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Marketing-Mix Modeling

Abstract This chapter discusses the interaction and effectiveness of each marketing-mix element when they are used together to generate marketing synergy effects in markets. The importance of the coordinated use of these elements and their relationship with fundamental marketing concepts is examined. The role of the various elements in the product life cycle, in consumer decision making, and in brand equity development is explored and illustrated with relevant visuals.

Keywords Marketing-mix coordination • Marketing synergy • Marketing effectiveness • Coordinated marketing

Some flaws can be observed in the conceptualization of the marketing mix. The marketing-mix elements are not mutually exclusive. Furthermore, the marketing-mix approach does not necessarily include interactions between its various elements in calculations.1 Having discussed each marketing-mix element in previous chapters, we will now consider how these 4P elements work together, interacting and/or perhaps creating synergy. It is important to see if any synergy effect and marketing success can be achieved as a result of the interactions of the marketing-mix elements with major marketing concepts.

The first concept to look at is product life cycle (PLC). We can examine how each element of the marketing mix works in a different capacity at

© The Author(s) 2017

S.U. Kucuk, Visualizing Marketing,

DOI 10.1007/978-3-319-48027-5_7

each stage of the PLC. For example, in the early stages of the product’s life, all the marketing effort focuses on creating consumer awareness. Intensive promotion efforts are required to inform consumers of the benefits and value created by the new product. Companies can collect important information about the product at this early stage. It is also the time when most product modifications can be made in the light of immediate consumer feedback and requests. Pricing strategies for especially frequently purchased items generally focus on attractive value and here product quality is not as dominant as for speciality products. Product availability in the markets can also generate a certain level of consumer attention. Once the 4P elements are successfully organized and the sales targets have been reached, competitors are likely to be attracted to this market. Thus, competition in the markets gains pace, and the product needs to compete with alternatives and perhaps imitators at the growth stage. The strategic goal is to establish product differentiation, so promotion becomes very important at this stage, although product development can still continue. As the company seeks to differentiate its product from others, product modification efforts may also accelerate (Fig. 7.1).

Pricing can play an important role as competition increases during the growth stage, especially for everyday items. Both sales and profits go up during this stage. When the product reaches maturity level, sales start slowing down and profits start to fall. The most important issue is to keep the price at such a level that sales and profit maximization can be accomplished. Since the product is presumably known and habitual buying behaviors have been created, the most important marketing mission could be to keep brand-loyal consumers. At the end of its life, the product cannot generate any more sales and profits shrink. The most important step is preparing to leave the market even below cost price, so pricing can still play a role in the company’s exit strategy. At that stage, neither place nor promotion can extend the product’s life, so most of the marketing- mix elements have less impact on increasing sales or profit of the product at the end of its life.

An alternative way of looking at how the marketing-mix elements interact is to investigate the basic consumer shopping decision-making process. Each marketing-mix element plays a different role in this process, as discussed in consumer behavior literature.

Figure 7.2 shows each marketing-mix element’s role in the consumer decision flow as a shaded box. The darkest shaded box indicates the most important element in the typical consumer decision-making process.

Product life cycle and marketing-mix interplays

Fig. 7.1 Product life cycle and marketing-mix interplays

In this context, consumer desires can be created through stimulating advertising conveying the right message about the right product and service at the stimulus stage. In the early stages of the consumer decision-making process, consumers need to be awakened and made to realize that they have specific consumption needs and desires that can be directed towards to a product or service that will satisfy these. This, eventually, makes the consumer aware of the problem, or need, and act accordingly to satisfy it. At

Consumer decision-making process and the 4Ps both the stimulus and problem awareness stages

Fig. 7.2 Consumer decision-making process and the 4Ps both the stimulus and problem awareness stages, consumers are awakened by the right products with potential to satisfy their needs with an encouraging and stimulating promotion message. Once the consumer reaches the information search stage, they need more information about the products or services. Informative advertising and promotion can play a significant role introducing the product/service to the consumer. Later, at the evaluation of alternatives stage, the consumer also needs price information to be able to make comparisons about the value elements of the product/service they are getting, generally trying to get the best product at the best price. This can in itself also be seen as a satisfaction component. Once consumers have decided which product/service to purchase, they need to determine where and when to buy it (see Fig. 7.2). If the product is available everywhere or easy to find in the market, the consumer can easily finalize the purchase where the product is available. If it is not available everywhere in the market, consumers may include relevant cost elements in their pricing and value perceptions and calculations (see also the discussion on distribution elasticity in Chapter 5).

As Fig. 7.2 illustrates, if the consumer is satisfied with the exchange, they can eventually continue the same transaction every time they need the product/service, going through the earlier stages very quickly, and in some instances ignoring the previous stages and proceeding directly to purchase. However, if they are not satisfied with the product/service, they can reflect their dissatisfaction, which requires successful complaint management. Sales personnel techniques (see Chapter 6) can be important for managing consumer dissatisfaction and the rehabilitation of the consumer back to the company with satisfying outcomes for both company and consumer. Otherwise, dissatisfied consumers will eventually go to another source and start another information search process (see Fig. 7.2).

Another well-known model in the consumer behavior and personal selling literature is the attention, interest, desire and action (AIDA) model. The AIDA model suggests that first the consumer’s attention needs to be captured and then later their involvement should be encouraged to lead them to make a purchase decision (which is conceptualized as action). Each element in the marketing mix plays a different role in gaining attention and interest at the beginning, leading to a desire for the product and eventually a purchase (see Fig. 7.3).

Here again promotion, as well as product design and features, plays a very active role in attracting consumer attention. Price has a moderate appeal for general goods but is more important at first for especially frequently purchased products. When the consumer becomes interested

AIDA and the 4Ps in the product, price also plays a very active role in controlling the consumer’s desires

Fig. 7.3 AIDA and the 4Ps in the product, price also plays a very active role in controlling the consumer’s desires. Place is the most important element until the consumer becomes serious and decides to act to buy the product. The consumer seeks to buy the product wherever it is available. Once they have passed the interest and desire stages where psychological stimulation is the focus, promotion and product are superseded by price and place as the latter elements have more transactional focus and purpose (see Fig. 7.3).

The marketing-mix elements also need to work together to build brand loyalty and equity (see Fig. 7.4) Brand equity is a representation of the accumulated investment of the marketing-mix elements into a brand.2 No company can reach brand equity immediately; it is a continuous process and takes a long time. The first step is to create brand awareness. Once consumers are aware of the brand in the market, or once the company can get the consumer’s attention, then they can start a communication about the brand with consumers, which is similar to the attention and interest stages of the AIDA model. If consumers are satisfied with the brand that they have become aware of, the relationship can grow and lead to brand loyalty. There are two aspects to brand loyalty: attitudinal and behavioral.3 Although attitudinal brand loyalty indicates consumers’ feelings and commitments towards the brand, behavioral brand loyalty is generally conceptualized with repeat purchase behavior, or with purchase frequency. Once consumer

loyalty can be established, brand equity is reached, and incremental value is added to a product/service. In other words, high brand equity means consumers have very positive strong feelings about the brand, perceiving its superb quality. A company cannot reach this stage without knowing how to utilize the marketing-mix elements along the way.

Research has revealed that product and product quality have a significant impact on brand awareness, loyalty and finally brand equity (see Fig. 7.4). Consumer perception of product quality is also influenced by the promotion element of pricing, advertising, and store image.4

However, if consumers are offered a frequent price discount it may negatively impact their perception of product quality. Consumers may feel that the product is not good quality, which in turn impacts brand equity negatively. This link between price reductions and product quality has been well studied in marketing theory.5 On the other hand, some research has shown that price promotions advertised in local newspapers or other local advertisement channels may eventually increase repeat purchases (thus loyalty) and reduce consumer brand switching.6

Studies have shown that there is also a link between distribution intensity and brand awareness7 which appears as an increased market share especially in the case of frequently purchased products.8 On the other hand, if a product is offered in a high-quality retail store, it may positively impact consumers’ perception of product quality and price.9 While all of the marketing-mix elements contribute in different ways to building brand awareness, brand loyalty and eventually brand equity, promotion is the most important tool in building stronger brand equity for various types of products, with price and place stronger at building brand equity for frequently purchased products. In general, strong brand equity or brand name can ultimately be an advantage to the company which gains maximum returns and profits from using its brand name with new-line products. Although strong brand names can expand their market shares by utilizing their own brand name to extend product lines, weaker brand names eventually rely on competitive pricing and aggressive sales promotions.10

It is clear that the marketing-mix elements can be perceived as a competitive tool to different degrees by competing companies. In other words, the way company utilizes the elements can also be used as an indicator of the market’s structure and competitiveness.

Intensity of competition in the market can also directly affect the configuration of the marketing-mix elements. If there is no competition or a single producer in the market, the market is defined as a monopoly. The product is therefore un-substitutable, and the marketing-mix elements will be unimportant and have no impact on consumers, who will buy whatever is produced by the monopolist. In this case the product is the most important element of the marketing mix. Many innovative and new-to-the- world products are born as a monopoly until others decide to copy them and enter the new market (see Fig. 7.5). The Apple iPhone was a big success, creating a new market in which for a while it enjoyed being the only player.

However, if there are no entry barriers to the market, more competitors will enter it and the market capacity will determine the intensity of the competition in that particular market. In this context, if there are a couple of major producers in the market who produce similar products, the competition can shape in an oligopoly. With the entrance of new competitors into markets, product loses its importance but product differentiation naturally gains more importance as companies generally produce similar products around similar price levels. Promotion efforts focusing on product differentiation are therefore the only way to create sales. Companies generally compete by developing unique brand identities supported by major promotion campaigns, as shown by the purple line in Fig. 7.5. It can generally be difficult to get into these oligopolistic markets as there are major capital and copyright/patent barriers.

Competition and the 4Ps

Fig. 7.5 Competition and the 4Ps

If there are a large numbers of competitors in the market, the market has a monopolistic competition structure and the focus is on the pricing of unique but easily substitutable products. The role of price is indicated by red lines in Fig. 7.5. Price is perhaps the most competitive of all the marketing-mix elements. It can be changed in a moment, while it is impossible to change the product, promotion, and brand identity or availability of the product in the markets in the same way. On the other hand, the company should be careful about making any sharp pricing changes as it is directly linked to product quality while promotion intensity is not (Carpenter 1987).

When a market reaches pure competitiveness, the products are all similar and the only way to make a difference in the market is to be able to be available everywhere at any time so that consumers can easily find the product whenever they need it. Thus, distribution and place play an important role in pure competition markets, as shown by the exponentially increasing blue line in Fig. 7.5.

In any type of competitive market, a company’s ultimate goal is to produce the right marketing-mix combination to increase market share (MS). MS indicates how much revenue can a company generates compared to competitors and is therefore a major competitiveness and hence success indicator. Smaller or shrinking market share values indicate major problems in the company which might require a major strategic change. Sales revenues (compared to the other incumbents’) can come from three major sources which directly impact market share. These are penetration (PEN), brand loyalty (BL), and usage (USE), and can be formulated as follows:11

PEN is the ratio of people who buy the product at least once in a given time period in a given population, BL indicates how often these consumers buy the product (or simply repeat purchase ratios), and USE indicates how many of these consumers buy the product in that specific period. In order to reach high PEN numbers, the company needs to inform them about the product and convince them to buy it with serious promotion campaigns supported by distribution. Otherwise, consumers will be unable to test or buy the product at least once. Thus, promotion and place play a significant role in generating penetration. On the other hand, the company needs to create repeat and continuous purchases by providing highly satisfying product/service experiences supported by brand identity and purchase reminder-oriented promotion campaigns. Thus, loyalty, as an important component of MS, can be created and enhanced by satisfying products and services as well as promotion. The well-known 20/80 rule tells us that 80% of a company’s sales come from the 20% who are its loyal consumers. Thus, the importance of consumer loyalty can be seen to be paramount in MS, especially in service sectors. Finally, the amount consumers want to buy can be directly affected by the price and availability of the product. In other words, USE can be under the direct influence of the price and place components in many competitive environments. Thus, a stable and competitive market share for long- lasting market presence is directly related to the right combination of marketing-mix elements.

Similarly, market conditions can ultimately influence the performance of the marketing-mix elements. If the market growth rate is high, the company should also be able to grow and increase its market share. However, if the market is growing significantly but the company’s market share is shrinking, the company is facing a major problem. Alternatively, if the company’s market share is thriving while market growth is falling, the company can enjoy its progress and increase its sales as much as possible. At this point, place and pricing can become more important as the company tries to reach the whole market to satisfy the already compromised needs. Finally, when the market is growing and the company’s market share is also increasing, it means that the company has found its own niche and should continue the same strategic direction.

Notes

  • 1. Gronroos (1994).
  • 2. Yoo et al. (2000).
  • 3. Oliver (1999).
  • 4. Yoo et al. (2000).
  • 5. Carpenter (1987).
  • 6. Carpenter and Lehman (1985).
  • 7. Kucuk (2008), Kucuk (2011).
  • 8. Reibstein and Farris (1995).
  • 9. Grewal et al. (1998).
  • 10. Carpenter and Lehman (1985).
  • 11. Ailawadi et al. (2001).

References

Ailawadi L. K., Lehman D. R., & Neslin S. A. (2001, January). Market response to a major policy change in the marketing mix: Learning from procter & gamble’s value pricing. Journal of Marketing, 65, 44-61.

Carpenter, G. S. (1987). Modeling competitive marketing strategies: The impact of marketing-mix relationships and industry structure. Marketing Science, 6(2), 208-221.

Carpenter, G. S., & Lehman, D. R. (1985). A model of marketing mix, brand switching, and competition. Journal of Marketing Research, 22(3), 318-329.

Grewal, D. R., Krishnan, J. B., & Borin, N. (1998). The effects of store name, brand name and price discounts on consumers’ evaluations and purchase intentions. Journal of Retailing, 74(3), 331-352.

Gronroos, C. (1994). From marketing mix to relationship marketing: Towards a paradigm shift in marketing. Management Decision, 32(2), 4-20.

Kucuk, S. U. (2008). Can distribution explain double jeopardy patterns? International Journal of Retail & Distribution Management, 36(5), 409-425.

Kucuk, S. U. (2011). Push-based brand awareness: The role ofproduct availability and in-store merchandising. The International Review of Retail, Distribution and Consumer Research, 21(3), 201-213.

Oliver, L. R. (1999). Whence consumer loyalty? Journal of Marketing, 63(Special Issue), 33-44.

Reibstein, D., & Farris, P. (1995). Market share and distribution: A generalization, a speculation and some implications. Marketing Science, 14(3), G190-G202.

Yoo, B., Donthu, N., & Lee, S. (2000). An examination of selected marketing mix elements and brand equity. Journal of the Academy of Marketing Science, 28(2), 195-211.

 
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