Marketing Legends 2.0 Kotler
“Know your customers better than they know themselves.”
We had the opportunity to meet Kotler a few years ago during a presentation, where we asked him what he thinks is the most important thing in marketing, and that was his answer- advice that still resonates today in STRAREX‘s culture and way of working.
Why did we take this advice from him and who is this man? Well, the American Philip Kotler is regarded as the most pioneering marketer who helped form the basis of modern marketing thinking. In 1931 he was born in Chicago and after a successful study career in economics at several top universities, he decided to teach at Northwestern University himself. Here, he wrote over 70 marketing books, including The Bible for Marketers: Principles of Marketing. The man is a true pioneer in our field. At 90 years old, Philip Kotler is well-known for his link to the 4 Ps. A simple concept that many marketers start with. But will that still suffice in 2021?
The marketing mix
It may surprise you, but Kotler was not the one who came up with the 4 Ps. It was Jerome McCarthy who did so, 7 years earlier in 1960. In his book Marketing Management, Kotler did define the 4 Ps as the marketing mix: a concept that caught on, unfortunately for McCarthy.
The marketing mix is a model where a company’s strategy is constructively examined. Per sub-area you think about your position in it. “Coincidentally” these sub-areas each start with a P, which is why the marketing mix is sometimes popularly referred to as the 4 Ps.
Selling a service or goods is always a good idea. But before you get started, you need to think about what exactly your product or service entails. So it is important that you think about all the features of the product. You can break these down into three product levels:
What problem do you solve with it? First and foremost, it is about the fundamental need of the customer that it fulfills.
By this we mean the physical product and the features that make it stand out. These include dimensions, quality, design, packaging, and a good sounding brand name. So this is where branding plays an important role.
At this product level, we look at the non-tangible benefits that allow you to stand out from the competition. In short: why exactly should someone buy that product from you? This includes service, warranty, payment methods….
Let’s look at an example to clarify: the Iphone 12.
The core benefit is having a smartphone to make calls, send emails, and capture moments in pictures. It’s how the consumer gives value to the purchase of the device. Apple is incredibly good at that: someone who buys an Iphone, does not just buy a cell phone that works well and where you get all sorts of extras. It also provides social status, a feeling of productivity, convenience, …
The actual product in this case is the high-end device with all the software to keep it running, a refined design, sturdy packaging (sometimes so perfectly put together that you can’t open the box), large screen, ever-so evolving sophisticated camera …
The augmented product is the 1-year warranty on the device, the extensive customer service in the Apple stores, 1 year of free Apple TV, …. Everything Apple offers you when you buy an Iphone. In this area they stand out from the competition and thus claim their position in the market.
The second P is about the price of the product or service. How much do you charge for the product or service you offer? This also involves other things, such as discounts you give to customers and the cost of delivery.
The search for the ideal price is not easy, but it should start with examining and balancing cost-based pricing and value-based pricing: start with how much the consumer is willing to pay for your product and parallel to this, look at the market (benchmark the competitive landscape). If your price is too high, then your demand will decrease. Is it too low? Then, you’re throwing away a chunk of profit.
In short: a good pricing strategy that fits your target market can determine whether your business is successful or not.
A clear example of this is the difference between Olé and Leo. A while ago, employees of the cookie factory came out with the story that the cookies are actually exactly the same. It is a fact that most were already aware of, but some did not believe it. Due to a completely different positioning via packaging, retail outlets and advertising, they can be sold at a different price. For one Olé cookie you pay 29 cents, while for a Leo you might pay as much as 59 cents. So you could argue that because of the higher price, Leo would sell less if the product is identical. Yet this isn’t the case . This is where our other two P’s come in.
3. Place (Distribution)
You have a product or service that you sell at a price that ensures there is good demand, and your profits are optimal. Good! Now, of course, we still have to make sure that this product ends up in the hands of the customer. And you do that by determining where or through what channel they can obtain it.
There are several types of distribution channels:
- Direct channel: you deliver directly to the consumer without third parties.
- Indirect channel: your product reaches the consumer through several intermediaries. A channel can become longer as agents or wholesalers are added.
So you have quite a few options:
There are many ways to market and sell your product or service, and we’re not just talking about how long the path is to get to the customer. Choosing the right channels is extremely important. There are a couple of options: single-channel, multi-channel and crosschannel.
Single-channel, as the name already implies, means that you will only offer your product or service on one sales channel. This can be through a webshop only, through a retail store or through an online marketplace. There is nothing wrong with single-channel selling and it can work perfectly.
Of course, we should also mention here that the online aspect is starting to play an increasingly important role. A consumer can buy directly from a manufacturer’s webshop (DTC: Direct-to-Consumer), but also via a retailer online or other sellers. A product no longer needs to be physically on the shelves to reach the consumer due to advanced digital tech and even drop-shipping models. The internet is a true game-changer for our digital generation.
Multi-channel goes further than single-channel and ensures that different sales channels can be used when a consumer wants to buy your service or product. This way the customer buys on the sales channel that is most convenient for her/him. This also means that you are accessible on different channels. You respond to messages on your social media, you can be reached by phone and email, and you help your customers who come into your store. In short, you have an online presence and your customers know where to find you when they need you.
Crosschannel goes one step further than multichannel. The customer is served in the same way through multiple channels and has the choice to order products online, and then pick them up in a physical shop. These orders are also nicely connected to customer service. This means that all channels are working with each other in an organized way.
Polestar, a subsidiary of Volvo that specializes in high-end electric cars, is experimenting with this. Believe it or not, their €60,000-€160,000 cars can only be bought online. Of course, you can test drive them physically, but everything is custom ordered online. A bold move or not? The future will tell.
The last P in the list is promotion. Here we define which channels are used for marketing/advertising.
As a strategic marketing agency, we cannot stress enough the importance of having the right marketing channels. You can have the perfect product, at the ideal price, that your customers can buy in a place that is convenient for them…. But until you reach the right customers, you won’t sell much. And to reach them, you have to promote where they are at the right moments. You are not going to hand out advertising flyers in a library for a hard rock festival you organise. So don’t do this for your other marketing channels either, even online.
A fun example of the different marketing channels for promotion is Streamz, aka the Flemish Netflix. Their “van bij onz” campaign is absolutely to be seen! With bad puns on radio, TV, online and printed ads on signs along the roads, bus shelters, … you can’t miss it here in Belgium!
The 4P’s in 2021, dusty theory or practicality?
In 2021, everything evolves rapidly. Companies are doing marketing in a different way than they did in 1967. The 4 Ps continue to be relevant and are strong foundation that you can still build on as a marketer. You just have to take into account the modern marketing landscape. It’s important to think about how to sell your product or service to your customers. A well thought-out strategy and a good foundation will get you a lot further and a good ROI.
Some marketers have built even further on the 4P model and now have 12 Ps, where all aspects of the company are examined because this is all part of why a consumer buys. All good and well, but that makes it all a bit too complicated. Let’s go back to the basics: the 4 Ps in 2021. The STRAREX way.
Why should a customer choose your product or service over that of your competitors? The answer is simple: because you provide more value to your customer. A good value proposition helps you with this. A value proposition is how you describe your product or service with the most valuable and distinguishing features in the eyes of a customer. It explains what makes your product or service so unique and how it stands out from the competition in the market.
It’s important to start from the customer point of view, and always not from your product or service itself. How do you make it easier for the customer when she/he has to perform a certain task? What are their pain points during the performance of that task and how do you tackle them? What are the benefits that the customer gets when the task is done and how do you capitalize on this? “Know your customer better than they know themselves.” Kotler’s advice comes back to mind here.
These elements for value proposition can be found in the canvas below:
From that knowledge you begin – in an ideal world – to develop your product or service so that those pain points disappear, you make it easy for the customer and give him the benefits of performing a certain task. You make it easy for your customer and that’s what he is willing to pay for. It’s really as simple as that.
Choosing a price for your product or service is not easy. It can make or break the profitability of your business. So it’s obvious that you better think about it carefully, come up with a certain strategy and then execute it properly. For this purpose there are a number of strategies you can apply. Let’s briefly discuss the strategies that we find the most important below.
Cost Based Pricing
This is the most obvious way to set your price. You calculate your costs, and you add to that the profit you aim to make in order to set your price. This is a common strategy when it comes to selling physical products. The costs are fairly simple to calculate.
Specifically, if you sell ice cream in an ice cream parlor, you can calculate the following costs: the cost of the ice cream itself and of the cone, but also the cost of your staff to scoop out the ice cream, the rent you pay for your ice cream parlor, marketing, … In short, all the costs necessary to be able to get the ice cream to your customer. You calculate these per unit and then put a profit margin on it. Say it costs a total of €2.00 to make your ice cream, then you can ask €2.50 for a scoop of ice cream. That’s a profit margin of 25%. Not bad.
The tricky thing about this strategy is that it doesn’t take into account how much your customers are willing to pay for your product or service. Suppose you make the very best ice cream in the world, then people here might want to pay €5 or even €6 per scoop. The tricky thing is that you can say on paper that you want a 25% profit margin, but if no customers come, you will make a loss. It’s simply important to take this into account when setting a price.
Value Based Pricing
So how can you solve this? Well, you can start looking at how much your consumer is willing to pay for your product or service. You do this by looking at customer interest, data and feedback you get from your customers.
We can already hear you thinking out loud, “But customers always want the cheapest, right?” – No, that is anything but true. Consumers are always looking for the best price/quality ratio. Consumers like to pay more for quality service and products. A good example is bol.com. They will almost never offer you the best price for a particular product, but it is still a resounding success. Why? People buy from bol.com because they can rest assured that their package will appear at their door the next day. Bol does everything to satisfy their customers. Orders delivered within one day, great customer service, a huge range of products, easy returns… These are all reasons to pay that 2 or 3 euros extra.
So there are several pricing strategies, each with its own advantages and disadvantages. To determine how much you ultimately need to sell to be profitable, you also examine the WTP or willingness to pay. This is the maximum amount a consumer is willing to spend on a particular product or service. You can find this amount through various ways: by analyzing market data, questioning customers or sending out surveys.
There are some ways to influence the willingness to pay (to a limited extent). Important factors are:
The Willingness To Pay is often higher for premium brands. Some are looking for a luxury feel and design, regardless of whether the quality might be the same as a competitor. Brands often work with celebrities or influencers to give their brand a certain status.
Customers are often looking for the best value for their money. By adding some sort of “distracting” product as an option to your offer, you can steer people in the direction of buying a more expensive product. Suppose you sell boxes of chocolates: a small box and a larger, more expensive box. You can offer an “intermediate size” as a third option: slightly cheaper than the most expensive one, but with a significant difference in quantity or design of the packaging. People will be more inclined to choose the more expensive box because of this.
By placing an initial, more expensive price next to a product, customers feel like they are getting a great deal and will be more likely to purchase it. This is often applied in e-commerce or even by market vendors. And you probably remember the endles teleshopping ads on television from back in the days, like the Nicer Dicer.
Another option is to add a ‘premium’ edition that is more expensive, so that the regular version seems like an interesting offer.
Single channel, multi-channel and cross-channel are three concepts that certainly work well today. But in the past few years, a fourth one has been added that is starting to get more and more attention: omnichannel.
To explain this most recent concept, let’s dive into history for a moment: during the year 1958, the Atomium was built in Belgium, a construction with nine spheres connected to each other. The Atomium could represent an omnichannel model. The customer is located in the center. It is connected to the different sales channels, which are in turn also connected to each other. The same prices, return conditions, service and looks apply to each channel. And that brings opportunities for the customer. For example, he can order online and pick it up in one of the offline stores, test something offline and then order it online in the store and have it delivered to his home, order online and have it delivered… In short, the customer gets a better experience because of the seamless transition between all the different channels.
Some companies are seeing their sales increase with this approach. An example of a successful player in the market that applies the omnichannel strategy is online giant Coolblue. In addition to their webshop, they opened physical stores in a few locations. These are mainly intended to show products and let the customer test them out. As a result, Coolblue saw a significant increase in sales in those neighborhoods. The physical experience and on-site service increase customer trust. In this way, offline and online are increasingly growing towards each other, especially since the Covid19-crisis. The omnichannel trend is also breaking through among local businesses. By working together, they can offer a better online service and maintain a strong position against larger competitors.
If online is part of your sales strategy, the digital aspect will be indispensable to give your customers the best experience. A website is kind of like your store window. Design and functionality play a hugely important role in integrating your market strategy into your webshop and determining how customers experience your brand.
In addition, your product or service must also be easy to find by the right people. Online players such as Google and Facebook are developing more and more options for you as a company to work with. This way you can reach potential customers on the other side of the world, or rather nearby by applying local search strategies. The possibilities are endless, so make each choice according to your ultimate business goal.
Omnichannel isn’t just a term that occurs in the distribution of a product or service. In recent years, the term omnichannel marketing has also been making inroads. The concept is similar: the customer gets a better experience through the seamless transition between all the different marketing channels.
As a result, the purchase rate of campaigns that use three or more marketing channels is 287% higher than single channel campaigns. Your customers no longer shop in just one place, so it’s important to be present where your potential buyers are – both physically and digitally. To build successful omnichannel campaigns, you need to be able to communicate in person.
Thanks to data-driven marketing, it becomes easier to approach your different target groups in the right way. Finding out what the customer wants and how you can respond to that is essential. With that knowledge, you can, among other things, run personalized ads that show something completely different depending on who is looking at them. A message tailored to each segment!
Just think of Zalando for a moment, a successful webshop operating in 17 countries. When you have been on their website and you return another time, the home page will be tailored to your preferences and shopping behavior. You will also be retargeted with ads on other devices, sometimes you are viewing something on your laptop and you already see the same product on your smartphone in a Google ad. It’s like witchcraft sometimes! You can also use segmented emails or emails sent automatically at times when the customer opens them most often, to reach your customer at the most relevant moment. A/B-tests can give you more detailed information on what works best.
Online, there are numerous possibilities to target your audience based on preferences, location, behavior, etc. But also offline it’s important to use the right tools in the right places. Posters, billboards, banners, samples and flyers take quiet a bite out of your budget, so why not use them in the most efficient way?
Location obviously plays a big role here. As an organization that offers tutoring to students in higher education, you will have more success by handing out rulers with your information on a college campus than on the Big Square in Antwerp.
A memorable example of offline promotion is Redbull. With their striking Redbull cars, often driven by young ladies, they go to the hotspots to hand out free cans. Or think of Tomorrowland, where the festivalgoers are the ultimate brand ambassadors. Every year, the organization physically sends their admission tickets in the form of an exclusive bracelet, packed in a box with a story that engages their imagination. This is something they are excited about to show their family and friends, which creates a unique and invaluable form of promotion. The story really tells itself.
“Know your customers better than they know themselves.” Kotler’s invaluable advice still stands, as does his theory of the 4 P’s, albeit in a new STRAREX jacket. Production, Price, Place and Promotion are the basis of a strong marketing strategy. If you want to grow and convert, these aspects are crucial.
Ready to take your marketing to the next level? Contact us for a first introduction and let’s see what your marketing challenges are and how we can help your marketing and business grow.