In this second article in our series on marketing, Dr Tony Grundy covers the main concepts for finance professionals to know
First published in the February 2014 UK edition of Accounting and Business magazine.
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We now turn to the key ingredients of a marketing strategy in this second of three articles on the subject. These include:
- marketing, product and channel mix - and customer segmentation
- customer value and competitive positioning.
This article will cover some of the central concepts in marketing, giving you as the accountant the vocabulary to converse with sales and marketing executives, and to see where you might help them, particularly in their decision-making.
These articles are in an ongoing series on the sort of material that would be covered by an MBA, designed to give accountants a broader business vision.
The marketing mix is a key concept in marketing. It is traditionally a very simple idea but there are merits in simplicity. Basically the marketing mix consists of four key elements - the four Ps:
'Price' is a fairly self-evident idea, but these days pricing is complex. For example, only yesterday, after much shopping around on the internet I bought a ticket for two trains at very specific times to and from Manchester from London on Virgin Trains. I paid GBP 78. I arrived early at London and was encouraged to board an early train by a Virgin member of staff.
I was then informed by the train manager that strictly I was on the wrong train and, even though I had paid almost the identical price as a 'saver ticket' that a lady opposite had bought, I was put off the train at Stoke-on-Trent. Obviously it needs more than a few postgraduate degrees to understand internet pricing models! Needless to say, I gave the train manager a red card for destroying customer value as the train was going off without me.
Pricing decisions are often made tactically, as in this instance, but they should be made according to:
- the price sensitivity of demand
- the perceptions of customers
- competitive conditions
- how and where the company is seeking to position itself.
That makes pricing highly strategic and thus pricing options have to be carefully evaluated.
"That makes pricing highly strategic"
'Product' is about the actual tangible or less tangible object or service that is delivered. There has been an increasing amount of demand devoted to the less tangible and also the service elements of our lives. Even more than this, some astute marketeers emphasise the experience of buying and consuming something. The cleverest ones even pinpoint the emotional aspects of such experiences. So there is a lot more to the product than meets the eye.
'Promotion' is about the mix of advertising and promotions - including discounting, which is used to stir and capture demand. It is often an act of faith by marketeers and can be a no-go area for accountants. It has to be said, however, that in this area there is much mileage for the scientific and quantitative study of advertising and promotion initiatives by way of experimentation with the variables. Here the accountant can lend a hand - provided they do so intelligently and sensitively.
'Place' is about geography and physical location. In retail it is said that success is often about 'location, location, location'. Using the example of Virgin Galactic, the leader in sub-orbital private space travel, flights will be from New Mexico. But they could be from other places too. They could also be to other places - the options might be New Mexico to Australia, Canada to China, or Iceland to Thailand.
Curiously the four Ps feel limited and in need of an update. Some have suggested 'people' and 'processes'. I also feel there is a case for including both, as people are key to customer service, and processes are crucial in much product delivery, with customers now often expected to engage in these themselves.
I might also add 'positioning', as the four Ps lack the element of targeting certain customers and also specific customer needs, which is a crucial element in marketing strategy.
So that's seven Ps.
The final thing to add is that in our first series I described the 'optopus' as a way of generating strategic options. Not surprisingly, there is some overlap with the Ps - but the optopus also has 'value delivery' as a mixture between logistics, place, processes, alliances and more. At the end of the day, it is what works for you.
Product and channel mix and customer segmentation
As well as the marketing mix we need to look at the product and channel mix. These are the various combinations of different products and marketing channels that are part of the architecture of the business model. This can be usefully represented as a matrix of products against channels; if done visually, this becomes a very helpful planning tool.
For example, if we look at a simple model of a retailer like Tesco, there are traditional product areas like food, wines, spirits, beer, household and petrol, but these have been extended into other, non-food areas, such as pharmacy, leisure, clothes, etc. Tesco has gone further still into financial services, including banking and insurance, and also into selling utilities, mobile phones and optician services and products. Increasingly it has extended into new products and new markets in an act of classic diversification.
In addition, channel-wise, it extended into Tesco Superstores, Tesco Metros, Tesco Expresses, Tesco Extras, and home delivery (Tesco.com).
Coincidentally, I had a hand in facilitating all of these at the time. In terms of the tools used to develop Tesco's marketing strategies, SWOT, the strategic option grid, Porter's five forces, etc, from our first series of articles on strategy were all used. This once again highlights the huge overlap between competitive strategy and marketing strategy.
All of these count as 'channels'. This innovative spreading out of the business matrix, combined with Tesco's hunger, speed and drive throughout the 1996-2006 period, was very much responsible for Tesco's huge success in the UK and then internationally. Tesco moved faster than its rivals and thus conducted a classic offensive marketing strategy based on decisiveness and speed.
"Tesco moved faster than its rivals and... conducted a classic offensive marketing strategy based on decisiveness and speed."
As well as matrices of products against channels, we can map out customer segments against products and also against channels. Again, with Tesco we can look at segments such as single people, married couples, families, the retired, males versus females, different socio-economic and ethnic groups. These can be related to the consumption of products and the use of channels, and even to product types such as mainstream, 'finest', 'value', branded and own-label products. These matrices are very useful for business and financial planning, and are obviously key for the accountant.
Customer value and competitive positioning
Once we have mapped out what businesses we are in according to the business matrices explained above, then we can investigate customer value added and competitive positioning. The simplest way that I have found to understand customer value is to split the distinctive areas of value added from the more basic areas of value. The former are called the 'motivator' factors and the latter the 'hygiene' factors.
Motivator factors are those which are so strong and relevant to the customer experience that they make it hard to switch to competitors. They also strongly encourage repeat and increased purchases.
Hygiene factors rarely add value if met - unless that particular market is characterised by extensive mistrust. Prior to 2008, for example, people trusted banks and felt their money to be secure there: how things change!
"Prior to 2008... people trusted banks and felt their money to be secure there: how things change! "
It is possible to map any customer experience by a horizontal straight line on paper, with the motivator experience added as upward lines or vectors (sometimes known as 'force field' analysis), according to their relative importance and strength from the customer's perspective. The hygiene factors are drawn downwards in proportion to their not having been met, according to importance and strength. The overall balance gives a really good sense of the overall customer experience.
This can then be used for benchmarking real and perceived relative value added - vis à vis competitors (at least externally).
This external positioning, combined with internal strengths and weaknesses, therefore gives a very good idea of overall competitive positioning.
Motivators and hygiene factor delivery are key to brand strength, which in turn leads to great margins and growth.
Dr Tony Grundy is an independent consultant and trainer, and lectures at Henley Business School