Philips returns to the 4 Ps of marketing

Trust me - this is a fantastic article for business & marketing teachers. And maybe
business students too. But you might want to be careful. The product in question is the
“Warm Sensual Massager"…
How does a global consumer electronics brand like Philips successfully enter the marital
aids market? Quite a tough marketing challenge.
The article in the Times explains how the original marketing mix chosen by Philips didnt
quite work - because customers weren’t informed just what the product was all about!
A great quote from the article:
“The Philips marketing team went back to basics and considered the four “Ps” of
marketing: product, price, place and promotion. All the evidence suggested the product
worked and Philips wished to differentiate its massager from more common products in
order to remain a purveyor of “high-end” marital aids. It would be a mistake to lower
the product’s price point because of short-term economic difficulty. Place and promotion
were the issues.”

Q&A - What is the difference between niche and mass marketing?

In most markets there is one dominant (mass) segment and several smaller (niche)
segments…

For example, in the confectionery market, a dominant segment would be the plain
chocolate bar. Over 90% of the sales in this segment are made by three dominant
producers – Cadbury’s, Nestle and Mars. However, there are many small, specialist
niche segments (e.g. luxury, organic or fair-trade chocolate).

Niche marketing can be defined as:

Where a business targets a smaller segment of a larger market, where customers

have specific needs and wants

Targeting a product or service at a niche segment has several advantages for a business
(particularly a small business):

• Less competition – the firm is a “big fish in a small pond”

• Clear focus - target particular customers (often easier to find and reach too)
• Builds up specialist skill and knowledge = market expertise
• Can often charge a higher price – customers are prepared to pay for expertise
• Profit margins often higher
• Customers tend to be more loyal

The main disadvantages of marketing to a niche include:

• Lack of “economies of scale” (these are lower unit costs that arise from operating at
high production volumes)
• Risk of over dependence on a single product or market
• Likely to attract competition if successful
• Vulnerable to market changes – all “eggs in one basket”

By contrast, mass marketing can be defined as:

Where a business sells into the largest part of the market, where there are many
similar products on offer

The key features of a mass market are as follows:

• Customers form the majority in the market

• Customer needs and wants are more “general” & less “specific”
• Associated with higher production output and capacity (economies of scale)
• Success usually associated with low-cost operation, heavy promotion, widespread
distribution or market leading brands

Q&A - Explain the role of marketing objectives

Marketing objectives set out what a business wants to achieve from its marketing
activities. They need to be consistent with overall aims and objectives of the business.
They also provide an important focus for the marketing team.
What makes a good marketing objective? It is often said that an effective marketing
objective meets the SMART criteria:

Some examples of marketing objectives which meet these criteria would be:
• Increase company sales by 12% in 2009
• Achieve a market share of 27% for Product C within 3 years of launch
• Increase the percentage of customers who rate service as “excellent” from 80% to 85%
within 18 months
It is important that marketing objectives and marketing plans support the overall
objectives of the business. Below is an example of how business objectives translate into
marketing objectives and activities:

Q&A - Explain how a marketing orientation differs from a production orientation

Businesses tend to develop new products based on either a marketing orientated approach
or a product orientated approach.
• A marketing orientated approach means a business reacts to what customers want.
The decisions taken are based around information about customers’ needs and wants,
rather than what the business thinks is right for the customer. Most successful businesses
take a market-orientated approach.
• A product orientated approach means the business develops products based on what
it is good at making or doing, rather than what a customer wants. This approach is
usually criticised because it often leads to unsuccessful products - particularly in well-
established markets.
Most markets are moving towards a more market-orientated approach because customers
have become more knowledgeable and require more variety and better quality. To
compete, businesses need to be more sensitive to their customers needs otherwise they
will lose sales to their rivals.
On the other hand some products are argued to create a need or want in the customer,
especially products with a very high technological content. Mobile phones have moved
from being a business accessory to being a big consumer brand item, with many
additional gadgets, such as pictures, video and Internet access. Innovations create the
need rather than the customer being able to second-guess how new technology is going to
develop.

Q&A - What is the purpose of marketing?

What makes someone buy a product? Or more importantly, what makes them buy the
product you are trying to sell?
In business, you need to persuade a customer to part with money in exchange for a good
or a service. You have decide on what the product is going to be like (e.g. shape, colour,
size, features); at what price are you going to sell it; where you are going to sell it (e.g. in
a shop, over the Internet, by mail order); and how you going to help the customer find out
about the product (e.g. advertise in the local newspaper or on the radio). Marketing is all
of these things. Its hard work – but it is a vital part of running a successful business.
Marketing is often defined as:
“The process of identifying, anticipating (predicting) and satisfying customer needs
profitably”
That’s a bit of a mouthful. What does it mean?
• Identifying – finding out by using marketing research about current products, the
possibility of new products, and current markets and new markets
• Anticipating (predicting) – analysing the data collected and using the managers skills
to judge what might happen in these markets and how the products might be suited or
changed, adapted or updated
• Satisfying customer needs – making sure the person, business or government are happy
with what they are buying, will not complain and will be happy to buy again if
appropriate
• Profitably – adding value to the product so when sold, the price of the product is
greater than cost of the inputs.
All of these marketing activities take place in a market.

Q&A - What are the advantages and drawbacks of marketing planning

The main benefits and problems of marketing planning can be summarised as follows:
Benefits:
- Provides clear sense of direction for marketing management
- Marketing options are evaluated and prioritised
- Allocates scarce resources more effectively
- Encourages coordination with other functional areas (finance, ops & HR)
- Provides a basis for assessing actual results
- Makes marketing dept responsible
Drawbacks
- Can be time-consuming
- Constant change in the market makes assumptions difficult
- Danger of either being too simplistic or too complicated
- The plan can be ignored as circumstances take over

Q&A - What factors affect the marketing budget?

The marketing budget sets out how much money is allocated to the marketing function
and how it is intended to spend it.
The size of the marketing budget can be determined in several ways; for example:
• According to the marketing objectives (e.g. what management expect they need to
spend to achieve the objectives)
• In line with market and competitor averages (e.g. some as a proportion of revenues)
• Based on the previous year, adjusted for known changes in the marketing programme
Which ever approach is taken, it is important that a marketing budget includes an element
of contingency (a safety buffer) to allow the business to respond to unexpected events or
opportunities.
The size of the marketing budget each year will be influenced by factors such as:
The financial position of the business
This is a fundamental issue. A business suffering from cash flow problems or low
profitability will normally have to restrict its marketing budget along with cost reductions
in other functional areas
Competitor actions
A business whose competitors are significantly increasing their marketing spending may
need to respond in order to maintain market share.
The demand for, and price of marketing services
The budget needs to take account of the cost of marketing activities. For example, the
economic slowdown in 2008/09 in the UK significantly reduced the cost of advertising
on traditional media like television and newspapers because there was a reduction in
demand (advertisers also started switching budgets to online campaigns too).
The responsiveness and returns from marketing spending
This is often hard to measure – but important if it can be. Each element of marketing
spending needs to generate an acceptable return. In many traditional forms of advertising
this has proved difficult. However, online marketing and direct marketing are now much
more sophisticated and it is possible to track and measure the financial returns.

Q&A - Outline the main stages in the marketing planning process

Macdonald (1995) suggests that several stages have to be completed in order to arrive at
a strategic marketing plan. These are summarised in the diagram below:

The extent to which each part of the above process needs to be carried out depends on the
size and complexity of the business.
In a small or undiversified business, where senior management have a strong knowledge
and detailed understanding of the overall business, it may not be necessary to formalise
the marketing planning process.

By contrast, in a highly diversified business, top level management will not have
knowledge and expertise that matches subordinate management. In this situation, it
makes sense to put formal marketing planning procedures in place throughout the
organisation.

From the diagram, the main components of a marketing plan can be summarised as:

Mission statement: a meaningful statement of the purpose and direction of the business

Corporate objectives: the overall business objectives that shape the marketing plan

Marketing audit: the way the information for marketing planning is organised. Assesses
the situation of marketing in the business – the products, resources, distribution methods,
market shares, competitors etc

Market analysis: the markets the business is in (and targeting) – size , structure, growth
etc

SWOT analysis: an assessment of the firm’s current position, showing the strengths &
weaknesses (internal factors) and opportunities and threats (external factors)

Marketing objectives and strategies: what the marketing function wants to achieve
(consistent with corporate objectives) and how it intends to do it (e.g. Ansoff, Porter)

Marketing budget: usually a detailed budget for the next year and an outline budget for
the next 2-3 years

Action plan: the detailed implementation plan

Q&A - Evaluate the benefits and drawbacks of international expansion options

The four main methods of expanding a business into international markets each have
their advantages and drawbacks. Some of the key issues are summarised below:
Exporting direct to international customers
Advantages:
Uses existing systems – e.g. e-commerce
Online promotion makes this cost-effective
Can choose which orders to accept
Direct customer relationship established
Entire profit margin remains with the business
Can choose basis of payment – e.g. terms, currency, delivery options etc
Disadvantages:
Potentially bureaucratic
No direct physical contact with customer
Risk of non-payment
Customer service processes may need to be extended (e.g. after-sales care in foreign
languages)
Selling via overseas agents or distributors
Advantages:
Agent of distributor should have specialist market knowledge and existing customers
Fewer transactions to handle
Can be cost effective – commission or distributor margin is a variable cost, not fixed
Disadvantages:
Loss of profit margin
Unlikely to be an exclusive arrangement – question mark over agent and distributor
commitment & effort
Harder to manage quality of customer service
Agent / distributor keeps the customer relationship
Opening an operation overseas
Advantages:
Local contact with customers & suppliers
Quickly gain detailed insights into market needs
Direct control over quality and customer service
Avoids tariff barriers
Disadvantages:
Significant cost & investment of management time
Need to understand and comply with local legal and tax issues
Higher risk
Joint venture or buying a business overseas
Advantages:
Popular way of entering emerging markets
Reduced risk – shared with joint venture partner
Buying into existing expertise and market presence
Disadvantages:
Joint ventures often go wrong – difficult to exit too
Risk of buying the wrong business or paying too much for the business
Competitor response may be strong
Q&A - What methods can a business can use to expand into international markets?
Selling into international markets is increasingly attractive for UK businesses. For
example because of:
• Stronger economic growth in emerging economies such as China, India, Brazil and
Russia
• Market saturation and maturity (slow or declining sales) in domestic markets
• Easier to reach international customers using e-commerce
• Greater government support for businesses wishing to expand overseas
The four main methods of investing in international markets are summarised briefly
below:
Exporting direct to international customers:
- The UK business takes orders from international customers and ships them to the
customer destination
Selling via overseas agents or distributors:
- A distribution or agency contract is made with one or more intermediaries
- Distributors & agents may buy stock to service local demand
- The customer is owned by the distributor or agent
Opening an operation overseas:
- Involves physically setting up one or more business locations in the target markets
- Initially may just be a sales office – potentially leading onto production facilities
(depends on product)
Joint venture or buying a business overseas:
- The business acquires or invests in an existing business that operates in the target
market
Q&A - Explain Ansoff’s Matrix
The Ansoff Growth matrix is another marketing planning tool that helps a business
determine its product and market growth strategy. Ansoff’s product/market growth
matrix suggests that a business’ attempts to grow depend on whether it markets new or
existing products in new or existing markets.

The output from the Ansoff product/market matrix is a series of suggested growth
strategies which set the direction for the business strategy. These are described below:
Market penetration
Market penetration is the name given to a growth strategy where the business focuses on
selling existing products into existing markets.
Market penetration seeks to achieve four main objectives:
• Maintain or increase the market share of current products – this can be achieved by a
combination of competitive pricing strategies, advertising, sales promotion and perhaps
more resources dedicated to personal selling
• Secure dominance of growth markets
• Restructure a mature market by driving out competitors; this would require a much
more aggressive promotional campaign, supported by a pricing strategy designed to make
the market unattractive for competitors
• Increase usage by existing customers – for example by introducing loyalty schemes
A market penetration marketing strategy is very much about “business as usual”. The
business is focusing on markets and products it knows well. It is likely to have good
information on competitors and on customer needs. It is unlikely, therefore, that this
strategy will require much investment in new market research.
Market development
Market development is the name given to a growth strategy where the business seeks to
sell its existing products into new markets.
There are many possible ways of approaching this strategy, including:
• New geographical markets; for example exporting the product to a new country
• New product dimensions or packaging: for example
• New distribution channels (e.g. moving from selling via retail to selling using e-
commerce and mail order)
• Different pricing policies to attract different customers or create new market segments
Market development is a more risky strategy than market penetration because of the
targeting of new markets.
Product development
Product development is the name given to a growth strategy where a business aims to
introduce new products into existing markets. This strategy may require the development
of new competencies and requires the business to develop modified products which can
appeal to existing markets.
A strategy of product development is particularly suitable for a business where the
product needs to be differentiated in order to remain competitive. A successful product
development strategy places the marketing emphasis on:
• Research & development and innovation
• Detailed insights into customer needs (and how they change)
• Being first to market
Diversification
Diversification is the name given to the growth strategy where a business markets new
products in new markets.
This is an inherently more risk strategy because the business is moving into markets in
which it has little or no experience.
For a business to adopt a diversification strategy, therefore, it must have a clear idea
about what it expects to gain from the strategy and an honest assessment of the risks.
However, for the right balance between risk and reward, a marketing strategy of
diversification can be highly rewarding.