Marketing’s Four P’s: First Steps for New Entrepreneurs EC-730

1 PURDUE EXTENSION. EC-730 . Marketing's Four P's: First Steps for New Entrepreneurs Cole Ehmke, Joan Fulton, and Jayson Lusk Department of Agricultural Economics Marketing your business is about how you position it to satisfy your market's needs. There are four critical elements in Audience: Business managers marketing your products and business. They are the four P's Content: Presents the four elements of marketing of marketing. your products and business 1. Product. The right product to satisfy the needs of Outcome: Readers will be aware of the range of your target customer. marketing decisions they need to make 2. Price. The right product offered at the right price. 3. Place. The right product at the right price available in the right place to be bought by customers. attracted to, such as the way it is packaged. Other product attributes include quality, features, options, services, warran- 4.

2 Promotion. Informing potential customers of the ties, and brand name. Thus, you might think of what you availability of the product, its price and its place. offer as a bundle of goods and services. Your product's Each of the four P's is a variable you control in creating the appearance, function, and support make up what the customer marketing mix that will attract customers to your business. is actually buying. Successful managers pay close attention to Your marketing mix should be something you pay careful the needs their product bundles address for customers. attention to because the success of your business depends on Your product bundle should meet the needs of a particular it. As a business manager, you determine how to use these target market. For example, a luxury product should create variables to achieve your profit potential. This publication just the right image for customers who have everything.

3 Introduces the four P's of marketing and includes worksheets while many basic products must be positioned for price- that will help you determine the most effective marketing mix conscious consumers. Other important aspects of product may for your business. include an appropriate product range, design, warranties, or a brand name. Product Customer research is a key element in building an effective Product refers to the goods and services you offer to your marketing mix. Your knowledge of your target market and customers. Apart from the physical product itself, there are your competitors will allow you to offer a product that will elements associated with your product that customers may be appeal to customers and avoid costly mistakes. If you are considering starting a new business or adding a Cost-plus: Adds a standard percentage of profit new product, then make sure the product bundle will fit your above the cost of producing a product.

4 Accurately business's strengths and weaknesses, and that it will provide assessing fixed and variable costs is an important part an acceptable risk/return tradeoff. For instance, if your business of this pricing method. is very good at timely response to customers, then timely Value-based: Based on the buyer's perception of service should be an important part of your product bundle. value (rather than on your costs). The buyer's Think long term about your venture by planning for the ways perception depends on all aspects of the product, you can deepen and broaden your product bundle. For including non-price factors such as quality, instance, you may be able to take advantage of opportunities healthfulness, and prestige. to add value through processing, packaging, and customer Competitive: Based on prices charged by competing service. Other future growth may allow you to offer your firms for competing products.

5 This pricing structure is product to different customers. Start-up businesses are most relatively simple to follow because you maintain your successful when they concentrate their efforts on one product price relative to your competitors' prices. In some or one market, like a restaurant or a car service center does. cases, you can directly observe your competitors'. Later growth may occur in the same location or may be in prices and respond to any price changes. In other different geographic regions. cases, customers will select vendors based on bids A different type of growth would be a diversification of submitted simultaneously. In those cases, gathering products, with your business offering related products. information will be more difficult. Offering a whole range of products is most successful if the Going-rate: A price charged that is the common or raw materials, production processes, and distribution methods going-rate in the marketplace.

6 Going-rate pricing is are similar, which means you do not have to acquire new common in markets where most firms have little or suppliers, skills and equipment, and distribution methods. no control over the market price. Price Skimming: Involves the introduction of a product at a high price for affluent consumers. Later, the price is Price refers to how much you charge for your product or decreased as the market becomes saturated. service. Determining your product's price can be tricky and even frightening. Many small business owners feel they must Discount: Based on a reduction in the advertised absolutely have the lowest price around. So they begin their price. A coupon is an example of a discounted price. business by creating an impression of bargain pricing. Loss-leader: Based on selling at a price lower than However, this may be a signal of low quality and not part of the cost of production to attract customers to the store the image you want to portray.

7 Your pricing approach should to buy other products. reflect the appropriate positioning of your product in the market and result in a price that covers your cost per item and Psychological: Based on a price that looks better, includes a profit margin. The result should neither be greedy for example, $ per pound instead of $ per nor timid. The former will price you out of the market; pound. pricing too low will make it impossible to grow. After you decide on your pricing strategy, the amount of As a manager, you can follow a number of alternative pricing money you will actually receive may be complicated by other strategies. In the next column are eight common pricing pricing aspects that will decrease (or increase) the actual strategies. Some price decisions may involve complex amount of money you receive. You will also have to decide calculation methods, while others are intuitive judgments.

8 How to determine: Your selection of a pricing strategy should be based on your Payment period: Length of time before payment is product, customer demand, the competitive environment, received. and the other products you will offer. Allowance: Price reductions given when a retailer 2 Purdue Extension Knowledge to Go agrees to undertake some promotional activity for Place you, such as maintaining an in-store display. Place refers to the distribution channels used to get your Seasonal allowances: Reductions given when an product to your customers. What your product is will greatly order is placed during seasons that typically have low influence how you distribute it. If, for example, you own a sales volumes to entice customers to buy during slow small retail store or offer a service to your local community, times. then you are at the end of the distribution chain, and so you Bundling of products/services: Offering an will be supplying directly to the customer.

9 Businesses that array of products together. create or assemble a product will have two options: selling directly to consumers or selling to a vendor. Trade discounts (also called functional discounts ): Payments to distribution channel Direct Sales members for performing some function such as warehousing and shelf stocking. As a producer, you must decide if supplying direct is appropri- ate for your product, whether it be sales through retail, door- Price flexibility: Ability of salesperson or reseller to to-door, mail order, e-commerce, on-site, or some other modify price. method. An advantage of direct sales would be the contact you Price differences among target customer gain by meeting customers face to face. With this contact you groups: Pricing variance among target markets. can easily detect market changes that occur and adapt to them. You also have complete control over your product Price differences among geographic areas: range, how it is sold, and at what price.

10 Pricing variance among geographic regions. Direct sales may be a good place to start when the supply of Volume discounts and wholesale pricing: your product is limited or seasonal. For example, direct sales Price reductions given for large purchases. for many home-produced products can occur through home- Cash and early payment discounts: Policies to based sales, markets, and stands. speed payment and thereby provide liquidity. However, direct sales require that you have an effective retail Credit terms: Policies that allow customers to pay interface with your customers, which may be in person or for products at a later date. electronic. If developing and maintaining this retail interface is not of interest to you or you are not good at it, you should The methods discussed here should be a base from which to consider selling through an intermediary. construct your price.