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9.3 Marketing, Planning, and Execution: The 4Ps

The process of creating a specific marketing plan on the basis of a marketing strategy is referred to as the 4Ps of marketing. It includes product, price, place, and promotion, each of which is explained in the following paragraphs (Fig. 9.1).

The first element, product, includes a psychological value that consumers place on products that is derived from branding and design, in addition to the more direct value that is derived from functionality and performance. Among large consumer durables, delivery, installation, and other post-sales services should be thought of as part of product composition. Within target markets, companies must begin by developing basic concepts for products and services that most effectively meet customer needs. Next, they must design specific products not on the basis of function but on design and post-sales service. For example, Japanese consumer electronics products generally come with a warranty from the manufacturer, who agrees to repair the item free of charge within 1 year of purchase in case the item malfunctions for reasons that are not the fault of the user. Such a service is provided by the product's quality management. In contrast, China's consumer electronics giant Haier does not provide a warranty but has built competitive advantage by emphasizing post-sales services for its products. In the event of product malfunction, Haier deploys personnel to service the product within a few hours in case of the problem, instead of providing a warranty. In sum, companies must consider aspects such as post-sales

Fig. 9.1 4Ps of Marketing

services in addition to product quality and functionality when developing their product concepts.

The brand is another item that can be put into product classification within marketing plans. Some brands are tied to company names, while others are tied to product names. The brand value of the former is in the company name itself, as in the case of Sony, which is known for its innovative products, or Toyota, which is known for its cars of high-quality. The latter is managed on a product-by-product basis. For example, the Procter & Gamble (P&G) categorizes its cosmetics business into the premium SKII brand and the mass market-oriented Olay brand. In the next chapter, we analyze Shiseido's marketing in China. It developed a brand of cosmetics called Aupres catering to the Chinese market, in addition to its global SHISEIDO brand. SHISEIDO brand cosmetics were exported to China and targeted the wealthiest consumers. The management at Shiseido therefore decided that it must develop new products that cater to a larger section of the market if they want to seriously expand in China. However, Shiseido decided to use a different brand name to market these new products, thereby downplaying the connection with Shiseido, as a measure to safeguard it against the potential risk of lowering the value of the SHISEIDO brand. This type of brand management is an important element in marketing planning.

The next element is price. The following aspects must be considered when determining the price of products and services:

• Cost of products and services

• Price elasticity in the market

• Prices of competitive products

Generating a profit by providing products and services requires that prices be set higher than costs. However, costs include both fixed costs, such as R&D and asset depreciation, as well as variable costs, such as materials and manufacturing labor.

In the case of fixed costs, the average cost of products and services decreases as the sales volume increases, making it necessary to estimate demand and be aware of when revenues will exceed average costs. Moreover, companies must have an understanding of the price elasticity of its products and services. Products with a high degree of price elasticity suffer from lagging sales as prices increase, making it difficult to increase the prices of such products. On the other hand, the demand for necessities does not change significantly even when prices increase. These products have low price elasticity and increasing their prices is relatively easy. Finally, in terms of the pricing of competitive products, if companies find it difficult to differentiate with competitive products on product quality, functionality, or post-sales service, they will also find it difficult to set prices higher than that of their competitors. For example, the recent price wars among manufacturers of flat-panel televisions have resulted in a considerable drop in the average sales price of these products. As a result, sales have grown; however, even the largest manufacturer, Samsung, has made almost no profit. Thus, when price wars occur among products that are largely similar, all vendors are forced to drop their prices to the bare minimum.

In addition, companies must think dynamically in terms of price strategies over a product's lifecycle. Price strategies for new products at the time of their introduction include “cream-skimming” and market penetration pricing. Cream-skimming refers to the strategy of setting prices at a high level to “skim” customers who do not mind paying premium prices (i.e., upper-class individuals with high reservation prices for products). For example, when Intel introduces new CPUs, it generally sets a high price for premium users (Ogawa 2009). In contrast, market penetration pricing sets the prices of new products on the low end. Products with network externalities influenced by a number of users have an incentive to draw a large number of users as quickly as possible. This phenomenon can be seen in the recent example of the standards competition in the high-end DVD market between the Blu-ray and HD-DVD formats.

There are various other strategies to set prices, such as creating various grades for one product, as in the case of automobiles; bundling complementary products, as in the case of mobile carriers that generate revenue through telecommunication fees while selling mobile phones at low cost; or versioning, where content is sold at different prices depending on the product release timing (e.g., releasing paperback versions of books after hardcover versions).

The third element is place, that is, the method of providing a product or service. Products developed by manufacturers need to reach customers by some means. Retailers provide these places and, depending on the product, they may also provide a complex distribution route that includes wholesalers. On the other hand, some companies provide products directly to consumers without going through a middleman (so-called disintermediation) via e-commerce over the Internet. “Place” relates to the channels that a company uses to deliver its products and services to customers.

When expanding a business into emerging countries such as China and India, dealing with these channels is a major issue. First, retailers or distributors, such as wholesalers, often face market-entry regulations imposed on foreign companies, which often require the partnership with a local company. For example, China joined the WTO in 2001, resulting in the elimination of most regulations for foreign retailers and wholesalers, with the exception of certain industry types. Large foreign supermarkets and convenience store chains are expanding into the Chinese market, though local companies still hold the major market share. India has more stringent regulations than China, and has delayed the entry of foreign firms into its market segments. Retailers in particular still face stringent regulations on foreign companies, and while there are some signs of deregulation, there are also political issues that make the prospects of dramatic improvements in the short term difficult. Accordingly, companies have found it necessary to build relationships with local companies and carefully manage these alliances. For example, Shiseido sells its products using specialty stores as its marketing strategy. In regional urban areas with no large-scale department stores, Shiseido has established superior quality cosmetics stores as specialty stores and trains beauty consultants in terms of personal sales. Shiseido has also established an incentive system that awards retailers with high sales volumes. Retailers can request to terminate their agreements with Shiseido at the time of agreement renewal, but most retailers opt for a long term agreement as Shiseido specialty stores.

Logistics, or the timely movement of products to a designated location, is another important element of “place.” In India, fresh foods often go bad because of issues in logistics. Lagging infrastructure, such as roads and rail freight, is another major issue; however, the impact of inadequate skilled business logistics personnel in management, warehousing, and transportation optimization is prominent. Logistics services in India present a tremendous business opportunity, and many Japanese companies, including trading companies, are beginning to enter this domain. China and India are geographically vast, with typically high logistics costs. Therefore, making local logistics more efficient is critical.

The final P is “promotion,” or sales promotion activities. Despite the selection of target markets that companies think will efficiently use their business resource strengths and develop products and services to match those markets, revenues do not increase without properly marketing them to customers. Sales promotions are held to effectively promote the process from capturing the attention of potential customers through a purchase. The behavioral patterns of consumers are explained below in the AIDMA steps:

Attention: the product captivates the attention of potential customers Interest: they become interested in a product

Desire: they desire the product

Memory: their desire is no longer just a passing one, and the customer is seriously considering the product

Action: customers make the purchase

Potential buyers begin by focusing the targeted product. They may view a television commercial featuring the latest digital camera, and move on to the next step, in which the product makes an impression, whereby they become interested in the product. They then develop the desire to purchase the digital camera. However, even though they may want to purchase the product, it may be a passing one. Therefore, for a purchase, this desire must remain in the customer's memory. Finally, consumer behavior ends when the customer goes to a consumer electronics store and purchases the digital camera.

The means by which companies invest their efforts in promotions depend on the AIDMA process. In the first stages of gaining attention and interest, advertisements using videos or graphical images can be an effective way to create a product's impression. A variety of mass media, such as television commercials and newspaper and magazine advertisements, can be used to accomplish this. In addition, public relation (PR) activities centered on an event or word-of-mouth networks are also effective in the first half of the AIDMA process. Promotional tools include samples and gifts, product displays, pamphlets, or coupons. The human element, such as promotions involving salespeople in stores that provide advice to customers, is also important. Such promotions enable an engagement with customers that display a certain level of interest or desire for a particular product and are effective in the latter half of the AIDMA process.

However, the AIDMA model of consumer behavior has recently become obsolete and has morphed into the AISAS model: the first two aspects, “attention” and “interest,” remain the same; however, the final three comprise “search,” “action,” and “share.” The widespread use of the Internet is accompanied by greater use of e-commerce comparison sites. Moreover, consumers can easily purchase products over the Internet, thus shortening the process that begins by becoming interested in a product and ends with going to a store to make a purchase. Using our example of a digital camera, consumers first become interested in a product, search for it over the Internet, review its functions, and compare it with other products. They then purchase the product of their choice (the “action”), and share information about the product over the Internet by writing about it on blogs and social media such as Twitter. As word-of-mouth regarding the product begins to accumulate, it becomes an important source of information for the next potential purchaser.

The development of the Internet and social media has resulted in a downward trend in revenues from traditional mass media advertising sources of television and newspapers. On the other hand, Internet advertising revenues have grown because of the advantage of effectively reaching potential customers with a certain level of interest in the product by changing product advertising content based on search terms, as in the case of Google's keyword-based advertising services. The online environment in emerging countries such as China and India are no different than those in developed countries. Thus, the effectiveness of promotions using the rules of AISAS-based consumer behavior will only increase.

Note that the marketing methods discussed so far in this chapter do not apply to online markets. For example, recommendation techniques can be used in e-commerce on the basis of consumer keyword searches or purchasing history. Instead of market segmentation and targeting, companies can respond to individual consumer attributes on the Internet. Companies can use large volumes of data (“big data”) available on the web to respond to consumer trends in real time; tracing consumer behavior patterns on the basis of this data is critical. In addition, companies must modify the 4Ps to market flexibly on the basis of the circumstances, rather than using the traditional method of creating marketing strategies systematically from marketing surveys. Marketing using big data is an advanced area, and the usage of the Internet has witnessed an increase even in emerging countries.

 
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