Co.Design

The Key To Long-Term Dominance? Marketing Fades, But Product Always Lasts

Jens Martin Skibsted and Rasmus Bech Hansen continue the debate over why the other 3Ps are no longer relevant.

Recently, we argued for for a 1P (for Product), not 4P, approach to marketing. It’s stirred a lively online debate, with lots of insightful and constructive feedback and criticism and food for thought. It will require a book, not a single blog post, to answer everyone, but we’ve addressed some of the key points raised in the discussion.

We are saying that in an increasingly transparent, digitally empowered economy, where everyone potentially can know everything, companies can no longer use the other three P’s (Price, Promotion, and Place) to gain a long-term competitive advantage. These P’s, in other words, are becoming strategically less significant; they are still valuable, just less so than they used to be, and they don’t provide any long-term edge. The three other P’s don’t go away but are reduced to a level of importance where a ton of other P’s reside: People, Process, Passion, Physical evidence.


[A "search overload" ad from Microsoft. Has anyone actually had this problem since Google came along?]
And this doesn’t mean that they will disappear anytime soon. It doesn’t mean that smart promotion, intelligent pricing, and good distribution (or the combination of all three) cannot make a (short-term) difference. But it does mean that companies that want to remain competitive in a digital economy will need to reduce what they spend on the three P’s and instead reallocate resources toward the remaining P--the product, which we define in the broadest possible sense. Part of the critique fails to take into account the hierarchy among the 3Ps, which have become tactical activities, i.e., shortsighted, narrowly defined, and purely operational.

The 1P idea is in its infancy and still doesn’t apply to all business in all industries. Many B2B industries, for instance, still remain unaffected by the digital changes. And more important, much of of digital revolution hasn’t happened yet. But as the mobile revolution catapults the economy into a new phase of digital development, we believe that more and more businesses will have to learn this lesson.

Let’s revisit the three 3P’s one by one. Promotion is the one P whose importance is clearly diminishing. Yes, as many have pointed out, even though Google did and continues to do a lot of PR, it relied on word of mouth and obviously search-engine optimization, which in fact is Google’s business model. But what is interesting about all these forms of promotion is that they, compared to, say, successful TV ad campaigns from the past, are predicated on the existence of a great product. People only recommend products they feel strongly about. PR is hard without something interesting to say. And a site’s position in Google rankings is based on how many hits it gets, which is a reflection of how valuable and interesting it is. Even paid ad words are structured according to relevance and popularity. The promotions of today are nothing without a great offer to back it up.

The decreasing importance of promotions in a digital economy explains the so-called $50 Billion Gap between what companies actually spend online and what they should if they were following the metrics of “old media.” It also explains why Apple can build the world’s leading brand in by devoting only $5.5 billion (out of its 2010 revenue of $65 billion revenue) to sales and marketing, whereas Microsoft spends more than three times as much, $17 billion out of a total revenue of $62 billion and still has a weak, unexciting brand.

With regards to Price, the web is making prices more transparent, and we are getting closer to what economists call a perfect market. This is one of the main reasons many firms feel intense price pressure. The most extreme example of this is with auctions. Auctions set prices exactly where demand meets supply. When goods are priced based on auctions, there clearly isn’t any wiggle room for marketers to use pricing to increase the margins. We are far from a world where all prices are set by auctions, but as mobile technology develops and consumers are able to make instant price comparisons between products in different stores with the press of a button, it will be harder and harder for marketers to outsmart markets with their pricing strategies. Dmitri Kuksov long ago demonstrated that pricing strategies are becoming product dependent.

The last of the 4 Ps, Place, is the stickiest of the three diminished P’s. For most products and services, where they are sold is of strategic importance. Whether or not your products are on the shelves of Walmart is the difference between life and death for many brands. For retailers, restaurants, and real estate agents, place might be the most important factor of all. Even a 1P company such as Apple has used stores to build a strategic advantage. And as many have pointed out, placement on big e-commerce sites is also very important. The web might be called a new place. And a host of augmented reality apps are digitizing and taking over the content that the old place used to deliver.

We, however, still believe that where a company sells and distributes its offerings is becoming less important relative to what it sells. The rise of e-commerce makes it much easier for consumers to buy the best product irrespective of where it is sold. Sites like Yelp, Lonely Planet, and Zagat point consumers to restaurants, hotels, or shops that provide real value and good experiences even if they are off the beaten track. And we think Apple’s retail success has a lot to do with creating an amazing brand experience that is an extension of the product experience by offering a real service (the Genius Bar). If you have an extraordinary product, customers will find it and buy it in a transparent economy.

A number of readers suggested replacing the old Ps with new ones. This is interesting and a fertile field for thinkers and researchers in the marketing field. So far, we believe the best suggestion comes from Mats Lederhausen, a former McDonald’s executive turned entrepreneur, who argues that the purpose of an organization or a product is the most important marketing P in the world today. Products or companies without a purpose will face an uphill battle in a transparent world.

Whether this is true or not is a good topic for a continued discussion on the future of marketing--and maybe even another post. With today’s speed of change, we are all fencing in the dark and must accept that yesterday’s rules won’t solve tomorrow’s challenges.

***

Written by Jens Martin Skibsted and Rasmus Bech Hansen.


Rasmus Bech Hansen
is London-based strategy director at Venturethree, a global brand consultancy. He writes on how brands can do well by doing good and has helped to relaunch the United Nations Global Compact brand, the world’s most successful CSR initiative.


[Image: Flickr user Meredith_Farmer]

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18 Comments

  • Brandon Nygard

    on the contrary, all industries have a vested interest in receiving and understanding the humanities. to disregard them would be to ignore a core knowledge base. There is gap in student direction and a measurable imbalance in the cost/value of a degree. from a analytical perspective ithe problems stem from an inability to maintain a relevant curriculum. (By a students 4th year in university much of what they have learned about there prospective industry is commonly outdated) or a lack on the students end to decipher the values of different degree programs early in life of which are the catalyst for career direction and large financial investment.High schools are primarily a public venture offering ground work for individual and social fluencies. But they are combated by privatized university systems that are driven by business models of growth and covert tactics of persuasion. masked by gripping advertisements and college ambassadors, what should be a service based product. is more of an experience based product offering an" in the moment " payoff where a more long term residual investment should be the focus.The recipe for a strong education is inclusive of humanities. but when a market is contracting and a population of students are over educated in degrees that are either self indulgent or nonspecific. the mountain of debt becomes a tangible representation of a serious decision.we have to question a what level and at what place do we pick up the pieces? modernizing educational contracts to be more reflexive. building out more efficient educational models that have foresight. that are more fluid, efficient, balanced, and honest. And informing students in the values of there investments. The global economy is in this financial mess, because business growth is currently more based on persuasion and the profitability of lies. lies that occupy our education and leave us tangled.in a world where companies are evolved countries. individuals must become as critically organized. As though they are in themselves companies, to retain a position in this global affair.Education should be based on real industry needs. relevance is precedence.

  • Novus1

    I see the world bifurcating into two sets of 2Ps.  "Product and Place" matter to some, those who dig deep and look for quality:  early adopters, locavores, etc.  To these people, a personal sense of trust in the "brand" is paramount.  The product, it's level of quality, where it comes from, and how it is produced trump most other concerns.

    On the flip side, there is the "Price and Promotion" crowd.  These are people who respond to the blare of advertising and PR and who will buy any product as long as it is the low-cost option.  This is the Wal-mart consumer.

    Now, before anyone accuses me of supporting the former and being condescending towards the latter, it's important to note that I don't mean that all people are one vs. the other for all purchases all the time.  We all exist in both worlds, depending on the purchase, although the balance may be a bit different.

    Incidentally, though, I do not think that it is a coincident that this high/low bifurcation has evolved parallel to income inequality.  Some people must rely on price and have no energy left at the end of the day to worry about their purchases.  Others have reserves of both money and time to devote to their purchases.     

  • Wait!

    I don't think this article takes into account the current definition of marketing. Part of marketing these days is developing and products to fit customer needs. So by definition, marketing does play a huge role in the success of companies. The old idea of marketing means advertising, sales force, and the more visible parts of marketing campaigns, and I think this is where the author is confused. There are different types of orientations for companies - production, sales, R&D and marketing orientations. Apple chose to run their business in a market oriented way, while most other tech companies are R&D based (Google) or sales based (Microsoft). Since the beginning, Apple has found a way to make computer technology a part of people's everyday lives. This is a marketing orientation and proves that marketing works.

  • Andrew Davis

    @DT: Uh, that's exactly the point. Apple's brand is far superior to that of Microsoft because the latter has overextended themselves, and dilluted their core brand. Answering "What is Microsoft" is far more difficult than "What is Apple," and that's what the article is saying. Brand-building (or, your product) is tantamount to long-term success, while marketing will eventually wane. There is a reason that Apple can spend a fraction of what Microsoft does -- their brand is the most valuable one in the world (See BrandZ's Top 100), and they don't need to advertise to have people lining out the door to get their newest product. Microsoft, on the other hand, could never do the same. 

  • Stephanlenting

    ... So, we might need another 'P' first. Perspective. (That is, vision/purpose). And every product you make is a result of that Perspective.

  • Stephanlenting

    The difference between Apple and Microsoft is not about product, promotion, place or price. The success of Apple is build around a clear view of the world, and a strong brand purpose. The 'P's are a result of that foundation. Microsoft is just fooling around, having lost their inspirational leader Bill Gates.

  • Robert_Cratchit

    This article includes quite a bit of foolish market speak and the conventional wisdom of some peculiar elites.  Apple is a tiny hardware company that makes Veblein goods using Chinese slaves, and used that 5.5 billion to convince its users that designing computing hardware to look like candy or suppositories includes them into some elite.  Microsoft sells hardware, software, search services to a much larger market-when you are the 99 percent of the market, you are winning. 
    MS could certainly do better, but it is precisely because they are so successful that they can't be a boutique brand like Apple.  MS is like GM-ubiquitous, functional, and robust, while Apple is like Austin-Healey-cute but not really practical or useful for everyone.  That did change once Apple abandoned the PowerPC platform for Wintel, but at that point it became simply a chance to put GM guts in an Austin Healey body.

  • Dr Brian Monger

    You guys just dont get what the elements of a maketing mix are about really.  Sure, without a product (a value offer) you don't need the other 3 elements.  Just like without a target market you don't need a marketing mix.

    A pricing strategy is not as simple as you understand it - think in terms of what the buyer is prepared to pay "payment" and the concept of value.

    A promotional mix is also a set of variables

    and Place is not just about a physical location.

    You guys just don't get these basic marketing ideas very well. Make a effort to find out before you continue to make yoursselves look silly

  • DT

    Just to clue you in on your comparison between Apple's marketing expenses compared to Microsoft's, what world are you living in?

    Their brand name is more powerful for a simple reason: the iPhone and the iPod, not to count out Mac-Books. Now switch sides:

    Microsoft spends so much on marketing because of the shear size and the broad spectrum of its capabilities. They compete globally, not only with Apple (not discounting Apple's few competitors).

    Apple dominates a spectrum of a market, mainly mobile phone, laptop, and tablet technology due to die hard fans, whereas Microsoft battles consistently: Oracle, Google, Sony, Nintendo, Corel, Sun, Red Hat (just to name a few) each in a different market (App. Development, IT Services, IT Tech., GAMING CONSOLES, search engines, etc.), not even to mention Apple.

    Point-in-case: Apple's $5.5 billion vs. Microsoft's $17 billion in marketing expenses is irrelevant. A stronger brand name comes in a market that Microsoft has yet to devote it's undivided attention to.

  • Raul_echivarre

    DT is absolutely correct. There are many worlds out there outside of apple. Product dies with out the other 3ps. You think jobs got cook because he can design? He got cook because of ops and logistics. Outside of ive's product, it's cook's 3ps that enable apple to ship. The article is too simplistic.

  • robjday

    In reading this, I am noting a change of position from your original article, and my below comments are based on this assumption.  I am reading that your new thesis is that the other three P's are not dead; rather they are relatively less important to Product P than they were in the past.  This is contrary to your previous article (even in title) and something I can almost agree with.  I say almost because my belief and many others has ALWAYS been that product was the most important P.  However, this is a fairly reasoned argument for that case, but there are still some semantics I can't help but comment on.

    First, and it may be a picky use of language, but Product IS MARKETING!  It's one of the 4Ps of the MARKETING mix.  So contrary to the title MARKETING does not fade.  The relative importance of the components of the mix changes - but that makes a long title :) 

    To clarify this further, I want to make clear that product can be created by someone called a marketer, someone called a designer, or the combination of the two people.  Hell it could be someone called neither.  However, the process itself is marketing in its most basic form.  Regardless of title, seeing a need for a new item, or improvement on an old one and creating it is part of marketing.  Again, at this point you are into semantics, but I think its a basic sticking point and something that is hammered into students who learn the 4Ps.  

    Similarly, as you discuss PROMOTION you seem to equate it to TV ads and other ads.  As I pointed out originally, PROMOTION does not equal advertising.  An Apple store, a Twitter Account, a PR Write up, etc etc etc are all forms of promotion.  Good promotion does not have to cost any money and bad promotion can cost a lot of money hence building the gap you noted between Microsoft and Apple.  However, if you have nothing good to promote and you promote a ton then you are looking at the snake oil  points out in his reply.  On the flip he also notes, and I agree, that having a great product means nothing if no one knows about it.

    When it comes to price, no you can't necessarily charge a premium price for crap... in fact it will ultimately lead to failure in today's market place.  But can you charge a premium price for good stuff that has better promotion?  I would argue yes and cite two examples.

    First example is your favorite Apple, and I want to focus on laptops to avoid the obvious counter arguments.  Apple laptops are good.  They do X, Y, Z.  However, it is very easy to line up stats to many PCs and see they fall short, but still command and get a price premium in the market.  It's because they have positioned themselves through the years of promotion, price, placement and of course product (at least in terms of looks) to be premium.  People don't pay more money to have the better computer from Apple, they pay to have an apple product and let everyone know it.  "Sent from my iPhone" anyone?

    Second  example, and perhaps the better of the two is Beats By Dre.  These headphones are universally reviewed as good, but not great headphones by any audiophile or publication.  However, people willingly shell out $300/pair to wear these.  Why?  Superior promotion.  Having Dre attached to the brand, having it appear on sports celebs, entertainment celebs, music videos, and just about anywhere that is universally considered cool they have positioned themselves as a brand to be desired and people buy it and pay to have Beats not to have a better product.  Does product matter still?  Absolutely,  but this is a great case that even in today's world promotion can prove its importance, and this is even a case where it outdid the product.

    You can draw this out into their recent product extensions.  The brand they created is so strong that its being dropped into laptops and cell phones.  Why not Shure's audio technology or any of the other even more obscure brands in the category that outperform Beats?  Again, promotion.  Also, their price is consistent with the image they are trying to portray, not the product they offer.  They are a perfect single counter example in a list of many more.  Vornado fans and heaters is worth a look.

    I read a concession on the argument of place so I don't see any need to beat that horse.  

    There is one last quote I just cannot accept: "If you have an extraordinary product, customers will find it and buy it in a transparent economy."  This is simply not true in a world devoid of the other Ps.  There will be some kind of promotion, place and price.  If you created the next best thing and hit it in your garage people will not find it.  I don't know any example of a company that created something, did nothing with it and succeeded.

    In conclusion, I think that re-positioning your statement to say that Product is the most important P has some merit.  It is the way to succeed 95% of the time.  I still argue it is possible to succeed with inferior (not bad) product that works the other Ps better as I pointed out in the Beats argument.  Just like in football where if you don't have the best players on the field you better have the best game plan from a coach - this can happen in business as well.

  • Makabusi

    Your interest in reality is good - especially for transportation and how to place product into space for use.
    Visit www.et3.com for a transportation product that will change the way we all can get around and save the planet. Join in!.

  • Evan Scott

    Can't say enough about how much I agree with this line of thinking...goes back to Drucker: 

    “Because the purpose of business
    is to create and keep a customer, the business enterprise has two – and only
    two – basic functions: innovation and marketing. Marketing and innovation produce
    results; all the rest are costs.”

    I would extend this position to add: "Innovation without marketing is a hobby; marketing without innovation is snake oil." (My own quote)

    So, in my view, marketing follows innovation always and should be focused on storytelling. Consistently telling the story of what life is like with/without a given product or service.

    - Evan Scott

  • atimoshenko

    It's 1P for great brands and 4Ps (still) for the rest of the unwashed mediocrity. The challenge, of course, is that while everyone wants to be great, the vast majority are mediocre, by definition. Most business revolves around selling not-particularly-innovative stuff to not-particulalrly-interested customers. How else are you going to sell me toilet paper or cling-wrap, say?

  • Thomas V DiSilvio

    Fascinating article! This warms my heart since my backround is industrial design. As i focus on branding and marketing,it is helpful to realize the power of product and an emotional connection with the consumer. Thank You!

  • John

    All very interesting, but in the branded pharmaceutical market where products have a fixed patent shelf life, 1P doesn't hold.