Keat Chiew is a marketing consultant for Syneka Marketing. Keat has worked for some of the world’s largest global brands and brings extensive expertise in brand management and marketing strategy. This is Keat’s first blog post for Syneka Marketing:
As a business owner or marketer, the understanding of the concept of marketing mix is one of practical importance. It drives the go-to-market process to a large extent. The 4 fundamental Ps (Price, Place, Product and Promotion) provide the basis in which the business operates; what does one sell, leveraging what promotional activity, at what price and through which channel.
Whilst it is not difficult to grasp the concept of each Ps, the deeper question is which P is the biggest lever that drives the success of your business. In a challenging business environment it is not at all surprising if many small business owners today rank Price as the biggest influence in their decision making process.
Competing on price is not necessarily a bad thing. It does provide an entry point for a business to get into the market. It can also drive inventory turnover if the price point is suitable. Sell-through does have a positive impact on cash flow, which is critical for small business to sustain itself. And Price is perceived as the prime lever to help drive sales.
In my opinion, using price as the primary lever is flawed. Let me explain.
Firstly, the spark or trigger of a great idea is often a product, service or solution, not price. A target market segment or addressable market is then developed. It is through this thought process that you wrap the other important marketing tools such as the pricing and distribution strategies to elicit the greatest response of your target customers, i.e. to buy your product. Hence, Product drives the strategy behind pricing, promotion and distribution. It is not logical to use Pricing to drive your product strategy.
Another important consideration is your financial stamina. The old adage ‘Revenue is Vanity, Profit is Sanity, Cash is King’ holds true. Competing on price might drive up your top line revenue; it will however eventually erode your profitability. Unless you have deep pockets to sustain the business, it will eventually bite you. This is especially true if your competitor is a larger entity. They typically will have stronger financial muscle to outlast you.
I have been exposed to organizations that use price as the major driver of their marketing mix strategy. In most cases, this approach has proven to be unsustainable. Whilst they achieved short term financial goals, more often than not, they find themselves spiralling to a situation where, in order to sustain the business, they have to continually lower their prices and sacrifice profit margins to maintain their market presence. Eventually, they either exit the market or absorb the loss, neither of which is desirable from a business point of view.
It is also critical to lock in your target segment based on the product/service you sell; following this you should develop a clear positioning statement and know your value proposition to your customers. By doing these, you are effectively building a brand that is centred on delivering value to your customer. And price is only a small component of value.
If you have been using price as the axis of your marketing mix strategy, I would strongly suggest that you re-orientate your views and let your Product be the driver of the strategy that you employ to take your business forward.