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1 INTRODUCTION

Marketing mix allows you to combine all the marketing tools in order to sell
your product.

Definition: Marketing mix is the combination of elements that you will use to
market your product. There are four elements: Product, Place, Price and
Promotion. They are called the four Ps of the marketing mix.

2 PRODUCT
A good product makes its marketing by itself because it gives benefits to the
customer. We can expect that you have right now a clear idea about the benefits
your product can offer.

Suppose now that the competitors products offer the same benefits, same quality,
same price. You have then to differentiate your product with design, features,
packaging, services, warranties, return and so on. In general, differentiation is
mainly related to:

-The design: it can be a decisive advantage but it changes with fads. For example,
a fun board must offer a good and fashionable design adapted to young people.

-The packaging: It must provides a better appearance and a convenient use. In


food business, products often differ only by packaging.

-The safety: It does not concern fun board but it matters very much for products
used by kids.

-The "green": A friendly product to environment gets an advantage among some


segments.

In business to business and for expensive items, the best mean of


differentiation are warranties, return policy, maintenance service, time
payments and financial and insurance services linked to the product.

3 PLACE
A crucial decision in any marketing mix is to correctly identify the distribution
channels. The question " how to reach the customer" must always be in your
mind.

-Definition: The place is where you can expect to find your customer and
consequently, where the sale is realized. Knowing this place, you have to
look for a distribution channel in order to reach your customer.

3.1 Channels
It exists today, with the internet, more channels than in the past but basically, you
have to consider three main distribution channels:

-Selling to the customers: Whether you sell by yourself ( as retailer) whether you
employ a sales force, you are in these cases in front of the final customer. There are
not intermediaries between you and him. Unfortunately, except for the retailer
business, this situation is far to be the general case.

-Selling to the retailers: For example, you manufacture the fun boards and you
sell them to the Arizona retailers. This practice could be a bit complicated.

-Selling to the wholesalers: There are maybe four or five sport articles
wholesalers in Arizona. You sell your fun boards to these big men. On turn the
wholesalers sell the fun boards to the retailers which finally sell to their customers.
In the case of Pacific Boat which manufactures its boats in Philippines for customers
located in the USA or in Europe, there is not alternative ways. It must sell through
some big import export corporate's. Pacific boat has not any contact with its final
customers but of course it must know exactly their profile. If the product does not fit
to the profile of the final customer, the wholesaler will not buy it.

As you can see, the choice of your distribution channel heavily depends on
your product and place in the productive process. If you are in coal mining, do
not expect to sell some coal buckets to the final consumer!

The next drawing summarizes the different possible channels: You are represented
by the black square, the wholesaler by the maroon one, the retailer by the yellow
and the customer by the green!

Real life example:


A commodity is a product such as crude oil, coal, rice, wheat, sugar, copper
and so on: Mainly primary products and raw materials. In a commodity
market, the products have very few distinguished characteristics.

They are traded in few places like Chicago and London. In the rice market,
there are maybe six or seven big traders for the entire world in front of
some hundred millions of little producers grouped in cooperatives or
primary marketing boards.

The big traders know each other very well and most of the bargain relies on
trust.

Nevertheless, inside a type of channel, you keep the possibility to choose between
the different wholesalers and retailers. You have to choose the best. It means that
your choice must focus on two major facts: the margin and the image.

3.2-The margin
You have already gotten an idea about the price which should fit to the customer
profile. Let's suppose this price is $100. It is the retail price: the price paid by the
final customer.

The retailer takes his margin (or the mark-up). This margin is calculated on the
retail price. Suppose, he takes $30. It means that he buy $70 to the wholesaler.

As the wholesaler trades big quantities, his margin is usually lower than those of the
retailer: Maybe 15% of the selling price to the retailer. So, he will take $10,5. It
means that he has bought $59,5 to you.

Consider now that you support the cost of the shipping from your manufacture to
the wholesaler store: For example $9,5. Finally, your factory price is $50 for a
product sold $100 to the final customer. In many case, when taxes and new
packaging occur at the different levels, the factory price can easily be only one fifth
of the final price!

Do not imagine that you have too much choice. Each intermediary fills up a real
function and it's not easy to ignore him. For example, you can't sell your fun board
straight to the consumer: you should need a massive sales force.

You could also ignore the wholesaler in selling directly to the big retail supermarket.
You will save in this case $10,5 but you can expect that the supermarket which
usually practices low prices will tell you the following speech " $100 as consumer
price is too much. I want to sell that $80. Of course I keep 30% as margin. So I buy
it $56 to you "

It could look fair but the number of the supermarkets is higher than those of the
wholesalers. It means more shipping and consequently a rise in costs. Instead of
paying $9,5 for shipping, you will pay $12. Now what is the result?

Consumer price-------------80

Supermarket selling price----56

Shipping to supermarket-----12

Factory price---------------44

It does not look a good business: $44 instead of 50! You can object that the
sales will rise because of the lower price to the consumer but it does not fit with your
hypothesis about the customer profile. Anyway, could you afford $44 as your factory
price? Is it good to sell your fun board through the supermarket? Is your customer
buying in a supermarket or in a fashionable specialized sport shop?

Real life example:


Periodically, people complain against margins and plead for short
distribution channels. These claims often come from the farmers because
most of them are blindly ignorant about economic reality.
They regularly try to market their product directly to the consumers but it
does not last very long because they quickly register heavy losses.

Some stubborn guys go on with that practice and as a result they can't pay
back their loans to the State owned agricultural banks. Finally the bank
losses are covered by the taxpayers!

3.3-The image
The place of sale influences the perception of your product. Consequently, you
must pay attention to the choice of your outlets: wholesalers and retailers. If you sell
products for every one, a mass distribution through the supermarket will be
probably the best issue. On the contrary, if you sell fine products, you have to choice
fine shops and beautiful people to sell them. In the fun board case, you should have
better to emphasize on the image and to look for fashionable shops and people.

You have also to take notice of the share of power inside the distribution channel.
As you will be a beginner, do not expect to get too much power! For example,
you can ask the retailers to store your product on the first line or in the best
situation in the shop. They will probably answer " OK! but I'm going to charge 35%
margin instead of 30%". May be it's a fair bargain but is the rise of the consumer
price compatible with your previous positioning?

It's quite difficult to list all the occurrences in this matter. Give a chance to your
intuition but keep in mind that all these daily decisions must always remain in line
with your customer profile.

41-Pricing strategies
In fact, you have to choose between three strategies:

-Competitive pricing: If your product is sold at the lowest price regarding all your
competitors, you are practicing competitive pricing. Sometimes, competitive pricing
is essential. For instance, when the products are basically the same, this strategy will
usually succeed.

Remember that the success of competitive pricing strategy depends on achieving


high volume and low costs. If your prices are lower than your costs, you are going
straight to bankruptcy! To avoid such a mistake, you have to take notice of the
break even ratio that you will find below.

-Cost-plus-profit: It means that you add the profit you need to your cost. It is also
called cost-orientated strategy and is mainly used by the big contractor of public
works. The authority may have access to the costing data and should like to check if
the profit added to the cost is not too high.

In fact, this strategy is only good for a business whom the customers are public
collectivities or government agencies.
-Value pricing: It means that you base your prices on the value you deliver to
customers. For example, when a new technology has a very large success, you can
charge high prices to the customer. This practice is also called skimming. It is easy
when you are in the introductory phase of the product life cycle.

Value pricing is also common in luxury items. Sometimes, the higher the price,
the more you sell: Fashionable clothing or restaurants for snob people. Of course
value pricing is limited by the price elasticity as you have already learnt in
Economics.

The diagram below illustrates how you have to determine your price. You could see
that a conflict could arise between your financial objectives ( the expected profit) and
your actual costs.

So, you have to calculate your break even ratio.

42-Break even ratio


Suppose you price your fun board $ 1000 to make a competitive pricing strategy.
You have some fixed costs which remain constant whatever the number of fun
boards you sell: For example your office rent, your secretary and your own salary:
Saying $200,000.

To manufacture one fun board, you need $900 in labor and raw material. $900 is
the variable cost per unit.

To recover your fixed costs without making any profit you have to sold:

Fixed costs (200,000)/Selling price(1000)-Variable


costs(900)=2000.
You have to sell 2000 fun boards just to recover your fixed costs. Now suppose that
the total market in Arizona amounts 2000 fun boards per year. Do you believe that
you should conquer the entire market despite your five existing competitors? It
would seem quite unrealistic!

If you sell 500 fun boards ( 25% of the market) what should be the results:

Receipts: -----500*$1000= $500,000

Variable costs: -500*$900= $450,000

Fixed costs:----------------$200,000

Loss: ---------------------($150,000)

It means that you must charge a higher price: May be $1300. In such a hypothesis,
your fixed costs could be recovered:

200,000/1300-900=500

Now suppose, that your competitors offer the same quality, with a price ranking
between $1050 and $1250. In this case, it means that your project is not
economically sound and that you must review it: Whether the fixed costs, whether
the variable cost per unit are to high. In fact, the choice of a pricing strategy
depends heavily on the break even analysis.

5-PROMOTION
Advertising, public relations and so on are included in promotion and consequently in
the 4Ps. Sometimes, packaging becomes a fifth P. As promotion is closely linked to
the sales, I will mention here the most common features about the sale strategy.

-Definition: The function of promotion is to affect the customer behavior in


order to close a sale.

Of course, it must be consistent with the buying process described in the consumer
analysis.

Promotion includes mainly three topics: advertisement, public relations, and sales
promotions.

-Advertisement:

It takes many forms: TV, radio, internet, newspapers, yellow pages, and so on. You
have to take notice about three important notions:
Reach is the percentage of the target market which is affected by your
advertisement. For example, if you advertise on radio you must know how many
people belonging to your segment can be affected.

Frequency is the number of time a person is exposed to your message. It is said


that a person must be exposed seven times to the message before to be aware of
it. Reach*frequency gives the gross rating point. You have to evaluate it before
any advertisement campaign.

Message: Sometimes, it is called a creative. Anyway, the message must: get


attraction, capture interest, create desire and finally require action that is to say
close the sale.

summary:
The four Ps, product, place, price and promotion are the
elements of the marketing mix used to establish a detailed and final
marketing plan.

After the product which is a paramount, the place is very important because
it describes how you reach the consumer and what distribution channel you
are going to choose: Margins and image are quite important features in this
matter.

According to your product and place , the pricing strategy will have heavy
consequences on the promotion campaign and on success or failure of your
business as a whole.