If you are reading this blog you probably have a few questions. Let me guess. What are the 7 P’s? Why do I care about them? And most importantly, how do I use them in my marketing mix?
For decades, marketing students have been taught the 4P’s as the foundation of the marketing mix. The concept was introduced way back in the 1960’s by E. Jerome McCarthy in his book Basic Marketing: A Managerial Approach. In his approach he proposed Product, Price, Place, and Promotion were the four critical components that a marketing manager could control. Therefore, these were the levers that all marketing strategy should be built around.
But hey, this blog isn’t about getting you ready to take some multiple-choice on your Into to Marketing test on an outdated concept.
I am here to help you be a modern marketer with tools that you can implement into your marketing efforts today.
So, welcome the 7 Ps!
The modern marketing mix has added People, Process and Physical Evidence to the original 4 P’s. This updated marketing mix better meets the needs of companies that offer intangible services as well as a physical products.
Ironically, the 7P’s were introduced way back in the early 1980’s by Bernard Booms and Mary Bitner, but marketing textbooks kept pushing out marketing graduates that only knew about the original 4P’s.
Once and for all, let’s just say the 4 Ps model is no longer relevant and the marketing mix is simply the 7 Ps.’
As I mentioned, most of us have heard of the 4 P’s of marketing: Product, Price, Placement and Promotion. But that was created back in the 1960’s at a time when manufacturing companies dominated marketing efforts. These days service companies also have marketing departments that are tasked with growing market share in a competitive landscape. Consumers (whether B2B or C2B) these days are not just buying tangible goods like boxes of cereal and cell phones, but often intangible services as well. This can be professional service industries like lawyers, doctors, business consultants, and insurance agents. It can also be personal services like your manicurist, dog walker, yoga instructor or landscaper.
To effectively market businesses like these we needed to expand the original 4 P’s. That is why the modern marketing mix now includes 7 P’s: the original Product, Price, Placement and Promotion, with People, Process, and Physical Evidence now added.
The foundation of the marketing mix is the Product. This is the goods or service you are selling. The product exists for two reasons. First is it provides a benefit that makes people’s lives or a company’s businesses, better or easier. The second is the product solves a problem your consumer has. Sometimes your consumer may not even know they have the problem your product solves.
The iPad is a great example of solving an unknown need. Prior to the iPad, people didn’t realize the convenience a tablet would provide. No one knew that firing up the laptop was a problem, probably because there just wasn’t an option. If you wanted to get on the internet you just had to go jump on your computer. Yet Apple launched the iPad in 2010 and people discovered the convience a tablet offered. Now over 425 million of us can’t live with out theirs.
So when starting to build your marketing mix, you should define your product, the problem it solves or benefit it provides. Highlight the attributes that make you great and provide differentiation from competitors. It is wise to do customer research at this point to see how well your product delivers in meeting the consumer’s needs or wants. Remember we can’t all be Apple and tell a consumer what they want.
The next element in the marketing mix is Price. There are many strategies that can come into play when you determine your pricing model. The first step is to look at your costs and margins and determine the floor of your pricing. While there are a few strategies where you can price below your costs, it is not sustainable. The only exception is when one product is sold at a loss with the intention of getting a customer to spend more during their customer lifespan. This can be an introductory offer on a recurring service or a screaming deal to get a customer into your store.
To determine your best pricing strategy, do an honest assessment of your product’s benefits, how you stack up against your competition, and your customer profile. One of the biggest mistakes organizations make is simply look at the competition and set a lower price. This mentality is can often result in a race to zero where each competitor lowers their price until neither has a sustainable margin. Unless your product is truly a commodity, avoid being the cheapest option.
This is why it is so important to look at your own product. If your product offers a better option than your competitor’s, your customer will be wiling to pay more. This is why pricing (or any decision actually) should never be decided in a silo.
First thing to know, vodka is vodka. I know many of you will stand up and scream I am crazy that your personal favorite brand of vodka tastes better or is smoother or whatever. But blind taste test after blind taste test to experts and causal drinkers alike have shown that vodka is vodka.
Sorry.
Grey Goose is considered by many to be an elite vodka, better than Smirnoff, Absolut, New Amsterdam etc. But is it?
in 1997 Sidney Frank a prominent spirit importer decided he was going to create an ultra- premium vodka that would cost 40% more than other brands. Yes, the genesis of Grey Goose was simply to sell a $40 bottle of vodka, nothing to do with taste or smoothness.
He used French water filtered through Champagne limestone and French-grown wheat to make his vodka. But you know what? Water and wheat are commodities. There was nothing actually structurally special about his vodka.
So how did Grey Goose become a superior vodka?
Simple, Sidney Frank priced it as a superior vodka.
He looked at the American consumer and concluded he could create a new segment; the ultra-premium vodka market. At that time Absolut and Stolichnaya were the leading premier vodka’s going for around $20 a bottle. Sidney Frank reverse engineered his product. He started with a price that was substantially higher than his competitors. They were priced in the $20s and his would be in the $40s.
Therefore it had to be better, right? Not exactly. He just needed the story and the look for his vodka’s to reflect a superiority to the vodka consumer. He understood that identity was as important as quality (in this case more important). He had to meet the consumers expectation of what an ultra-premium product was. So how did he do this?
First he made the decision to produce his vodka in France. But France, really? Most people associated vodka with Russian or the Scandinavian countries, not France.
Frank famously said, “France has the best of everything. It is the home of luxury. We can bottle that!”
Fashion. Perfume. Wine. Cooking. Why not vodka?
To create the Grey Goose story he used the wheat from the same soil that produced some of the world’s greatest wines and pastries. His wheat had to seem to be equally extravagant. The water then must also be amazing. After all, Evian and Perrier came from France. Was this actually better than other vodka’ brands ingredients? Not really, but it certainly sounded better than a potato from some farm in cold, dark, depressing Russia.
Then came the bottle and packaging. He created a visually distinctive label and slapped it on an equally distinguished looking bottle. This had to match what Americans expected a luxury product to look like. The name however was ironically just a matter of preference and convenience. Frank simply liked the name, Grey Goose, and coincidently already owned its worldwide rights from a previous venture. The fact that it didn’t sound French at all didn’t bother him. he simply added to the story by often implying it was derived from the French soil enriched by goose droppings.
It wasn’t long before Grey Goose became the vodka of choice for the who’s who of entertainments, sports and other influencers. Within a year of its launch, it was firmly cemented as the premier vodka in the world.
By increasing the price of his product, despite having similar production costs, Frank generated significantly higher profits than his competitors.
The key take away of Sidney Frank’s Grey Goose story is that pricing is a critical component to the marketing mix not to e overlooked. Sometimes the right price is lower than your competitors to gobble as much volume and market share as possible. But the correct price for your product can also be choosing a price that seems ridiculously high. Do your research and find out what is right for you as you could lose out on significant profits by underpricing your product.
The next component of the marketing mix is Place. This dictates not only where your product or service will be available for purchase but also the distribution. Looking back at our Grey Goose example, when Frank launched his premium vodka, he initially targeted only the trendiest nightclubs where A list celebrities went. How successful do you think Grey Goose would have been had he decided to launch at Costco?
Place isn’t always a where, but sometimes a how, especially for services. If you are going to sell books you can open a bricks and mortar store, create an e-commerce website, or you can piggy-back on an existing distributor such as a school bookstore for your textbook. Perhaps you are a title service company; you can have an office where new homeowners come to sign their paperwork, or you could visit your customer at their home. Both are viable models you can choose.
When determining place, think of what works for you and your customer. It has to be a balance and you can’t do one at the sacrifice of the other. Let’s consider a financial advisor who we will call Tom Moneymaker. Tom’s clients all have a minimum $1MM portfolio. He has decided it is time to open a new office. But where?
One of his choices is a smallish office in a poshy high-rent office building. He would be very close to his clients, but the high rent would have a significant impact on his margins. Also, the office would be about half the size of his current office and while nice, certainly not awe-inspiring.
The next choice is in an up-and-coming part of town that has been going through a lot of renovation. While many buildings have been renovated, many are still sketchy at best. The rent is low as landlords are trying to lure companies to relocate to this part of town. His office would be considerably larger than his current space. In addition, he would have first-class amenities including concierge service. While a fairly short commute for Tom, it would be a longer driver for his customers.
Lastly, there is an older office a couple of miles from the prestigious first choice location. While nicer and larger than his current office, it has a slightly dated look and certainly would benefit from some renovations. Unfortunately, none are planned. On the flip side, the rent is comparable to the previous option and the location is significantly closer to his clients.
Three tough choices and no choice is right nor wrong. Each has its advantages but also their negatives. Tom needs to do his due diligence and make sure he choses the office that will best suit both his clients’ needs as well as his own.
The last of the original 4 P’s is Promotion. This is the phase that is most often associated with marketing efforts. Promotion is how you communicate with your customer to make them aware of your product or service. Promotion is the tools you use to guide customers through the sales funnel from awareness to purchase.
This includes channels such as advertising, public relations, collateral and in-store demonstrations. Your promotion efforts will develop your brand. And since usually promotion involves investment of capital it is important that you are constantly evaluating the ROI (Return on Investment) of your promotional efforts.
Keep in mind that your promotional efforts work together to drive conversions. For example you may be running a television schedule that does not seem to be working. But if you check your Google Analytics you may notice a lift in your site’s traffic. Remember your promotional efforts do not typically work in isolation.
As service industries grew and began to get more competitive, the limitations of the original marketing mix became more apparent. For services there just isn’t a tangible product for a consumer grab hold of and evaluate. As a result, People, Process, and Physical Evidence were introduced as a way to highlight these intangible differentiators.
The first segment of the extended marketing mix is People. Very often in a services company the ingredients of the product is the people that provide the service. When looking to select an accountant you can’t go to their office and purchase a tax return. However, you can hire a CPA or accounting firm that you feel comfortable with their tax strategy, that has good referrals and went to a reputable school to do your tax return. These are not physical traits sitting on a shelf that you can see by just walking into the office.
Another aspect of People is customer service. Even a company that has a physical product, people can be an important part of the marketing mix. A few companies have built their success of the quality of their customer service.
Zappos, the online shoe retailer, offers a wide array of shoes at competitive prices. But neither the selection nor their prices are really that different than other shoe outlets. In fact, buying shoes online provides a greater risk than going to a local retailer. When the shoes arrive from Zappos, they may not look at great as you expected. Or maybe they just don’t fit right.
However, Zappos has invested heavily in developing a great customer service department. Their people are empowered to do pretty much anything to ensure a customer’s satisfaction with their purchase experience. As a result of their customer service policy, cosnumers know they can shop Zappos with confidence, knowing they will be satisfied with their shoes and the experience.
Chick-fil-A and Nordstrom are two other companies whose customer service is as much of their brands as their actual products are.
So when working on the people component of your marketing mix, it is essential that everyone in your organization is marching to the same tune. Your AR team should reflect the same brand that your sales force is out selling to your customers. But it should go beyond just the customer-facing employees. Everyone in the company should buy into your people philosophy. It should be evident when each of your team members interact internally with each other. Plainly put, it should be part of your organization’s DNA.
After People comes Process. Process covers everything from the conception of your product through its entire lifecycle. This includes getting your product to market, how your customers purchase it, and even their post-consumption. Process has some overlap in some of the other P’s as the most operational component of the marketing mix.
If you offer a SAAS product you need to determine how a customer will utilize your service. Will it be cloud-based or will it be a downloadable software. Depending on which option you select, the user will experience your service very differently. It is important you develop a process for your service that will maximize their experience. For example, if you chose the cloud-based option, you could have a sophisticated AI chatbot that helps users navigate your site when they require help. While if you go with the download version, you would create a complete FAQ including video instruction that will help the confused user.
By constantly evaluating your process, you not only improve your customer’s experience, but potentially your margins as well. You will be able to discover efficiencies that can help reduce your cost.
The last ingredient in the marketing mix is Physical Evidence. This is typically associated mostly with services, but it also applies to tangible products as well. Physical evidence usually means one of two things. First that your brand or product (service) actually exists. Secondly, a confirmation that the service was rendered.
Let’s take an accounting firm for example. When considering physical evidence for your firm first you must consider your office. When a potential client walks in your doors what do they see?
If they see a clean, well-organized office with modern technology, and professionally-dressed team members, they will initially feel confident in your competency in potentially managing their taxes even before they actually talk with you.
However, what if they walk in the door and see chaos, outdated computers, and some guys in flip-flops playing ping pong?
Knowing the consequences of poorly filed taxes, they probably will feel somewhat less than confident. Even if your staff is actually all Ivy School world class accountants.
But what if it was a social marketing consulting firm they were visiting? The reaction would probably be the opposite since creativity and free-thinking are considered valuable qualities in that industry.
Next, when the potential client sits down and talks to the partner that is trying to recruit their business, she shares some impressive collateral. The glossy brochure outlines the array of services that they offer. She then directs them to a case study outlining how they helped a similar company lower their tax burden. Before the potential client leaves, she hands them her business card and tells them to call if they have any additional questions or when they are ready to sign an agreement.
Feeling pretty good about the firm, the potential client looks up the social media company’s website and is impressed with what they see. They see several companies they admire on their Clients page. They especially like seeing the positive testimonials of other Inc 5000 companies.
The potential client makes the decision to hire them. The next year after they prepared their taxes they provide them with a thick packet. In it is a two-page document that provides a top-line description of the filing sitting on top of a copy of their tax return. Each of the partners plus the CFO received similar packets. The CFO also has an encrypted thumb drive with the returns as well as all the relevant back-up documents.
All of the above are examples of physical evidence: the office, the physical appearence of the people, the collateral, the website, testimonials, logos from other companies, and of course the ultimate product, a nicely organized, complete, and accurate tax return.
The 7 P’s are the foundation for all successful marketing endeavors. Each one is important and needs to be considered as you develop your marketing strategy. The more disciplined you are in thoughtfully and completely addressing each of the seven components, the greater your chance for achieving your organization’s goals. While some of the P’s may be more important for your specific marketing plan and will require more effort and thoroughness, do not make the mistake of overlooking the other P’s. They are all important and none should be neglected.
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