THE 4 P’s OF MARKETING AND NAILING THE
RIGHT MARKETING MIX IN 2018
On today’s episode, we have recurring guest Gary Beck 30 year marketing veteran. Damian and Gary go back to school and review the 4 P’s of Marketing and the Marketing Mix. More than just telling us what those terms mean they apply it to the current marketing landscape.
First, they kick it off by defining and digging into each of the 4 P’s of Marketing:
Damian brings up a very important nuance that many marketers don’t know, which is promotion doesn’t exclusively mean price. Gary breaks down the difference and how those two P’s can work independently from each other.
Next Gary answers the question, “What can we do to get the mix right?” This gets the guys into a conversation that Damian says “is one of the reasons why this podcast exists.” Getting the mix right is all about testing and understanding the dynamics of how the different channels work together.
After that back and forth, to really drive the point home, Gary and Damian discuss how using Search and Broadcasting together can benefit some companies while using them independently might benefit others. The decision on how to allocate money in the marketing mix is all about finding the synergy that works for you and your companies budget.
Damian then asks Gary “So, what are the key things that marketers should watch out for whether it’s designing experiments or just coming up with the marketing mix and media mix strategy?” The number one thing, Gary says,”is that marketers need to be on the lookout for are what we might call market disruptions of some sort or some competitive activity.”
Finally, Gary answers the question, “Is it possible to objectively construct a model that can inform our decisions on shifts to this marketing mix?”
Gary with his extensive modeling background answers that question with his method of attribution modeling.
What follows is a lightly edited transcript of Episode 8 of the Inevitable Success Podcast with Damian Bergamaschi and special guest Gary Beck. (Listen Here)
Damian: Welcome to the Inevitable Success Podcast, sponsored by BuyerGenomics where our goal is to help you, the marketer, make success inevitable. Each episode will discuss the craft of data-driven marketing, helping you uncover new and profitable ideas. You will also learn what works and what doesn’t work from top marketing professionals and thought leaders. I’m your host: Damian Bergamaschi and inevitable success starts here.
Good morning Gary. How are you doing today?
Gary Good morning Damian. I’m well. Thank you. Thanks for having me again.
Damian Absolutely. So today we’re going to speak about something that everybody probably learned back in school, something called marketing mix. And I want to kind of bring it back to what we all do now in the real world, every day, and what marketing mix means now and try to make it as actionable as possible. But first, for anybody that maybe didn’t hear that term before, or you didn’t make it to that day of class, what is marketing mix, Gary?
Gary Marketing mix refers to all of the components of selling a good or service to a customer. So, in business school in marketing 101 we refer to those components as the four Ps of marketing, and those four Ps typically were product, place, price and promotion.
Damian I’ve even seen if you Google this, there’s some that go as far as Seven Ps, but I think that’s enough Ps. Why don’t you walk us through what that is?
Gary Great, I’d be happy to do that. Before I started, in digital marketing and direct marketing, we always focus on delivering the right message to the right person at the right time. That is really our guiding purpose, and the four Ps are the foundation of marketing strategy which leads us to successfully executing against that goal.
So you know perhaps we can start with Product because that is the focus of what we’re marketing, and the product is exactly what it sounds like. It’s the product or service that we are selling to our consumers. And there are different ways of looking at that product. There are different times when that product is more marketable than other times. So it’s important to understand the dynamics of a product in terms of its seasonality or in terms of the relationship that that product has with particular customers at a particular point in time.
Damian Makes total sense. Please continue. I think the next up is Place.
Gary So when we think about Place. The place really refers to how a product is distributed to a customer and how the customer is exposed to the product. So, which channels are most effective to deliver the product to a customer: how is the product being placed or displayed in supermarket marketing, for example, you will see the end of aisle promotions that distributors fight to set up, to arrange that space. So all of the different ways that customers are physically exposed to a product or service, those become very key in the overall marketing mix.
Damian I can even think of maybe, there’s a spot where location actually does intersect placement, as far Channel. See it all the time in mobile marketing with channels like search, you know, where you physically are when you type a search term in that channel means a lot of different things versus if you type something on your desktop at home, it’s a lot different than if you’re on your mobile phone, downtown at 8 o’clock, after work. So that sort of thing is going to work very differently.
Gary Absolutely. And you know, it’s understanding the context where somebody is in their buyer life-cycle, and how the whole environment relates to the sales process in places obviously integral to the shopping process. And place also means if you’re shopping on Amazon, where you’re ranking in terms of the products that are being displayed, and how that is fitting into the overall life-cycle of the purchase for that particular consumer.
Damian Yeah, I mean I can see the product market fit getting that right. I mean, that’s huge that you can really influence that factor a lot. I think Place you can too. So that’s kind of exciting that as marketers we can definitely pick our channels. We can understand the placements both physical, in store for example, versus where the customer prospect is and how that intersects with Channel. So, exciting. I can see lots of different ways that we could improve or have an impact on results from not just those two factors.
Gary Absolutely. And those factors are significantly impacted by the third P that we’re going to talk about here which is Price, and Price is the key to profitability. And profitability has to take into effect all of the costs of manufacturing, distributing, and marketing the product. And at the same time, it is modulated by the value that a customer sees in that particular product. So if a customer feels that the product is fairly priced, they will buy it. If they feel that it’s under-priced, they will see it either as a great value, or they may actually question the product itself. So pricing is a key component of the marketing mix.
Damian I think that’s interesting because a lot of times you think about every single penny that you take off, there’s an inverse correlation to conversion rate. The lower the price, in theory, the better of the value. Actually, the value is technically getting better if you’re getting the same thing for a lower price, but the perception, as far as a marketer, that’s what’s really important. I think examples where when you lower the price to a certain point, it doesn’t feel valuable or where, maybe, it feels like it’s not a premium product anymore and actually hurts conversion rate. That’s really interesting.
Gary That’s absolutely the case. And it’s an important factor for marketers to consider as they are establishing a brand. And of course, competition over time will drive the price down to a point where it is competitive in the marketplace. So, but there are times when marketers have a monopoly situation where they are the primary distributor of a particular product, and they have pricing leeway, and in that particular case the goal is always to price the product where we can maximize profitability.
Damian It makes sense. You have to keep the most profit, you want to find the price that is the best win-win for the customer where they have the highest perceived value. And you can have the highest pricing integrity. Price and promotion can sometimes be, which is the fourth P, entangled. So one example that I like to think about is that discounting is a tool, but the reason why you discount typically is to improve conversion rate because you want to drive sales. Sometimes there’ll be promotions where, if you don’t actually do the math, you don’t realize that, wait, if I had a 100% profitability, which nobody does, if I reduce my price by 50%, for that to be a value add decision, I need to have more than 2x improvement in conversion rate to just get back to where I was. That’s a big hurdle. So choosing the right promotion, especially when it has its impact on people’s perceptions of the product itself, these are really important things to figure out both from a financial standpoint and a branding one.
Gary Absolutely. And your large marketing companies have a firm understanding of promotion and how demand changes based on price. So limited time promotions, rebates, discounts, your large companies understand how that will change demand, and they apply those levers accordingly. And, at the same time, those promotions need to be managed carefully in terms of maintaining price integrity in the sense that we do not want to train our buyers to always buy on discount, or frequently the goal is not to do that. Some retailers today have taken a different tact, but typically the goal is to maintain pricing integrity in such a way that discounts and limited time promotions are truly seen as limited time. And as a result, they increase demand on a short-term basis, and customers don’t always expect to receive those discounts in the marketplace.
Damian Yeah, I mean the way I think about it is, I don’t want to cannibalize sales by discounts that I would have gotten anyway. I mean that is heartbreaking when you have to hit numbers, and you know that you would have gotten… In hindsight, you could figure out, well, I would have gotten that sale at full price. But, now I have to sell two times as many widgets to cover what I just got, what I would have gotten anyway. So we have to be cognizant of that.
Gary Absolutely. Pricing is one of the four Ps in marketing for that very reason. It’s central to your strategy, and it impacts consumer perception as well as long-term profitability.
Damian Before we jump into some of the things that you could do to get the right mix, I thought it was also interesting, I know we’ve spoken about this: promotion doesn’t exclusively mean price, not by a long shot. There are lots of promotions that you can have that don’t touch the price at all. There’re many factors you can do to promote a product or service.
Gary Absolutely. And some of those promotions can include things like additional services. In the airlines, for example, there are times when they will offer double miles for flights, or there have been times in the past where if you fly three times in a certain period of time, you can receive a free flight.
So, promotions can have a variety of twists and turns. Some of them can actually cost the companies very little in terms of the actual incentives provided. Yet at the same time, they can increase demand significantly and provide a positive long-term relationship component to the arrangement. So, there are many ways that promotions can create sticky relationships with customers, those relationships that stay for a long period of time and just build the long-term profitability with any given group of customers.
That’s a great example, Damian. Promotions, as one of the four Ps of marketing, have ways of expanding the relationship with customers to a company. We know, as you just shared, that the more engaged the customer is, the more exposed they are to all of our products, the more likely they are to purchase from us in the future. And the more likely they are to be a most valuable purchaser of ours over time.
Damian So what can we do to our marketing mix? Sometimes I’ve even called it media mix by clients, and that’s probably not the same thing, but I have heard them used interchangeably a lot. So maybe, you can actually shed light on that and tell us, what can we do to get the mix right?
Gary That’s a great point, Damian. I also hear people talking about the marketing mix, and sometimes what they are really referring to is the media mix. When we talk about media mix, we’re talking about all of the different channels that are available for marketers to use to target their customers. So, whether those channels are in-store retail, or they’re online web-store, or whether the channels that are creating awareness are broadcast advertising, radio-TV, cable…all the different ways that we can talk to a customer and create awareness. Those are the components of the media mix. And typically, for large marketing organizations, it is a huge part of what they do. These large marketing organizations are spending potentially tens of millions of dollars on advertising media time. So as a result, being smart about how they allocate their advertising dollars across channels becomes critical to their success.
Damian So, clearly this is an optimization game, getting the mix right. What are some of the steps that even the big guys do to make sure that they’re getting that mix right? That would apply to small to mid-level brands too?
Gary Getting the media mix calibrated correctly is really all about testing and understanding the dynamics of how the different channels work together. And there are different ways of figuring out what’s working and what isn’t working. So on a macro-level.
Damian This is an important question to answer. I think it’s one of the reasons why this podcast exists, how to figure out what’s working and what isn’t working. So I’m excited about this part.
Gary And it’s almost, perhaps the most impactful thing that we can do in terms of understanding which of our advertising dollars are paying dividends and which are not. And at a macro-level, what we can do is we can construct models to help us understand how our advertising initiatives are working to support sales. So we can look at all the different channels. We can look over time, and we can develop a budget by channel, based on what we see as the relationship between sales and channel expenditures. And, a good example of the usefulness of this is, companies will use these types of macro models to try and determine if certain channels are even worthwhile.
So, for example, we can look at the interactions between search and broadcast for example, and we can see if those expenditures provide synergies if we set up the test data in a way that makes sense.
Damian Right. I’m sure the design of the experiment on that is very important to be able to see the impact.
Gary Exactly. So, we need to set up designs where we look at different markets to see what the impact is of these different channels and different expenditures over time.
Damian Let me use your example real quick because I’m very curious about this. So, you used search. I’m going to make it more specific and say paid search for example and broadcast. I think you mean, when you say that, you’re saying maybe radio or could it be TV too?
Gary Yes, absolutely.
Damian OK. So, let’s say you’re spending 50/50 on those today. What would be a decision, and may even be thinking about this wrong, so correct me. What would be a decision that you’d make from– you set the tests up the right way– what would that look like after you learn something? What kind of actions would you take next year or the next period?
Gary Well, we might see for example that in a market where we’re spending X dollars on broadcast and Y dollars on paid search that those expenditures create twice as many sales as a market that spent all of that money, x + y dollars, on either one of those channels alone. So, from that perspective what you see is that there are synergies that are created by using both broadcast and paid search and that it becomes important that you leverage that mix across all similar markets rather than just using, let’s say paid search or just using broadcast alone. In essence, the model would validate that the synergies are important and both channels work together well. Now, that’s an oversimplified example…
Damian It makes total sense though. If you’re looking for a multiplier or synergy that could exist, then you want to maybe try to scale that or try different variations of that mix to get it right.
Damian So, what are the key things that marketers should watch out for when maybe it’s designing experiments or just coming up with the marketing mix and media mix strategy?
Gary It’s a great question. The number one thing, I think, that marketers need to be on the lookout for are what we might call market disruptions of some sort or some competitive activity. An example of a market disruption might be some competitive activity that just changes the way your market is perceived. So, what might that be? An example of that might be when, let’s talk about, selling…oh I don’t know. I’m actually thinking about home-building as an example. And if you are selling three-bedroom starter homes at a price of, let’s call it, $300,000 and then a new community opens up down the block that’s offering three bedrooms with the same square footage at $200,000 then all of a sudden the market has been radically changed. And the end result is that no matter what your advertising strategy is, no matter what the media mix strategy is, if both communities are priced at the same price point and have the same amenities and essentially have the same location benefits, then the end result is that the less expensive community is going to absorb all of the demand in that particular market.
So understanding those market disruptions, new players who are undercutting price, is one of the things that marketers need to be aware of.
Damian So you just made me think of this a little differently. So, when something like that happens, maybe part of the marketing mix, another way to look at it is, how much time do you spend on each of the four Ps to solve a problem or do you go after an opportunity? So that happens maybe it’s you’re running down the list and saying okay well let me evaluate my product and you start saying how is my product versus their product? Can I do something to improve the product? The place– maybe you start running different placements. Maybe you start putting billboards on the way into that community so that you can get in front of those people. Or maybe it’s conquest search–price. Can we change the price a little bit? Maybe that’s where we should focus our time and test price? What kind of promotions can we offer to get people in the door to be more aggressive? And you just kind of inspired a thought
about, it’s not just budget, it’s time, and where I focus on that marketing mix to get the impact. What are your thoughts on that, Gary?
Gary Well, I think you hit it on the head, and it’s one of the reasons why business schools spend so much time talking about the four P’s of marketing. It’s impossible to just focus on the media mix without understanding all of the four P’s as it relates to your product. So media mix becomes a valuable and essential discipline to get the message out, to drive demand. But at the same time, media mix is going to be impacted by what’s going on in the market. It’s very fundamental. So, good marketers need to have their thumb on the pulse of what’s happening in the marketplace. They need to understand what their competitors are doing, and they need to then develop their media strategies, their promotion strategies, their pricing strategies based on what is going to work for them.
And I guess… We talked a little bit about market disruptions. You and I chatted a little bit offline about competitive forces, and everybody who is selling a product keeps an eye on what their competitors are doing. The large companies have strategy groups, and it’s a full-time job to keep track of how their competitors are advertising, what media they are using, what their promotions are, and then in almost a cat-and-mouse chess game of sorts, it’s a strategic responsibility of these organizations to determine how to respond to those tactics being deployed. So when we think about what marketers should be watching out for when developing a marketing mix strategy or their media mix to support their strategies, it’s never done in a vacuum. It always takes into consideration what their competitors are doing, and it’s a competitive marketplace that we live in, and everybody wants to win.
Damian I couldn’t agree more. So in closing, I had one final question, and I know you’re the right guy to ask this because of your modeling background. Is it possible to objectively construct a model that can inform our decisions on shifts to this marketing mix?
Gary Yes, it’s a great question, and we do spend quite a bit of time developing marketing mix models, and that’s actually a good lead in to the topic of attribution modeling where we try to essentially develop a model or set of roles where we try to provide credit for how sales are achieved in the marketplace. And I think that would be a great topic for a future podcast. Damian, I think that one is under consideration now. Am I right?
Damian Has to be so. I mean, the way I take it is, in your other example between broadcast and paid search, you probably have to come up with an attribute, a valuing system in that just to,– what gets the credit for it? So you kind of have to have that in your consideration set I’m guessing. And I guess we can go a lot deeper on that in a future show.
Gary That would be a great topic for it. And yes absolutely. When we’re thinking about optimization, we have to first start with, how have we been successful in generating sales in the past? And in order to be able to understand that, we need an attribution methodology to help us understand what’s worked in the past. And then, once we understand what’s worked in the past and how our advertising expenditures were established, then we’re in a position to develop a model, understand the relationship between our expenditures and sales, and then look for opportunities in the future to become better at optimizing our expenditures
Damian Well put, Gary. Thank you again so much for sharing everything on marketing mix and media mix planning and strategies, and absolutely gonna have you back on. We’re going to go deep on attribution modeling, probably not too far off into the future. Thanks, Gary.
Gary I will look forward to that, Damian. Thanks for having me.
Damian If you enjoyed today’s episode, we ask that you please leave a rating and write a review. Or, better yet, share it with another marketer. Be sure to subscribe to the podcast for new episodes. Also, check out the show description for complete show notes and links to all resources covered in today’s episode. If you’d like to speak to someone about any topics covered in today’s episode, please visit BuyerGenomics.com and start a chat with the BG team today.
Host: Damian Bergamaschi
Special Guest: Gary Beck
Gary’s background includes over 30 years of analytics & database innovation for several leading Fortune 500 companies and Madison Avenue advertising agencies. Gary has been a frequent lecturer and author on the topics of database marketing and applied statistics. His articles have been published in DM News, Direct Marketing and the Journal of Direct Marketing. He recently was President of the Direct Marketing Idea Exchange and currently serves on their Board. Gary received his M.S. in Industrial Administration from Carnegie Mellon University..