likely to face. It also is useful for
monitoring sales results over time and comparing them to those of products having a similar life
cycle.
Target Market Selection

Target marketing tailors a marketing mix for one or more segments identified by market
segmentation. Target marketing contrasts with mass marketing, which offers a single product to
the entire market.

Two important factors to consider when selecting a target market segment are the attractiveness
of the segment and the fit between the segment and the firm's objectives, resources, and
capabilities.

Attractiveness of a Market Segment

The following are some examples of aspects that should be considered when evaluating the
attractiveness of a market segment:

• Size of the segment (number of customers and/or number of units)

• Growth rate of the segment
• Competition in the segment
• Brand loyalty of existing customers in the segment
• Attainable market share given promotional budget and competitors' expenditures
• Required market share to break even
• Sales potential for the firm in the segment
• Expected profit margins in the segment

Market research and analysis is instrumental in obtaining this information. For example, buyer
intentions, salesforce estimates, test marketing, and statistical demand analysis are useful for
determining sales potential. The impact of applicable micro-environmental and macro-
environmental variables on the market segment should be considered.

Note that larger segments are not necessarily the most profitable to target since they likely will
have more competition. It may be more profitable to serve one or more smaller segments that
have little competition. On the other hand, if the firm can develop a competitive advantage, for
example, via patent protection, it may find it profitable to pursue a larger market segment.

Suitability of Market Segments to the Firm

Market segments also should be evaluated according to how they fit the firm's objectives,
resources, and capabilities. Some aspects of fit include:

• Whether the firm can offer superior value to the customers in the segment
• The impact of serving the segment on the firm's image
• Access to distribution channels required to serve the segment
• The firm's resources vs. capital investment required to serve the segment
The better the firm's fit to a market segment, and the more attractive the market segment, the
greater the profit potential to the firm.

Target Market Strategies

There are several different target-market strategies that may be followed. Targeting strategies
usually can be categorized as one of the following:

• Single-segment strategy - also known as a concentrated strategy. One market segment

(not the entire market) is served with one marketing mix. A single-segment approach
often is the strategy of choice for smaller companies with limited resources.
• Selective specialization- this is a multiple-segment strategy, also known as a
differentiated strategy. Different marketing mixes are offered to different segments. The
product itself may or may not be different - in many cases only the promotional message
or distribution channels vary.
• Product specialization- the firm specializes in a particular product and tailors it to
different market segments.
• Market specialization- the firm specializes in serving a particular market segment and
offers that segment an array of different products.
• Full market coverage - the firm attempts to serve the entire market. This coverage can
be achieved by means of either a mass market strategy in which a single undifferentiated
marketing mix is offered to the entire market, or by a differentiated strategy in which a
separate marketing mix is offered to each segment.

The following diagrams show examples of the five market selection patterns given three market
segments S1, S2, and S3, and three products P1, P2, and P3.

Single Selective Product Market Full Market

Segment Specialization Specialization Specialization Coverage

S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3
P1 P1 P1 P1 P1
P2 P2 P2 P2 P2
P3 P3 P3 P3 P3

A firm that is seeking to enter a market and grow should first target the most attractive segment
that matches its capabilities. Once it gains a foothold, it can expand by pursuing a product
specialization strategy, tailoring the product for different segments, or by pursuing a market
specialization strategy and offering new products to its existing market segment.

Another strategy whose use is increasing is individual marketing, in which the marketing mix
is tailored on an individual consumer basis. While in the past impractical, individual marketing is
becoming more viable thanks to advances in technology.
Market Analysis

The goal of a market analysis is to determine the attractiveness of a market and to understand
its evolving opportunities and threats as they relate to the strengths and weaknesses of the firm.

David A. Aaker outlined the following dimensions of a market analysis:

• Market size (current and future)

• Market growth rate
• Market profitability
• Industry cost structure
• Distribution channels
• Market trends
• Key success factors

Market Size

The size of the market can be evaluated based on present sales and on potential sales if the use of
the product were expanded. The following are some information sources for determining market
size:

• government data
• trade associations
• financial data from major players
• customer surveys

Market Growth Rate

A simple means of forecasting the market growth rate is to extrapolate historical data into the
future. While this method may provide a first-order estimate, it does not predict important
turning points. A better method is to study growth drivers such as demographic information and
sales growth in complementary products. Such drivers serve as leading indicators that are more
accurate than simply extrapolating historical data.

Important inflection points in the market growth rate sometimes can be predicted by constructing
a product diffusion curve. The shape of the curve can be estimated by studying the characteristics
of the adoption rate of a similar product in the past.

Ultimately, the maturity and decline stages of the product life cycle will be reached. Some
leading indicators of the decline phase include price pressure caused by competition, a decrease
in brand loyalty, the emergence of substitute products, market saturation, and the lack of growth
drivers.

Market Profitability
While different firms in a market will have different levels of profitability, the average profit
potential for a market can be used as a guideline for knowing how difficult it is to make money
in the market. Michael Porter devised a useful framework for evaluating the attractiveness of an
industry or market. This framework, known as Porter's five forces, identifies five factors that
influence the market profitability:

• Buyer power
• Supplier power
• Barriers to entry
• Threat of substitute products
• Rivalry among firms in the industry

Industry Cost Structure

The cost structure is important for identifying key factors for success. To this end, Porter's value
chain model is useful for determining where value is added and for isolating the costs.

The cost structure also is helpful for formulating strategies to develop a competitive advantage.
For example, in some environments the experience curve effect can be used to develop a cost
advantage over competitors.

Distribution Channels

The following aspects of the distribution system are useful in a market analysis:

• Existing distribution channels - can be described by how direct they are to the customer.
• Trends and emerging channels - new channels can offer the opportunity to develop a
competitive advantage.
• Channel power structure - for example, in the case of a product having little brand equity,
retailers have negotiating power over manufacturers and can capture more margin.

Market Trends

Changes in the market are important because they often are the source of new opportunities and
threats. The relevant trends are industry-dependent, but some examples include changes in price
sensitivity, demand for variety, and level of emphasis on service and support. Regional trends
also may be relevant.

Key Success Factors

The key success factors are those elements that are necessary in order for the firm to achieve its
marketing objectives. A few examples of such factors include:

• Access to essential unique resources

• Ability to achieve economies of scale
• Access to distribution channels
 • Technological progress

It is important to consider that key success factors may change over time, especially as the
product progresses through its life cycle.
The 7 Ps of Marketing

Once you've developed your marketing strategy, there is a "Seven P Formula" you should use to
continually evaluate and reevaluate your business activities. These seven are: product, price,
promotion, place, packaging, positioning and people. As products, markets, customers and needs
change rapidly, you must continually revisit these seven Ps to make sure you're on track and
achieving the maximum results possible for you in today's marketplace.

Product

To begin with, develop the habit of looking at your product as though you were an outside
marketing consultant brought in to help your company decide whether or not it's in the right
business at this time. Ask critical questions such as, "Is your current product or service, or mix of
products and services, appropriate and suitable for the market and the customers of today?"

Whenever you're having difficulty selling as much of your products or services as you'd like, you
need to develop the habit of assessing your business honestly and asking, "Are these the right
products or services for our customers today?"

Is there any product or service you're offering today that, knowing what you now know, you
would not bring out again today? Compared to your competitors, is your product or service
superior in some significant way to anything else available? If so, what is it? If not, could you
develop an area of superiority? Should you be offering this product or service at all in the current
marketplace?

Prices

The second P in the formula is price. Develop the habit of continually examining and
reexamining the prices of the products and services you sell to make sure they're still appropriate
to the realities of the current market. Sometimes you need to lower your prices. At other times, it
may be appropriate to raise your prices. Many companies have found that the profitability of
certain products or services doesn't justify the amount of effort and resources that go into
producing them. By raising their prices, they may lose a percentage of their customers, but the
remaining percentage generates a profit on every sale. Could this be appropriate for you?

Sometimes you need to change your terms and conditions of sale. Sometimes, by spreading your
price over a series of months or years, you can sell far more than you are today, and the interest
you can charge will more than make up for the delay in cash receipts. Sometimes you can
combine products and services together with special offers and special promotions. Sometimes
you can include free additional items that cost you very little to produce but make your prices
appear far more attractive to your customers.

In business, as in nature, whenever you experience resistance or frustration in any part of your
sales or marketing activities, be open to revisiting that area. Be open to the possibility that your
current pricing structure is not ideal for the current market. Be open to the need to revise your
prices, if necessary, to remain competitive, to survive and thrive in a fast-changing marketplace.

Promotion

The third habit in marketing and sales is to think in terms of promotion all the time. Promotion
includes all the ways you tell your customers about your products or services and how you then
market and sell to them.

Small changes in the way you promote and sell your products can lead to dramatic changes in
your results. Even small changes in your advertising can lead immediately to higher sales.
Experienced copywriters can often increase the response rate from advertising by 500 percent by
simply changing the headline on an advertisement.

Large and small companies in every industry continually experiment with different ways of
advertising, promoting, and selling their products and services. And here is the rule: Whatever
method of marketing and sales you're using today will, sooner or later, stop working. Sometimes
it will stop working for reasons you know, and sometimes it will be for reasons you don't know.
In either case, your methods of marketing and sales will eventually stop working, and you'll have
to develop new sales, marketing and advertising approaches, offerings, and strategies.

Place

The fourth P in the marketing mix is the place where your product or service is actually sold.
Develop the habit of reviewing and reflecting upon the exact location where the customer meets
the salesperson. Sometimes a change in place can lead to a rapid increase in sales.

You can sell your product in many different places. Some companies use direct selling, sending
their salespeople out to personally meet and talk with the prospect. Some sell by telemarketing.
Some sell through catalogs or mail order. Some sell at trade shows or in retail establishments.
Some sell in joint ventures with other similar products or services. Some companies use
manufacturers' representatives or distributors. Many companies use a combination of one or
more of these methods.

In each case, the entrepreneur must make the right choice about the very best location or place
for the customer to receive essential buying information on the product or service needed to
make a buying decision. What is yours? In what way should you change it? Where else could
you offer your products or services?

Packaging

The fifth element in the marketing mix is the packaging. Develop the habit of standing back and
looking at every visual element in the packaging of your product or service through the eyes of a
critical prospect. Remember, people form their first impression about you within the first 30
seconds of seeing you or some element of your company. Small improvements in the packaging
or external appearance of your product or service can often lead to completely different reactions
from your customers.

With regard to the packaging of your company, your product or service, you should think in
terms of everything that the customer sees from the first moment of contact with your company
all the way through the purchasing process.

Packaging refers to the way your product or service appears from the outside. Packaging also
refers to your people and how they dress and groom. It refers to your offices, your waiting
rooms, your brochures, your correspondence and every single visual element about your
company. Everything counts. Everything helps or hurts. Everything affects your customer's
confidence about dealing with you.

When IBM started under the guidance of Thomas J. Watson, Sr., he very early concluded that
fully 99 percent of the visual contact a customer would have with his company, at least initially,
would be represented by IBM salespeople. Because IBM was selling relatively sophisticated
high-tech equipment, Watson knew customers would have to have a high level of confidence in
the credibility of the salesperson. He therefore instituted a dress and grooming code that became
an inflexible set of rules and regulations within IBM.

As a result, every salesperson was required to look like a professional in every respect. Every
element of their clothing-including dark suits, dark ties, white shirts, conservative hairstyles,
shined shoes, clean fingernails-and every other feature gave off the message of professionalism
and competence. One of the highest compliments a person could receive was, "You look like
someone from IBM."

Positioning

The next P is positioning. You should develop the habit of thinking continually about how you
are positioned in the hearts and minds of your customers. How do people think and talk about
you when you're not present? How do people think and talk about your company? What
positioning do you have in your market, in terms of the specific words people use when they
describe you and your offerings to others?

In the famous book by Al Reis and Jack Trout, Positioning, the authors point out that how you
are seen and thought about by your customers is the critical determinant of your success in a
competitive marketplace. Attribution theory says that most customers think of you in terms of a
single attribute, either positive or negative. Sometimes it's "service." Sometimes it's "excellence."
Sometimes it's "quality engineering," as with Mercedes Benz. Sometimes it's "the ultimate
driving machine," as with BMW. In every case, how deeply entrenched that attribute is in the
minds of your customers and prospective customers determines how readily they'll buy your
product or service and how much they'll pay.

Develop the habit of thinking about how you could improve your positioning. Begin by
determining the position you'd like to have. If you could create the ideal impression in the hearts
and minds of your customers, what would it be? What would you have to do in every customer
interaction to get your customers to think and talk about in that specific way? What changes do
you need to make in the way interact with customers today in order to be seen as the very best
choice for your customers of tomorrow?

People

The final P of the marketing mix is people. Develop the habit of thinking in terms of the people
inside and outside of your business who are responsible for every element of your sales and
marketing strategy and activities.

It's amazing how many entrepreneurs and businesspeople will work extremely hard to think
through every element of the marketing strategy and the marketing mix, and then pay little
attention to the fact that every single decision and policy has to be carried out by a specific
person, in a specific way. Your ability to select, recruit, hire and retain the proper people, with
the skills and abilities to do the job you need to have done, is more important than everything
else put together.

In his best-selling book, Good to Great, Jim Collins discovered the most important factor applied
by the best companies was that they first of all "got the right people on the bus, and the wrong
people off the bus." Once these companies had hired the right people, the second step was to "get
the right people in the right seats on the bus."

To be successful in business, you must develop the habit of thinking in terms of exactly who is
going to carry out each task and responsibility. In many cases, it's not possible to move forward
until you can attract and put the right person into the right position. Many of the best business
plans ever developed sit on shelves today because the [people who created them] could not find
the key people who could execute those plans.