Compete in existing markets vs. create uncontested markets to serve. Sounds good, right? But how do you do that? Existing markets are all the customers doing business in the industry right now, whether they are doing business with you or your competitors. If someone wins a customer, then it is assumed, someone will lose a customer. For someone to win, someone must lose. In uncontested markets, there is only a winner—you. No one else is fighting for the business because either they don’t know about it or they don’t know how. Think Cirque du Soleil in the early days attracting a more adult customer and a higher ticket price.
Beat the competition vs. make the competition irrelevant. Competitors become irrelevant because they cannot duplicate the ideas in a way that is a commercial success. Remember, the whole idea of blue ocean strategy is to have high value at reasonable cost. If you are doing that, how can anyone compete with you? All the would-be competitors fall by the wayside. An example again is a company like Netflix, which rendered Blockbuster irrelevant due to Netflix’s distribution model, first through the mail and then online.
Exploit existing demand vs. create and capture new demand. You will be creating value so high that you will be attracting customers that never before would have considered entering the market. Nintendo’s Wii appealed to families and seniors by raising the bar and creating a more interactive gaming experience. Yellow Tail wine attracted beer drinkers by eliminating the pretentious of wine and making it friendly. Southwest Airlines appealed to business travelers who spent days on the road by creating reduced flight costs for short trips. And the Apple iPad, a keyboard-free wireless tablet computer, gained appeal as a computing device for use by sales and service professionals and even as a next-generation, flat screen cash register.
BLUE OCEANS MATTER TO MARKETERS
Blue oceans matter because these markets are potentially large and with less competition, so there is more opportunity for you to grow as the dominant brand as long as you continue to innovate. What marketer, or brand, does not want a less competitive marketplace? Let’s look at an example of a real company that created a blue ocean in their marketplace.
Netflix redefined the concept of “renting a movie.” If you were a marketer and you met with Reed Hastings in 1997 and he told you what he thought they were going to build, what marketing advice would you have given him? “Ah, you are going up against Blockbuster, don’t waste your time.” “People are not going to watch movies online.” If you want to create a blue ocean in an emerging marketplace, you have to get there slightly before everyone else does. Yes, it’s a bit of risk and timing is everything but if you do it right, that marketplace is yours. Let’s look at the elements of blue ocean strategy and better understand what Netflix did.
Which of the factors that the industry takes for granted should be eliminated? In the case of Netflix, they eliminated the stores.
Which factors should be reduced well below the industry’s standard? Netflix had no late fees.
Which factors should be raised well above the industry’s standard? Netflix let you rent three movies of your choice at one time with no due date. Simply return those at some point and then you could rent three more.
Which factors should be created that the industry has never offered? Netflix put their entire catalog online, you paid your monthly fee on a subscription basis and it was a flat monthly fee, not based on the individual movie.
Well, let’s review how their blue ocean strategy worked out. Blockbuster, in 2004 had revenue of almost $6 billion. They went into final bankruptcy in 2013. Netflix at the end of 2016, had $8.8 billion in revenue.
MARKETERS, AVOID FIVE RED OCEAN TRAPS
As marketers you need to understand the marketplace where your company or brand exists and determine if it’s in a red ocean. If it is in a red ocean, and you plan to aim for a blue ocean, avoid these five red ocean traps:
Focus on existing customers. This strategy will never lead you to expand your market or move away from your red ocean. Making your current customers happier in a red ocean, long-term, will just lead to even more competition. It is better to focus on non-customers and grow the segment and marketplace. If you owned a taxi company and tried to make current customers happier, you would never create Uber.
Focus on niche markets. While this may get you to a leadership position of a niche market, unless you have the opportunity to combine or attract additional segments of customers, you are still in a niche. Tesla, if it’s going to grow, needs to move down from luxury (only 10% of the automotive marketplace) and attract bigger customer segments with quality and a lower price.
Innovation alone is not enough. While innovation is awesome for differentiation, it is not enough. Quicken did not just move accounting into the cloud with QuickBooks, but they did it with quality and a lower price. It’s not the Uber app that allowed Uber to grow so quickly. And while Starbucks has utilized technology in several ways in its business, all three examples here also demonstrated “value” to the customer. Innovation without value is a problem.
Market creation does not have to be destructive. You don’t have to disrupt a marketplace and take down current companies. You can move into a marketplace with “creative” disruption” and actually grow the marketplace without intentionally eliminating anyone. Viagra is a great example. Nintendo’s Wii is another, attracting children and families to play games.
You don’t have to be the low price leader. You don’t necessarily need to move into or create a new market exclusively with a low price strategy. Instead it can be created at the high end, as Cirque du Soleil did in the circus industry, iPhone did in smart phones and Dyson did in vacuum cleaners. Even when companies do successfully create new markets at the low end, their offerings also are clearly differentiated. Salesforce.com, for instance, stands out for its ease of use, flexible subscription terms, hassle-free maintenance and ubiquitous access, while IKEA appeals to millions of people around the world with its standardized, stylish and easy to assemble furniture. Both are differentiated and low cost but with strong value to the customer.
While trends and blue oceans are important to marketers, it’s also important to understand that marketing in general has changed. In the next chapter I will share with you how the 4 P’s (product, price, place, promotion) have changed and what you need to know in order to be an effective marketer.
BRAND INSIGHT
This well-known brand is a goliath in the retail marketplace. In 2016, they had more than $485 billion in sales. They are huge. And they might be in trouble. From a branding perspective, in spite of their size, their brand is weak for several reasons. They are primarily positioned on low price, never a good thing, and they are known for a lousy shopping experience, poor customer service, and disorganized stores to many customers. Many people, from a branding perspective, in the USA see them as cheap, substandard and boring. A few years ago, jumping on a discount fad in the recession, they opened over 100 smaller stores competing in the “dollar store” marketplace. Those stores failed. For a company of this gargantuan size, Walmart is in trouble. Amazon has been relentless in matching their pricing but delivering more value. Costco is becoming more aggressive. Target is opening small “city-based” stores in urban environments. A major problem with Walmart is that their brand is perceived so weakly. That means they have to compete, ultimately, on customer service. It will be interesting to see whether or not they evolve.
KEY TAKEAWAY
No matter your size, you better have a strong brand. And you better focus on building value with your current and potential customers. If you have to build or defend your brand on price or customer service, then your customer service better be amazing. If it’s not, you are left with the brand differentiation of price. The competition will match that, leaving you with nothing.
11
CHAPTER ELEVEN
4 P’S OF MARKETING HAVE CHANGED.
* * *
Early on in my 20 year marketing career, I was rather naïve about marketing
. I did not really know how the art and science of how marketing came together to create and enable sales. I thought, rather simply, people made things and other people bought those things. As I started to understand and learn marketing, I could see that marketing was a very sophisticated “dance” between brands and consumers. And while most marketers don’t influence the creation of the product, we certainly could impact the other three P’s of price, place and promotion. I focused mostly on place and promotion in the early days as distribution channels were well defined and quite a few times, what separated similar products were the special promotions we created. Looking back, it was all rather well defined. Not so much today.
As a marketing professional, you’re likely familiar with the 4 P’s of the marketing mix: product, price, place and promotion. Whether you first discovered these industry pillars as an eager marketing major or uncovered them later on as you pursued your professional career, you needed to understand how they contributed to a comprehensive marketing strategy. What you may not know is that the 4 P’s have changed. Why? I will review what has changed and what you need to consider today but first, let’s take a look at the history of how the 4 P’s were developed and accepted.
A HISTORY PERSPECTIVE OF THE 4 P’S
The origins of the 4 P’s” can be traced to the late 1940s. The first known mention of a marketing mix has been attributed to a Professor of Marketing at Harvard University, Prof. James Culliton. In 1948, Culliton published an article entitled, The Management of Marketing Costs in which Culliton describes marketers as “mixers of ingredients”. Some years later, Culliton’s colleague, Professor Neil Borden, published a retrospective article detailing the early history of the marketing mix in which he claims that he was inspired by Culliton’s idea of “mixer”, and credits him with popularizing the concept of the “marketing mix”. According to Borden’s account, he used the term, “marketing mix” consistently from the late 1940s. For instance, he is known to have used the term marketing mix in his presidential address given to the American Marketing Association in 1953. Borden states, “When building a marketing program to fit the needs of his firm, the marketing manager has to weigh the behavioral forces and then juggle marketing elements in his mix with a keen eye on the resources with which he has to work.”
Although the idea of marketers as mixers of ingredients caught on, marketers could not reach any real consensus about what elements should be included in the mix until the 1960s. The 4 P’s, in its modern form, was first proposed in 1960 by E. Jerome McCarthy in his text-book, Basic Marketing: A Managerial Approach. McCarthy used the 4 P’s as an organizing framework with chapters devoted to each of the elements, contained within a managerial approach that also included chapters dedicated to analysis, consumer behavior, marketing research, market segmentation and planning to round out the managerial approach. According to McCarthy the marketers essentially have these four variables which they can use while crafting a marketing strategy and writing a marketing plan. In the long term, all four of the mix variables can be changed, but in the short term it is difficult to modify the product or the distribution channel. Phillip Kotler, a prolific author, popularized the managerial approach, and with it, spread the concept of the 4 P’s. McCarthy’s 4 P’s have been widely adopted by both marketing academics and practitioners.
THE DEFINITION OF THE 4 P’S
In order to better understand what has changed regarding the 4 P’s, let’s look at their simple definition:
Product refers to what the business offers for sale, which may include products or services. Product decisions include the quality, features, benefits, style, design, branding, packaging, services, warranties, guarantees, life cycles, investments and returns.
Price refers to decisions surrounding list pricing, discount pricing, special offer pricing, credit payment or credit terms. Price refers to the total cost to customer to acquire the product, and may involve both monetary and psychological costs such as the time and effort expended in acquisition.
Place is defined as the direct or indirect channels to market, geographical distribution, territorial coverage, retail outlet, market location, catalogues, inventory, logistics and order fulfilment. Place refers either to the physical location where a business carries out business or the distribution channels used to reach markets. Place may refer to a retail outlet, but increasingly refers to virtual stores such as a telephone call center or an ecommerce website.
Promotion refers to the marketing communication used to make the offer known to potential customers and persuade them to investigate it further. Promotion elements include advertising, public relations, direct selling, online marketing and sales promotions.
While it’s certainly easy to understand the definitions of the 4 P’s, what is not so easy to understand is how much they have changed. Why? Well, two major things have occurred.
THIS LITTLE THING CALLED THE INTERNET
If you think about the 4 P’s (place, price, product, promotion) it seems like they are ordered principles. Well, the Internet changed all of that forever. It’s not just that the Internet is a new technology or a new distribution channel; it’s more powerful than that. With dynamic software and powerful ecommerce engines, you can now offer dynamic pricing, customize the product offering, vary the promotion and often times and modify the place the product is delivered. You order that pizza special? You want that pizza to go? You want it delivered? The Internet has unleashed such variability and freedom to specialize and customize the product offering. Combine that with the rise of smartphones and the powerful mobility that it brings; all using apps connected to some “front end” brand that is connected to a powerful database “back-end” and the opportunity to serve the customer is endless.
At the same time, the Internet has flattened competitive playing fields. If you wanted to participate in certain marketplaces in the past, you needed a large investment, lots of employees and large marketing budgets. Not anymore. You want to open a subscription organic dog food business that competes with Petco? No problem. Just build a website using open source tools, design a good brand, outsource the creation and delivery of the dog food to the manufacturing company and run the whole thing from your condo. The power of the technology today to remove substantial costs from operating a business is staggering. And if you are adept at understanding simple, powerful branding and know how to leverage social media marketing, then you can create and launch the beginnings of a company with very little investment or perhaps even risk. So, if technology is having this massive impact on marketing, what else has changed?
MILLENNIALS ARE CHANGING THE GAME
I know it’s an often used term: “There has never been a time like this before.” And perhaps even the Romans used that phrase. But if you look at the rise of the Millennial population, weaned on iPads and smartphones, surrounded by “just now” media options and cuddled on their bed watching their favorite shows via their laptop, this generation of 81 million by 2025 are leading massive changes. They are a smart generation but are not great at face-to-face communication. They don’t have as much patience to get what they want, but they will be kinder to social causes. They will be more educated not as a pursuit but as a requirement. They are extremely technology savvy and love shopping online. They are single-handedly crushing retail businesses. Not because they want to. But because they are efficient and a bit lazy. They value what they do with their time. Even if they are doing nothing! They would rather order five pieces of clothing from an online store, try them on at home, and then send back the four items they don’t like rather than going to the mall. Why? It just takes too much time and energy to go to the mall. And you might have to talk to store clerks. Don’t want to. I am not saying it’s a good thing that traditional malls are dying. But I don’t think it’s a bad thing either. Maybe real estate developers can take today’s malls and build more affordable housing and living spaces.
If you are going to create marketing strategies and campaigns, you nee
d to understand the changes and more importantly understand that the 4 P’s have changed forever.
THE RE-INVENTION OF THE 4 P’S
Marketers today need to understand that the power and control of marketing has shifted to the customer. The customer, through all the online research, social media, product reviews and word of mouth, knows quite a bit of information about your product and service. And potentially, they are already forming brand impressions way before you ever engage them. Today’s customers are looking for adaptable products that meet their specific needs in an innovative way. Remember that innovation means providing something new that customers actually want. And new doesn’t always mean whiz-bang technology; it can simply be a basic product at a basic price. Dollar Shave Club.
So if you believe the customer has more information and control and that the original 4 P’s of marketing have to evolve, then what comes next?
THE NEW 4 P’S OF MARKETING
Rather than get hung up in the taxonomy of the 4 P’s, remember it’s just a term to identify the marketing mix. Assume things have changed and you need a new point of view on the marketing mix in order to better engage and sell to customers. Here is what I believe you need to focus on as you build your brand strategy and marketing campaigns.
Solution instead of Product. Customers don’t care about product features or usability if a product fails to solve their problem. Having a quality product today is just the entry price to be in the market. It’s not about the features you want your product to have, it’s about the problems that customers need to solve. Solve their problem better than anyone else and you’ll end up with a product your customers can’t live without. Too often, businesses get caught up in the features, functions and technological superiority of their product over the competition. The reality is that none of that matters to customers if they can’t clearly match the outcomes being promised to the problems they have. If you’re building a product or service based on features and not based on customer needs, you’re working backwards.
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