Competitive advantage of a firm is measured by how much more value the firm is

able to provide to its customers as compared to its rival firms. The prime aim of an
organization is to clearly differentiate its offering from that of its competitor towards
gaining sustainable competitive advantage.

Competitive Advantage

When a firm sustains profits that exceed the average for its industry, the firm is said to
possess a competitive advantage over its rivals. The goal of much of business
strategy is to achieve a sustainable competitive advantage.
Michael Porter identified two basic types of competitive advantage:
• cost advantage
• differentiation advantage
A competitive advantage exists when the firm is able to deliver the same benefits as
competitors but at a lower cost (cost advantage), or deliver benefits that exceed those
of competing products (differentiation advantage). Thus, a competitive advantage
enables the firm to create superior value for its customers and superior profits for itself.
Cost and differentiation advantages are known as positional advantages since they
describe the firm's position in the industry as a leader in either cost or differentiation.
A resource-based view emphasizes that a firm utilizes its resources and capabilities to
create a competitive advantage that ultimately results in superior value creation. The
following diagram combines the resource-based and positioning views to illustrate the
concept of competitive advantage:

A Model of Competitive Advantage

Resources

Cost Advantage Value

or Creation
Differentiation Advantage
Distinctive
Competencies

Capabilities

Resources and Capabilities

According to the resource-based view, in order to develop a competitive advantage the
firm must have resources and capabilities that are superior to those of its competitors.
Without this superiority, the competitors simply could replicate what the firm was doing
and any advantage quickly would disappear.

Resources are the firm-specific assets useful for creating a cost or differentiation
advantage and that few competitors can acquire easily. The following are some
examples of such resources:
• Patents and trademarks
• Proprietary know-how
 • Installed customer base
• Reputation of the firm
• Brand equity
Capabilities refer to the firm's ability to utilize its resources effectively. An example of a
capability is the ability to bring a product to market faster than competitors. Such
capabilities are embedded in the routines of the organization and are not easily
documented as procedures and thus are difficult for competitors to replicate.
The firm's resources and capabilities together form its distinctive competencies.
These competencies enable innovation, efficiency, quality, and customer
responsiveness, all of which can be leveraged to create a cost advantage or a
differentiation advantage.

Cost Advantage and Differentiation Advantage

Competitive advantage is created by using resources and capabilities to achieve either
a lower cost structure or a differentiated product. A firm positions itself in its industry
through its choice of low cost or differentiation. This decision is a central component of
the firm's competitive strategy.
Another important decision is how broad or narrow a market segment to target. Porter
formed a matrix using cost advantage, differentiation advantage, and a broad or narrow
focus to identify a set of generic strategies that the firm can pursue to create and
sustain a competitive advantage.

Value Creation
The firm creates value by performing a series of activities that Porter identified as the
value chain. In addition to the firm's own value-creating activities, the firm operates in a
value system of vertical activities including those of upstream suppliers and downstream
channel members.
To achieve a competitive advantage, the firm must perform one or more value creating
activities in a way that creates more overall value than do competitors. Superior value is
created through lower costs or superior benefits to the consumer (differentiation).

Recommended Reading
Porter, Michael E., Competitive Advantage: Creating and Sustaining Superior Performance
 Positioning
As Popularized by Al Ries and Jack Trout

In their 1981 book, Positioning: The Battle for your Mind, Al Ries and Jack Trout
describe how positioning is used as a communication tool to reach target customers in
a crowded marketplace. Jack Trout published an article on positioning in 1969, and
regular use of the term dates back to 1972 when Ries and Trout published a series of
articles in Advertising Age called "The Positioning Era." Not long thereafter, Madison
Avenue advertising executives began to develop positioning slogans for their clients and
positioning became a key aspect of marketing communications.
Positioning: The Battle for your Mind has become a classic in the field of marketing. The
following is a summary of the key points made by Ries and Trout in their book.
Information Overload
Ries and Trout explain that while positioning begins with a product, the concept really is
about positioning that product in the mind of the customer. This approach is needed
because consumers are bombarded with a continuous stream of advertising, with
advertisers spending several hundred dollars annually per consumer in the U.S. The
consumer's mind reacts to this high volume of advertising by accepting only what is
consistent with prior knowledge or experience.
It is quite difficult to change a consumer's impression once it is formed. Consumers
cope with information overload by oversimplifying and are likely to shut out anything
inconsistent with their knowledge and experience. In an over-communicated
environment, the advertiser should present a simplified message and make that
message consistent with what the consumer already believes by focusing on the
perceptions of the consumer rather than on the reality of the product.

Getting Into the Mind of the Consumer

The easiest way of getting into someone's mind is to be first. It is very easy to
remember who is first, and much more difficult to remember who is second. Even if the
second entrant offers a better product, the first mover has a large advantage that can
make up for other shortcomings.
However, all is not lost for products that are not the first. By being the first to claim a
unique position in the mind the consumer, a firm effectively can cut through the noise
level of other products. For example, Miller Lite was not the first light beer, but it was the
first to be positioned as a light beer, complete with a name to support that position.
Similarly, Lowenbrau was the most popular German beer sold in America, but Beck's
Beer successfully carved a unique position using the advertising,
"You've tasted the German beer that's the most popular in America. Now taste the
German beer that's the most popular in Germany."
Consumers rank brands in their minds. If a brand is not number one, then to be
successful it somehow must relate itself to the number one brand. A campaign that
pretends that the market leader does not exist is likely to fail. Avis tried unsuccessfully
for years to win customers, pretending that the number one Hertz did not exist. Finally, it
began using the line,

"Avis in only No. 2 in rent-a-cars, so why go with us? We try harder."

After launching the campaign, Avis quickly became profitable. Whether Avis actually
tried harder was not particularly relevant to their success. Rather, consumers finally
were able to relate Avis to Hertz, which was number one in their minds.
Another example is that of the soft-drink 7-Up, which was No. 3 behind Coke and Pepsi.
By relating itself to Coke and Pepsi as the "Uncola", 7-Up was able to establish itself in
the mind of the consumer as a desirable alternative to the standard colas.
When there is a clear market leader in the mind of the consumer, it can be nearly
impossible to displace the leader, especially in the short-term. On the other hand, a firm
usually can find a way to position itself in relation to the market leader so that it can
increase its market share. It usually is a mistake, however, to challenge the leader
head-on and try to displace it.
Positioning of a Leader
Historically, the top three brands in a product category occupy market share in a ratio of
4:2:1. That is, the number one brand has twice the market share of number two, which
has twice the market share of number three. Ries and Trout argue that the success of a
brand is not due to the high level of marketing acumen of the company itself, but rather,
it is due to the fact that the company was first in the product category. They use the
case of Xerox to make this point. Xerox was the first plain-paper copier and was able to
sustain its leadership position. However, time after time the company failed in other
product categories in which it was not first.
Similarly, IBM failed when it tried to compete with Xerox in the copier market, and Coca-
Cola failed in its effort to use Mr. Pibb to take on Dr. Pepper. These examples support
the point that the success of a brand usually is due to its being first in the market rather
than the marketing abilities of the company. The power of the company comes from the
power of its brand, not the other way around.
With this point in mind, there are certain things that a market leader should do to
maintain the leadership position. First, Ries and Trout emphasize what it should not do,
and that is boast about being number one. If a firm does so, then customers will think
that the firm is insecure in its position if it must reinforce it by saying so.
If a firm was the first to introduce a product, then the advertising campaign should
reinforce this fact. Coca-Cola's "the real thing" does just that, and implies that other
colas are just imitations.
Another strategy that a leader can follow to maintain its position is the multibrand
strategy. This strategy is to introduce multiple brands rather than changing existing ones
that hold leadership positions. It often is easier and cheaper to introduce a new brand
rather than change the positioning of an existing brand. Ries and Trout call this strategy
a single-position strategy because each brand occupies a single, unchanging position in
the mind of the consumer.
Finally, change is inevitable and a leader must be willing to embrace change rather than
resist it. When new technology opens the possibility of a new market that may threaten
the existing one, a successful firm should consider entering the new market so that it
will have the first-mover advantage in it. For example, in the past century the New York
Central Railroad lost its leadership as air travel became possible. The company might
have been able to maintain its leadership position had it used its resources to form an
airline division.
Sometimes it is necessary to adopt a broader name in order to adapt to change. For
example, Haloid changed its name to Haloid Xerox and later to simply Xerox. This is a
typical pattern of changing Name 1 to an expanded Name 1 - Name 2, and later to just
Name 2.
Positioning of a Follower
Second-place companies often are late because they have chosen to spend valuable
time improving their product before launching it. According to Ries and Trout, it is better
to be first and establish leadership.
If a product is not going to be first, it then must find an unoccupied position in which it
can be first. At a time when larger cars were popular, Volkswagen introduced the Beetle
with the slogan "Think small." Volkswagen was not the first small car, but they were the
first to claim that position in the mind of the consumer.
Other positions that firms successfully have claimed include:
• age (Geritol)
• high price (Mobil 1 synthetic engine lubricant)
• gender (Virginia Slims)
• time of day (Nyquil night-time cold remedy)
• place of distribution (L'eggs in supermarkets)
 • quantity (Schaefer - "the one beer to have when you're having more than one.")
It most likely is a mistake to build a brand by trying to appeal to everyone. There are too
many brands that already have claimed a position and have become entrenched
leaders in their positions. A product that seeks to be everything to everyone will end up
being nothing to everyone.
Repositioning the Competition
Sometimes there are no unique positions to carve out. In such cases, Ries and Trout
suggest repositioning a competitor by convincing consumers to view the competitor in a
different way. Tylenol successfully repositioned aspirin by running advertisements
explaining the negative side effects of aspirin.
Consumers tend to perceive the origin of a product by its name rather than reading the
label to find out where it really is made. Such was the case with vodka when most
vodka brands sold in the U.S. were made in the U.S. but had Russian names.
Stolichnaya Russian vodka successfully repositioned its Russian-sounding competitors
by exposing the fact that they all actually were made in the U.S., and that Stolichnaya
was made in Leningrad, Russia.
When Pringle's new-fangled potato chips were introduced, they quickly gained market
share. However, Wise potato chips successfully repositioned Pringle's in the mind of
consumers by listing some of Pringle's non-natural ingredients that sounded like harsh
chemicals, even though they were not. Wise potato chips of course, contained only
"Potatoes. Vegetable oil. Salt." As a resulting of this advertising, Pringle's quickly lost
market share, with consumers complaining that Pringle's tasted like cardboard, most
likely as a consequence of their thinking about all those unnatural ingredients. Ries and
Trout argue that is usually is a lost cause to try to bring a brand back into favor once it
has gained a bad image, and that in such situations it is better to introduce an entirely
new brand.
Repositioning a competitor is different from comparative advertising. Comparative
advertising seeks to convince the consumer that one brand is simply better than
another. Consumers are not likely to be receptive to such a tactic.
The Power of a Name
A brand's name is perhaps the most important factor affecting perceptions of it. In the
past, before there was a wide range of brands available, a company could name a
product just about anything. These days, however, it is necessary to have a memorable
name that conjures up images that help to position the product.
Ries and Trout favor descriptive names rather than coined ones like Kodak or Xerox.
Names like DieHard for a battery, Head & Shoulders for a shampoo, Close-Up for a
toothpaste, People for a gossip magazine. While it is more difficult to protect a generic
name under trademark law, Ries and Trout believe that in the long run it is worth the
effort and risk. In their opinion, coined names may be appropriate for new products in
which a company is first to market with a sought-after product, in which case the name
is not so important.
Margarine is a name that does not very well position the product it is describing. The
problem is that it sounds artificial and hides the true origin of the product. Ries and Trout
propose that "soy butter" would have been a much better name for positioning the
product as an alternative to the more common type of butter that is made from milk.
While some people might see soy in a negative light, a promotional campaign could be
developed to emphasize a sort of "pride of origin" for soy butter.
Another everyday is example is that of corn syrup, which is viewed by consumers as an
inferior alternative to sugar. To improve the perceptions of corn syrup, one supplier
began calling it "corn sugar", positioning it as an alternative to cane sugar or beet sugar.
Ries and Trout propose that selecting the right name is important for positioning just
about anything, not just products. For example, the Clean Air Act has a name that is
difficult to oppose, as do "fair trade" laws. Even a person's name impacts his or her
success in life. One study showed that on average, schoolteachers grade essays
written by children with names like David and Michael a full letter grade higher than
those written by children with names like Hubert and Elmer.
Eastern Airlines was an example of a company limited by its name. Air travel
passengers always viewed it as a regional airline that served the eastern U.S., even
though it served a much wider area, including the west coast. Airlines such as American
and United did not have such a perception problem. (Eastern Airlines ceased operations
in 1991.)
Another problem that some companies face is confusion with another company that has
a similar name. Consumers frequently confused the tire manufacturer B.F. Goodrich
with Goodyear. The Goodyear blimp had made Goodyear tires well-known, and
Goodyear frequently received credit by consumers for tire products that B.F. Goodrich
has pioneered. (B.F. Goodrich eventually sold its tire business to Uniroyal.)
Other companies have changed their names to something more general, and as a result
create confusion with other similar-sounding companies. Take for instance The
Continental Group, Inc. and The Continental Corporation. Few people confidently can
say which makes cans and which sells insurance.
The No-Name Trap
People tend use abbreviations when they have fewer syllables than the original term.
GE is often used instead of General Electric. IBM instead of International Business
Machines. In order to make their company names more general and easier to say, many
corporations have changed their legal names to a series of two or three letters. Ries
and Trout argue that such changes usually are unwise.
Companies having a broad recognition may be able to use the abbreviated names and
consumers will make the translation in their minds. When they hear "GM", they think
"General Motors". However, lesser known companies tend to lose their identity when
they use such abbreviations. Most people don't know the types of business in which
companies named USM or AMP are engaged.
The same applies to people's names as well. While some famous people are known by
their initials (such as FDR and JFK), it is only after they become famous that they begin
using their initials. Ries and Trout advise managers who aspire for name recognition to
use an actual name rather then first and middle initials. The reason that initials do not
lead to recognition is that the human mind works by sounds, not by spellings.
Most companies began selling a single product, and the name of the company usually
reflected that product. As the successful firms grew in to conglomerates, their original
names became limiting. Ries and Trout advise companies seeking more general names
to select a shorter name made of words, not individual letters. For example, for Trans
World Airlines, they favored truncating it simply to Trans World instead removing all
words and using the letters TWA.

The Free-Ride Trap

A company introducing a new product often is tempted to use the brand name of an
existing product, avoiding the need to build the brand from scratch. For example, Alka-
Seltzer named a new product Alka-Seltzer Plus. Ries and Trout do not favor this
strategy since the original name already in positioned in the consumer's mind. In fact,
consumers viewed Alka-Seltzer Plus simply as a better Alka-Seltzer, and the sales of
Alka-Seltzer Plus came at the expense of Alka-Seltzer, not from the market share of the
competition.
Some firms have built a wide range of products on a single brand name. Others, such
as Procter & Gamble have selected new names for each new product, carefully
positioning the product in a different part of the consumer's mind. Ries and Trout
maintain that a single brand name cannot hold multiple positions; either the new product
will not be successful or the original product bearing the name will lose its leadership
position.
Nonetheless, some companies do not want their new products to be anonymous with an
unrecognized name. However, Ries and Trout propose that anonymity is not so bad; in
fact, it is a resource. When the product eventually catches the attention of the media, it
will have the advantage of being seen without any previous bias, and if a firm prepares
for this event well, once under the spotlight the carefully designed positioning can be
communicated exactly as intended. This moment of fame is a one-shot event and once
it has passed, the product will not have a second chance to be fresh and new.
The Line Extension Trap
Line extensions are tempting for companies as a way to leverage an existing popular
brand. However, if the brand name has become near generic so that consumers
consider the name and the product to be one and the same, Ries and Trout generally
do not believe that a line extension is a good idea.
Consider the case of Life Savers candy. To consumers, the brand name is synonymous
with the hard round candy that has a hole in the middle. Nonetheless, the company
introduced a Life Savers chewing gum. This use of the Life Savers name was not
consistent with the consumer's view of it, and the Life Savers chewing gum brand failed.
The company later introduced the first brand of soft bubble gum and gave it a new
name: Bubble Yum. This product was very successful because it not only had a name
different from the hard candy, it also had the the advantage of being the first soft bubble
gum.
Ries and Trout cite many examples of failures due to line extensions. The consistent
pattern in these cases is that either the new product does not succeed, or the original
successful product loses market share as a result of its position being weakened by a
diluted brand name.
When Line Extensions Can Work
Despite the disadvantages of line extensions, there are some cases in which it is not
economically feasible to create a new brand and in which a line extension might work.
Some of the cases provided by Ries and Trout include:

• Low volume product - if the sales volume is not expected to be high.

• Crowded market - if there is no unique position that the product can occupy.
• Small ad budget - without strong advertising support, it might make sense to use
the house name.
• Commodity product - an undifferentiated commodity product has less need of its
own name than does a breakthrough product.
• Distribution by sales reps - products distributed through reps may not need a
separate brand name. Those sold on store shelves benefit more from their own
name.
Positioning Has Broad Applications
The concept of positioning applies to products in the broadest sense. Services, tourist
destinations, countries, and even careers can benefit from a well-developed positioning
strategy that focuses on a niche that is unoccupied in the mind of the consumer or
decision-maker.
The Marketing Mix
(The 4 P's of Marketing)

The major marketing management decisions can be classified in one of the following
four categories:
• Product
• Price
• Place (distribution)
• Promotion
These variables are known as the marketing mix or the 4 P's of marketing. They are
the variables that marketing managers can control in order to best satisfy customers in
the target market. The marketing mix is portrayed in the following diagram:

The Marketing Mix

Product Place

Target
Market

Price Promotion

The firm attempts to generate a positive response in the target market by blending
these four marketing mix variables in an optimal manner.

Product
The product is the physical product or service offered to the consumer. In the case of
physical products, it also refers to any services or conveniences that are part of the
offering.
Product decisions include aspects such as function, appearance, packaging, service,
warranty, etc.

Price
Pricing decisions should take into account profit margins and the probable pricing
response of competitors. Pricing includes not only the list price, but also discounts,
financing, and other options such as leasing.

Place
Place (or placement) decisions are those associated with channels of distribution that
serve as the means for getting the product to the target customers. The distribution
system performs transactional, logistical, and facilitating functions.
Distribution decisions include market coverage, channel member selection, logistics,
and levels of service.

Promotion
Promotion decisions are those related to communicating and selling to potential
consumers. Since these costs can be large in proportion to the product price, a break-
even analysis should be performed when making promotion decisions. It is useful to
know the value of a customer in order to determine whether additional customers are
worth the cost of acquiring them.
Promotion decisions involve advertising, public relations, media types, etc.

A Summary Table of the Marketing Mix

The following table summarizes the marketing mix decisions, including a list of some of
the aspects of each of the 4Ps.
Summary of Marketing Mix Decisions
Product Price Place Promotion

Functionality List price Channel members Advertising

Appearance Discounts Channel motivation Personal selling
Quality Allowances Market coverage Public relations
Packaging Financing Locations Message
Brand Leasing options Logistics Media
Warranty Service levels Budget
Service/Support
The term marketing mix refers to the four major areas of decision making in the marketing
process that are blended to obtain the results desired by the organization. The four elements of
the marketing mix are sometimes referred to the four Ps of marketing. The marketing mix shapes
the role of marketing within all types of organizations, both profit and nonprofit. Each element in
the marketing mix—product, price, promotion, and place—consists of numerous subelements.
Marketing managers make numerous decisions based on the various subelements of the
marketing mix, all in an attempt to satisfy the needs and wants of consumers.
Product
The first element in the marketing mix is the product. A product is any combination of goods and
services offered to satisfy the needs and wants of consumers. Thus, a product is anything tangible
or intangible that can be offered for purchase or use by consumers. A tangible product is one that
consumers can actually touch, such as a computer. An intangible product is a service that cannot
be touched, such as computer repair, income tax preparation, or an office call. Other examples of
products include places and ideas. For example, the state tourism department in New Hampshire
might promote New Hampshire as a great place to visit and by doing so stimulate the economy.
Cities also promote themselves as great places to live and work. For example, the slogan touted
by the Chamber of Commerce in San Bernardino, California, is "It's a great day in San
Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives, as has
the idea of recycling to help reduce the amount of garbage placed in landfills.

The term marketing mix refers to the four major areas of decision making in the marketing
process that are blended to obtain the results desired by the organization. The four elements of
the marketing mix are sometimes referred to the four Ps of marketing. The marketing mix shapes
the role of marketing within all types of organizations, both profit and nonprofit. Each element in
the marketing mix—product, price, promotion, and place—consists of numerous subelements.
Marketing managers make numerous decisions based on the various subelements of the
marketing mix, all in an attempt to satisfy the needs and wants of consumers.
Product
The first element in the marketing mix is the product. A product is any combination of goods and
services offered to satisfy the needs and wants of consumers. Thus, a product is anything tangible
or intangible that can be offered for purchase or use by consumers. A tangible product is one that
consumers can actually touch, such as a computer. An intangible product is a service that cannot
be touched, such as computer repair, income tax preparation, or an office call. Other examples of
products include places and ideas. For example, the state tourism department in New Hampshire
might promote New Hampshire as a great place to visit and by doing so stimulate the economy.
Cities also promote themselves as great places to live and work. For example, the slogan touted
by the Chamber of Commerce in San Bernardino, California, is "It's a great day in San
Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives, as has
the idea of recycling to help reduce the amount of garbage placed in landfills.
Typically, a product is divided into three basic levels. The first level is often called the core
product, what the consumer actually buys in terms of benefits. For example, consumers don't just
buy trucks. Rather, consumers buy the benefit that trucks offer, like being able to get around in
deep snow in the winter. Next is the second level, or actual product, that is built around the core
product. The actual product consists of the brand name, features, packaging, parts, and styling.
These components provided the benefits to consumers that they seek at the first level. The final,
or third, level of the product is the augmented component. The augmented component includes
additional services and benefits that surround the first two levels of the product. Examples of
augmented product components are technical assistance in operating the product and service
agreements.
Products are classified by how long they can be used—durability—and their tangibility. Products
that can be used repeatedly over a long period of time are called durable goods. Examples of
durable goods include automobiles, furniture, and houses. By contrast, goods that are normally
used or consumed quickly are called nondurable goods. Some examples of nondurable goods are
food, soap, and soft drinks. In addition, services are activities and benefits that are also involved
in the exchange process but are intangible because they cannot be held or touched. Examples of
intangible services included eye exams and automobile repair.
Another way to categorize products is by their users. Products are classified as either consumer
or industrial goods. Consumer goods are purchased by final consumers for their personal
consumption. Final consumers are sometimes called end users. The shopping patterns of
consumers are also used to classify products. Products sold to the final consumer are arranged as
follows: convenience, shopping, specialty, and unsought goods. Convenience goods are products
and services that consumers buy frequently and with little effort. Most convenience goods are
easily obtainable and low-priced, items such as bread, candy, milk, and shampoo. Convenience
goods can be further divided into staple, impulse, and emergency goods. Staple goods are
products, such as bread and milk, that consumers buy on a consistent basis. Impulse goods like
candy and magazines are products that require little planning or search effort because they are
normally available in many places. Emergency goods are bought when consumers have a
pressing need. An example of an emergency good would be a shovel during the first snowstorm
of the winter.
Shopping goods are those products that consumers compare during the selection and purchase
process. Typically, factors such as price, quality, style, and suitability are used as bases of
comparison. With shopping goods, consumers usually take considerable time and effort in
gathering information and making comparisons among products. Major appliances such as
refrigerators and televisions are typical shopping goods. Shopping goods are further divided into
uniform and nonuniform categories. Uniform shopping goods are those goods that are similar in
quality but differ in price. Consumers will try to justify price differences by focusing on product
features. Nonuniform goods are those goods that differ in both quality and price.
Specialty goods are products with distinctive characteristics or brand identification for which
consumers expend exceptional buying effort. Specialty goods include specific brands and types
of products. Typically, buyers do not compare specialty goods with other similar products
because the products are unique. Unsought goods are those products or services that consumers
are not readily aware of or do not normally consider buying. Life insurance policies and burial
plots are examples of unsought goods. Often, unsought goods require considerable promotional
efforts on the part of the seller in order to attract the interest of consumers.
Industrial goods are those products used in the production of other goods. Examples of industrial
goods include accessory equipment, component parts, installations, operating supplies, raw
materials, and services. Accessory equipment refers to movable items and small office equipment
items that never become part of a final product. Office furniture and fax machines are examples
of accessory equipment. Component parts are products that are turned into a component of the
final product that does not require further processing. Component parts are frequently custom-
made for the final product of which they will become a part. For example, a computer chip could
be produced by one manufacturer for use in computers of other manufacturers. Installations are
capital goods that are usually very expensive but have a long useful life. Trucks, power
generators, and mainframe computers are examples of installations. Operating supplies are
similar to accessory equipment in that they do not become part of the finished product. Operating
supplies include items necessary to maintain and operate the overall firm, such as cleaners, file
folders, paper, and pens. Raw materials are goods sold in their original form before being
processed for use in other products. Crops, crude oil, iron ore, and logs are examples of raw
materials in need of further processing before being used in products. The last category of
industrial goods is services. Organizations sometimes require the use of services, just as
individuals do. Examples of services sought by organizations include maintenance and repair and
legal counsel.
Price
The second element in marketing mix is price. Price is simply the amount of money that
consumers are willing to pay for a product or service. In earlier times, the price was determined
through a barter process between sellers and purchasers. In modern times, pricing methods and
strategies have taken a number of forms.
Pricing new products and pricing existing products require the use of different strategies. For
example, when pricing a new product, businesses can use either market-penetration pricing or a
price-skimming strategy. A market-penetration pricing strategy involves establishing a low
product price to attract a large number of customers. By contrast, a price-skimming strategy is
used when a high price is established in order to recover the cost of a new product development
as quickly as possible. Manufacturers of computers, videocassette recorders, and other technical
items with high development costs frequently use a price-skimming strategy.
Pricing objectives are established as a subset of an organization's overall objectives. As a
component of the overall business objectives, pricing objectives usually take one of four forms:
profitability, volume, meeting the competition, and prestige. Profitability pricing objectives mean
that the firm focuses mainly on maximizing its profit. Under profitability objectives, a company
increases its prices so that additional revenue equals the increase in product production costs.
Using volume pricing objectives, a company aims to maximize sales volume within a given
specific profit margin. The focus of volume pricing objectives is on increasing sales rather than
on an immediate increase in profits. Meeting the price level of competitors is another pricing
strategy. With a meeting-the-competition pricing strategy, the focus is less on price and more on
nonprice competition items such as location and service. With prestige pricing, products are
priced high and consumers purchase them as status symbols.
In addition to the four basic pricing strategies, there are five price-adjustment strategies: discount
pricing and allowances, discriminatory pricing, geographical pricing, promotional pricing, and
psychological pricing. Discount pricing and allowances include cash discounts, functional
discounts, seasonal discounts, trade-in allowances, and promotional allowances. Discriminatory
pricing occurs when companies sell products or services at two or more prices. These price
differences may be based on variables such as age of the customer, location of sale, organization
membership, time of day, or season. Geographical pricing is based on the location of the
customers. Products may be priced differently in distinct regions of a target area because of
demand differences. Promotional pricing happens when a company temporarily prices products
below the list price or below cost. Products priced below cost are sometimes called loss leaders.
The goal of promotional pricing is to increase short-term sales. Psychological pricing considers
prices by looking at the psychological aspects of price. For example, consumers frequently
perceive a relationship between product price and product quality.
Promotion
Promotion is the third element in the marketing mix. Promotion is a communication process that
takes place between a business and its various publics. Publics are those individuals and
organizations that have an interest in what the business produces and offers for sale. Thus, in
order to be effective, businesses need to plan promotional activities with the communication
process in mind. The elements of the communication process are: sender, encoding, message,
media, decoding, receiver, feedback, and noise. The sender refers to the business that is sending a
promotional message to a potential customer. Encoding involves putting a message or
promotional activity into some form. Symbols are formed to represent the message. The sender
transmits these symbols through some form of media. Media are methods the sender uses to
transmit the message to the receiver. Decoding is the process by which the receiver translates the
meaning of the symbols sent by the sender into a form that can be understood. The receiver is the
intended recipient of the message. Feedback occurs when the receiver communicates back to the
sender. Noise is anything that interferes with the communication process.
There are four basic promotion tools: advertising, sales promotion, public relations, and personal
selling. Each promotion tool has its own unique characteristics and function. For instance,
advertising is described as paid, nonpersonal communication by an organization using various
media to reach its various publics. The purpose of advertising is to inform or persuade a targeted
audience to purchase a product or service, visit a location, or adopt an idea. Advertising is also
classified as to its intended purpose. The purpose of product advertising is to secure the purchase
of the product by consumers. The purpose of institutional advertising is to promote the image or
philosophy of a company. Advertising can be further divided into six subcategories: pioneering,
competitive, comparative, advocacy, reminder, and cooperative advertising. Pioneering
advertising aims to develop primary demand for the product or product category. Competitive
advertising seeks to develop demand for a specific product or service. Comparative advertising
seeks to contrast one product or service with another. Advocacy advertising is an organizational
approach designed to support socially responsible activities, causes, or messages such as helping
feed the homeless. Reminder advertising seeks to keep a product or company name in the mind
of consumers by its repetitive nature. Cooperative advertising occurs when wholesalers and
retailers work with product manufacturers to produce a single advertising campaign and share
the costs. Advantages of advertising include the ability to reach a large group or audience at a
relatively low cost per individual contacted. Further, advertising allows organizations to control
the message, which means the message can be adapted to either a mass or a specific target
audience. Disadvantages of advertising include difficulty in measuring results and the inability to
close sales because there is no personal contact between the organization and consumers.
The second promotional tool is sales promotion. Sales promotions are short-term incentives used
to encourage consumers to purchase a product or service. There are three basic categories of
sales promotion: consumer, trade, and business. Consumer promotion tools include such items as
free samples, coupons, rebates, price packs, premiums, patronage rewards, point-of-purchase
coupons, contests, sweepstakes, and games. Trade-promotion tools include discounts and
allowances directed at wholesalers and retailers. Business-promotion tools include conventions
and trade shows. Sales promotion has several advantages over other promotional tools in that it
can produce a more immediate consumer response, attract more attention and create product
awareness, measure the results, and increase short-term sales.
Public relations is the third promotional tool. An organization builds positive public relations
with various groups by obtaining favorable publicity, establishing a good corporate image, and
handling or heading off unfavorable rumors, stories, and events. Organizations have at their
disposal a variety of tools, such as press releases, product publicity, official communications,
lobbying, and counseling to develop image. Public relations tools are effective in developing a
positive attitude toward the organization and can enhance the credibility of a product. Public
relations activities have the drawback that they may not provide an accurate measure of their
influence on sales as they are not directly involved with specific marketing goals.
The last promotional tool is personal selling. Personal selling involves an interpersonal influence
and information-exchange process. There are seven general steps in the personal selling process:
prospecting and qualifying, pre-approach, approach, presentation and demonstration, handling
objections, closing, and follow-up. Personal selling does provide a measurement of effectiveness
because a more immediate response is received by the salesperson from the customer. Another
advantage of personal selling is that salespeople can shape the information presented to fit the
needs of the customer. Disadvantages are the high cost per contact and dependence on the ability
of the salesperson.
For a promotion to be effective, organizations should blend all four promotion tools together in
order to achieve the promotional mix. The promotional mix can be influenced by a number of
factors, including the product itself, the product life-cycle stage, and budget. Within the
promotional mix there are two promotional strategies: pull and push. Pull strategy occurs when
the manufacturer tries to establish final consumer demand and thus pull the product through the
wholesalers and retailers. Advertising and sales promotion are most frequently used in a pulling
strategy. Pushing strategy, in contrast, occurs when a seller tries to develop demand through
incentives to wholesalers and retailers, who in turn place the product in front of consumers.
Place
The fourth element of the marketing mix is place. Place refers to having the right product, in the
right location, at the right time to be purchased by consumers. This proper placement of products
is done through middle people called the channel of distribution. The channel of distribution is
comprised of interdependent manufacturers, wholesalers, and retailers. These groups are
involved with making a product or service available for use or consumption. Each participant in
the channel of distribution is concerned with three basic utilities: time, place, and possession.
Time utility refers to having a product available at the time that will satisfy the needs of
consumers. Place utility occurs when a firm provides satisfaction by locating products where
they can be easily acquired by consumers. The last utility is possession utility, which means that
wholesalers and retailers in the channel of distribution provide services to consumers with as few
obstacles as possible.
Channels of distribution operate by one of two methods: conventional distribution or a vertical
marketing system. In the conventional distribution channel, there can be one or more
independent product manufacturers, wholesalers, and retailers in a channel. The vertical
marketing system requires that producers, wholesalers, and retailers to work together to avoid
channel conflicts.
How manufacturers store, handle, and move products to customers at the right time and at the
right place is referred to as physical distribution. In considering physical distribution,
manufacturers need to review issues such as distribution objectives, product transportation, and
product warehousing. Choosing the mode of transportation requires an understanding of each
possible method: rail, truck, water, pipeline, and air. Rail transportation is typically used to ship
farm products, minerals, sand, chemicals, and auto mobiles. Truck transportation is most suitable
for transporting clothing, food, books, computers, and paper goods. Water transportation is good
for oil, grain, sand, gravel, metallic ores, coal, and other heavy items. Pipeline transportation is
best when shipping products such as oil or chemicals. Air transport works best when moving
technical instruments, perishable products, and important documents.
Another issue of concern to manufacturers is the level of product distribution. Normally
manufacturers select from one of three levels of distribution: intensive, selective, or exclusive.
Intensive distribution occurs when manufacturers distribute products through all wholesalers or
retailers that want to offer their products. Selective distribution occurs when manufacturers
distribute products through a limited, select number of wholesalers and retailers. Under exclusive
distribution, only a single wholesaler or retailer is allowed to sell the product in a specific
geographic area.
Bibliography
Boone, Louise E., and Kurtz, David L. (1992). Contemporary Marketing, 7th ed. New York, NY:
Dryen/Harcourt Brace.
Churchill, Gilbert A., and Peter, Paul J. (1995). Marketing: Creating Value for Customers.
Boston MA: Irwin.
Farese, Lois, Kimbrell, Grady, and Woloszyk, Carl (1991). Marketing Essentials. Mission Hills,
CA: Glencoe/McGraw-Hill.
Kotler, Philip, and Armstrong, Gary (1993). Marketing: An Introduction, 3d ed. Englewood
Cliffs, NJ: Prentice-Hall.
Semenik, Richard J., and Bamossy, Gary J. (1995). Principles of Marketing: A Global
Perspective, 2d ed. Cincinnati, OH: South-Western.
ALLEN D. TRUELL
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Marketing
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The four main fields of the Marketing mix.

The marketing mix is generally accepted as the use and specification of the 'four Ps' describing
the strategy position of a product in the marketplace. One version of the marketing mix
originated in 1948 when James Culliton said that a marketing decision should be a result of
something similar to a recipe. This version was used in 1953 when Neil Borden, in his American
Marketing Association presidential address, took the recipe idea one step further and coined the
term "marketing-mix". A prominent marketer, E. Jerome McCarthy, proposed a 4 P classification
in 1960, which has seen wide use. The four Ps concept is explained in most marketing textbooks
and classes.

Contents
[hide]

• 1 Definition
• 2 Four Ps
• 3 Extended marketing mix
• 4 Four Cs
• 5 Four Cs in 7Cs COMPASS
MODEL
• 6 References
• 7 External links

Definition
The 'marketing mix' is a set of controllable, tactical marketing tools that work together to achieve
company's objectives

Four Ps
Elements of the marketing mix are often referred to as 'the four Ps':
• Product - A tangible object or an intangible service that is mass produced or
manufactured on a large scale with a specific volume of units. Intangible
products are often service based like the tourism industry & the hotel
industry or codes-based products like cellphone load and credits. Typical
examples of a mass produced tangible object are the motor car and the
disposable razor. A less obvious but ubiquitous mass produced service is a
computer operating system.
• Price – The price is the amount a customer pays for the product. It is
determined by a number of factors including market share, competition,
 material costs, product identity and the customer's perceived value of the
product. The business may increase or decrease the price of product if other
stores have the same product.
• Place – Place represents the location where a product can be purchased. It is
often referred to as the distribution channel. It can include any physical store
as well as virtual stores on the Internet.
• Promotion – Promotion represents all of the communications that a marketer
may use in the marketplace. Promotion has four distinct elements -
advertising, public relations, word of mouth and point of sale. A certain
amount of crossover occurs when promotion uses the four principal elements
together, which is common in film promotion. Advertising covers any
communication that is paid for, from cinema commercials, radio and Internet
adverts through print media and billboards. Public relations are where the
communication is not directly paid for and includes press releases,
sponsorship deals, exhibitions, conferences, seminars or trade fairs and
events. Word of mouth is any apparently informal communication about the
product by ordinary individuals, satisfied customers or people specifically
engaged to create word of mouth momentum. Sales staff often plays an
important role in word of mouth and Public Relations (see Product above).
Broadly defined, optimizing the marketing mix is the primary responsibility of marketing. By
offering the product with the right combination of the four Ps marketers can improve their results
and marketing effectiveness. Making small changes in the marketing mix is typically considered
to be a tactical change. Making large changes in any of the four Ps can be considered strategic.
For example, a large change in the price, say from $19.00 to $39.00 would be considered a
strategic change in the position of the product. However a change of $130 to $129.99 would be
considered a tactical change, potentially related to a promotional offer.
The term 'marketing mix' however, does not imply that the 4P elements represent options. They
are not trade-offs but are fundamental marketing issues that always need to be addressed. They
are the fundamental actions that marketing requires whether determined explicitly or by default.

Extended marketing mix

There have been attempts to develop an 'extended marketing mix' to better accommodate specific
aspects of marketing.
For example, in the 1970s, Nickels and Jolson suggested the inclusion of packaging.
In the 1980s Kotler proposed public opinion and political power and Booms and Bitner
included three additional 'Ps' to accommodate trends towards a service or knowledge based
economy:
• People – all people who directly or indirectly influence the perceived value of
the product or service, including knowledge workers, employees,
management and consumers.
• Process – procedures, mechanisms and flow of activities which lead to an
exchange of value.
• Physical evidence – the direct sensory experience of a product or service
that allows a customer to measure whether he or she has received value.
Examples might include the way a customer is treated by a staff member, or
the length of time a customer has to wait, or a cover letter from an insurance
company, or the environment in which a product or service is delivered.[1][2][3]

Four Cs
The Four Ps is also being replaced by the Four Cs model, consisting of consumer, cost,
convenience, and communication. The Four Cs model is more consumer-oriented and fits better
in the movement from mass marketing to niche marketing.[4][5] The product part of the Four Ps
model is replaced by consumer or consumer models, shifting the focus to satisfying the
consumer. Another C replacement for Product is Capability. By defining offerings as individual
capabilities that when combined and focused to a specific industry, creates a custom solution
rather than pigeon-holing a customer into a product. Pricing is replaced by cost, reflecting the
reality of the total cost of ownership. Many factors affect cost, including but not limited to the
customers cost to change or implement the new product or service and the customers cost for not
selecting a competitors capability. Placement is replaced by the convenience function. With the
rise of internet and hybrid models of purchasing, place is no longer relevant. Convenience takes
into account the ease to buy a product, find a product, find information about a product, and
several other considerations. Finally, the promotions feature is replaced by communication.
Communications represents a broader focus than simply promotions. Communications can
include advertising, public relations, personal selling, viral advertising, and any form of
communication between the firm and the consumer.[6]

Four Cs in 7Cs COMPASS MODEL

A formal approach to this customer-focused marketing mix is known as 4C(Commodity, Cost,
Channel, Communication) in 7Cs COMPASS MODEL. This system is basically the four Ps[7]
renamed and reworded to provide a customer focus. The four Cs Model provides a
demand/customer centric version alternative to the well-known four Ps supply side model
(product, price, place, promotion) of marketing management.
•
○ Product→ Commodity
○ Price → Cost
○ Place → Channel
○ Promotion→ Communication
The four elements of the “7Cs COMPASS MODEL” are:
• 1.Commodity: the product for the consumers or citizens.
• 2.Cost: total marketing cost.
• 3.Channel: marketing channels.
• 4.Communication: not promotion, marketing communication.
7Cs Compass Model is in a customer oriented marketing mix.
Framework of 7Cs Compass Model[8][9]
• 7Cs:(C1)Corporation (and Competitor), (C2)Commodity, (C3)Cost,
(C4)Communication, (C5)Channel, (C6)Consumer, (C7)Circumstances
• Compass:
○ to Consumer: N = Needs, W = Wants, S = Security, E = Education
○ Circumstances: N = National and International, W=Weather, S = Social
and Cultural, E = Economic
(C1) Corporation( and competitor) is the core of 4Cs. 1) It is necessary to place more emphases
on the organization of the companies; 2) It is necessary to execute marketing plans in
conjunction with the company's objectives; 3) It is necessary to tackle the internal
communication related problems like corporate communication or corporate identity
system(CIS), etc. In the market, there are the companies of the same business, the competitors.
But at the time of economics downturn, companies or corporations produce the convenient
(C2)“commodities” for the consumers or citizens with the consideration of the total
marketing(C3) “cost”, and first of all gain their consents through the sufficient
(C5)“communications” and then their confidences by selecting the effective(C4) “channels” in
conjunction with the uncontrollable external circumstances. This is the way to survive in the
period of low growth economics.
(C6) Consumer Consumers are those people encircling the companies. Instead of just the
customers of 4P marketing model, they are the ordinary citizens nurtured by the motto of the
consumerism. However of course they are also including the customers and the potential
customers.
• four directions marked on the compass: the factors related to the consumer
can be explained by the first characters of four directions marked on the
Compass.(N,W,S,E)
• N = Needs: companies can offer more alternatives to meet the various needs
of the consumers.
• W = Wants: the substantiated needs to expect the accordingly commodities.
• S = Security: the safety of the commodities, the safety of the production
process and the adequate after-sell warranty.
• E = Education: consumer right to know the information of the commodities.
(C7)Circumstances Besides the customers, there are also various uncontrollable external
environmental factors encircling the companies.
The same as the factors of the consumers, they can also be explained the first character of the
four directions marked on the compass. (N,W,S,E)
• N= National and International Circumstances
The National Circumstances are related to politic and law. International environment now also
becomes important.
• W=Weather
For most of the natural disasters, the companies can do little but try to predict when they will
happen and adjust the marketing plans.
• S=Social and Cultural Circumstances
When exploring a new oversea market, it is essential to study the social circumstances of that
nation.
• E=Economic Circumstances: economics climate is changing due to many
other uncontrollable factors like energy, resources, international income and
expense, financial circumstances and economic growth etc.

References
1. ^ http://www.12manage.com/methods_booms_bitner_7Ps.html
2. ^ http://www.cim.co.uk/filestore/resources/canons/servicesmkting.pdf
3. ^ http://fredmba.blogspot.com/2008/05/marketing-7ps.html
4. ^ http://www.scs.unr.edu/~khalilah/eMarketing.pdf
5. ^ [1]
6. ^ [2]
7. ^ [E.Jerome McCarthy(1975)”Basic Marketing:A Managerial Approach," fifth
edition, Richard D. Irwin, Inc.,p.37.]
8. ^ [Koichi Shimizu (2009)"Advertising Theory and Strategies,"16th edition,
Souseisha Book Company.(Japanese)]
9. ^ [Koichi Shimizu (2003)"Symbiotic Marketing Strategy,"4th edition,
Souseisha Book Company. (Japanese)]
• Kotler, Philip, Keller, Lane (2005) "Marketing Management", Prentice Hall,
ISBN 0131457578.
• Barlon, Kimuli. (2006) "The concept of the marketing mix" Presentation on
marketing management, vol 1, September, 2006, pp 2–7-Turku university
-Finland - The same article can also be found in: Schwartz, G. (ed), Science in
Marketing, John Wiley, New York, 1965, pp 386–397 - and also in: Enis, B. and
Cox, K. (1991) Marketing Classics, A selection of influential articles, Allyn and
Brown, Boston, 1991, pp 361–369.
• Bitner, J. and Booms, B. (1981) Marketing strategies and organizational
structures for service firms, in Donnelly, J. and George, W. Marketing,
American Marketing Association, Chicago, 1981.
• Borden, N. H. (1964), “The Concept of the Marketing Mix”, Journal of
Advertising Research, June, Vol. 4, pp. 2–7. Available in Schwartz G. Science in
Marketing. John Wiley & Sons, NY 386-97
• Culliton, J. W. (1948), The Management of Marketing Costs, Graduate School
of Business Administration, Boston, Mass: Harvard University.
• Frey, A. (1961) Advertising, 3rd ed., Ronald Press, New York, 1961.
• Hammer, M. and Champy, J. (1993) Reengineering the Corporation: A
Manifesto for Business Revolution, Harper Business Books, New York, 1993,
ISBN 0-06-662112-7
• Hughes, M. (2005) "Buzzmarketing: Get People To Talk About Your Stuff",
Penguin/Portfolio, New York, 2005 Website
• Lauterborn, R (1990) "New Marketing Litany: 4 Ps Passe; C words take over",
Advertising Age, October 1, 1990, pg 26.
 • McCarthy EJ (1960) Basic Marketing: A Managerial Approach. Homewood IL:
Irwin.
• McCarthy, J. (1960 1st ed.), Basic Marketing: A managerial approach, 13th
ed., Irwin, Homewood Il, 2001.
• Nickels, William G. & Jolson, Marvin A. (1976) 'Packaging - The Fifth 'P' In The
Marketing Mix', Advanced Management Journal, Winter, Vol. 41, Iss. 1, p. 13.

What you the marketing mix and describe how each of the variables in the
marketing mix can be used to develop the marketing strategy and action
plan in the marketing plan? Read answer...
In what ways does the marketing mix for services differ from the marketing
mix for goods? Read answer...
What are the expanded marketing mix for servicesand the marketing
challenges compared to physical goods? Read answer...

Help us answer these

Why is marketing mix important determinant of firms sucesswhat problems

does a markrter face in determining a suitable marketing mix?
Why is marketing mix an important determinant of a firms success what
problems does a marketer face in determining a suitable marketing mix?
Why is marketing mix an important determinant of a firm's success What
problems does a marketer face in determining a suitable marketing mix?