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.
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.