Friday, February 29, 2008

Marketing Tip Mix: Price...

Beth and I were at a Big Box home improvement store last week. I was overwhelmed by the new and half-finished projects on my mental "To Do" list. Then, as we walked down the HVAC aisle, Beth added one more "To Do" to my list: Change the furnace filter.

"Come on," I said. " I think I just did that for Y2K."

"You changed it last month," she chided me.

"So, how often are you suppose to change this thing?"

"I think it's every month," Beth said.

I picked up a 3M branded filter looking for a recommendation. But first I spotted the price.

"Holy cow!" I said "For this price, I'd go broke changing the filter every month. Can't we just dust more or something?"

"That's one of those Ultra filters." Beth clarified. "You only change those every three of four months. And it keeps your house cleaner."

"What? Does it come with maid service?"

"It's better. It filters out more dust and allergens." she explained. "You get what you pay for."

I stood in the aisle weighing the decision...

Today, I'm talking about the third of the 4 P's in the Marketing Mix: Price.

Price is definitley one of the more complicated and misunderstood components of marketing.

Most consumers don't realize that in most cases price has nothing to do with the cost of producing a product. It has to do with demand and the value of the product to the business or consumer. For instance, it is not COSTING more to pump oil now than a year ago. Yet the price has sky rocketed. That is because, for one reason, international demand has grown. And as long as they get their asking price, they will continue to charge it.

Value on the other hand is me being willing to pay four times more for a furnace filer that lasts four times longer. It doesn't cost them four times more to make it. So they are able to increase their profits greatly by investing slightly more in better materials.

Many salespeople think by lowering price they can get more customers. And that is correct in some cases. If your product is a commodity, then there is nothing you can do but compete on price and service. But there are very few true commodities in the marketing world. In fact, I once
paid more to buy screened dirt. So, there is always some way to increase the value of what you are selling.

In fact, in certain product categories, lowering your price will reduce the number of customers that will buy it. For instance, in luxury items. Ever notice someone in a Cashmere Burberry Nova Plaid Camel scarf. It runs $300 at their store. Think you'd sell more if you lowered the price to, say, $30? I doubt it. The reason the scarf was popular is because it was a signal to others in the know that you could afford it.

Did I choose the more expensive filter. Yes. But not because it's a status symbol. But since changing the air filter in my furnace is something best handled by a contortionist. So, I elected to invest in a filer that saved me the headache.

And they give me a reminder sticker I can put on my calendar to remind me when it's time to change the filter again. Brilliant marketing!

How is your pricing strategy affecting your sales?

Thursday, February 21, 2008

The Marketing Mix: Place

The next P is Place. Place is about method of distribution: do you sell direct or through different channels? What channels?

Let's use pizza again as our example. There are many different places you can buy a pizza: a grocery store, a pizza parlor, your home, and a ballpark. Each situation is an entirely different channel.

In a grocery store, you are relying on a retailer to sell your product. That has pros and cons. Since you are relying on a retailer, they are bringing customers to your product. But the negative side of that is they likely don't have an exclusivity deal with you (which is a good distribution deal). This means they will be selling competing pizza right next to yours. So the marketing weight here is two fold: get good shelf position and get customers in to buy your product using techniques like advertising and couponing. As you can see, you can sell your product at more outlets with less overhead, but also with less profit since you are selling through one or more layers of distribution. Everyone from the wholesaler to the grocer needs to make money on your product.

Direct distribution is another method. That would be like opening a pizza parlor. You might get to keep a larger percentage of the profit but to serve another geographic area, you need to open another restaurant, which means an investment in more staff, equipment and rent.

Within this pizzeria example you have several other channels of distribution: you have people coming in to eat, picking up and/or requesting delivery. Each is a unique market with unique staffing and equipment requirements. So some like Little Caesar's only offer pick-up. Others like Dominoes only offer delivery. Some local restaurants only offer dine-in, and most offer a combination of all three. Many now even offer different ordering options: phone, text and online.

And obviously in a situation like a sporting event, the method of distribution is different. It's based on a different kind of buying habit -- mostly impulse.

How do you go to market? Is there a channel you aren't using? Is there a channel that's not profitable? What are you having for lunch tomorrow? (Just kidding!)