Strategic Dynamics' CEO outlines how marketers should revise their approach to the "4Ps"-- Product, Place, Price and Promotion.

Marketing textbooks often describe the fundamental task of marketing as making decisions about the "4 Ps:" Product, Place, Price and Promotion. What product (or service) will I sell? Where will I sell it? What price will I charge for it? And how will I promote it to the consumer?

Neat, straightforward, linear in its logic, but the new digital world is neither neat nor linear. Consider how the 4Ps can begin to reflect this new complexity.

Choice 1: Product

The old question: What product will I sell?

The new question: How do I develop products that meet the diverse needs of demanding consumers?

What's changed?
My wife and I went furniture shopping last week, and we saw a coffee table with a sleek design that we found unique and appealing. Yet it wasn't just right, nor were the other tables the retail store stocked from the same Italian company. So I went online and found that the company actually exported a wide range of tables, with various selections available from various retailers, including many who sold online. Like Goldilocks, we found one that fit our tastes just right. It didn't come from the original retailer.

The digital world lowers consumers' costs of searching for diverse products. It enables producers to find consumers online that were previously too costly to reach. My original furniture retailer faces inventory constraints, especially given the high costs of space in Manhattan. His offering of tables, from multiple sources, was impressive but incomplete.  In contrast, online furniture stores, individually and collectively, can, with virtual inventory, accommodate a much wider range at lower costs. 

The online model also affects product by opening the door to more personalization, or even mass customization. So I can find the precise design I want. Or another consumer can customize her own PC, or her own fragrance or cosmetics. Business models that offer customization are hardly a sure thing. Dell has been a success, but P&G's Reflect.com closed after failing to build a viable business in personally customized cosmetics.

Managing a response:
Product diversity has always been constrained by costs. New digital capabilities lower these costs, and by so doing can revolutionize product decision making. Marketers can reach a more diverse set of consumers and can even use consumers' purchasing choices to help select the optimal product range. Marketers don't have to design or divine ahead of time the one ideal product; there could be many. 

Choice 2: Place

The old question: Where should I sell my product?

The new question: How do I expose my product to the right consumers?

What's changed?
A mid-size foods company celebrated when their product secured distribution in Wal-Mart. A "Prestige" fragrance executive shuddered when she saw her brand on sale at TJMaxx (a discount store).

Wider distribution is better-- sometimes. The more consumers the product can reach, the more it can sell. Yet, for many products selective distribution is central to the marketing strategy. "Prestige" products are defined by selective distribution. If they are widely available, they are not prestigious. Complex, service sensitive products, e.g., high-end audio components, may also benefit from selective distribution. By screening distributors, manufacturers can ensure that sellers offer quality advice and information to consumers, and in a setting that supports the product's image.   

The internet adds a new channel of distribution. The channel has some special features. It is good at providing information in written, graphic, pictorial, even audio form. It can be a good forum for learning about diverse product features, e.g., the ranges and costs of car models or cameras. It can be managed at lower costs.

This virtual channel is less effective when a real world connection matters. Marketing success may depend on consumers' actually test driving a car, or smelling a perfume. The sale may depend on providing expert advice. In such cases the internet can either complement or complicate distribution. It can lead buyers to the sale. Or internet sites can "free ride" on the service and features of offline points of sale, with consumers going to a high service store for first hand experience and advice, and then buying from a lower priced outlet online.   

Managing a response
The internet broadens product availability. Certainly, a marketer can still choose highly selective and controlled distribution (e.g., consider Bose). As she expands distribution, however, in the quest for sales, the marketer will find it more and more difficult to control. The interconnected world will ensure that new avenues open, new points of sale emerge. "Place" still matters, but the other 3Ps will have to reflect these new conditions. Moreover, marketers would do well to focus less on selecting and restricting specific channels and more on designing strategies that reconcile and complement the activities across channels. 

Choice 3: Price

The old question: At what price do I optimize profitability?

The new question: How do I assure profitability in a more price-transparent world?

What's changed?
Basic economics demonstrates that for a seller, maximum revenues come from charging each consumer the maximum she is willing to pay. There are often practical, and sometimes legal, constraints in doing this, but extracting what economists call the "consumer surplus" (the excess of what consumers are willing to pay over the market price) is good for profits.

In the old world sellers could more easily extract some of this surplus. Consumers faced high search costs in discovering prices and were sometimes unaware of lower prices. Or they didn't want to incur the inconvenience of arranging purchases outside a local area. Prices in the digital world are now more transparent, helped by agents like PriceRunner, and consumers can easily capture the lower prices online. Online selling is joining Wal-Mart in creating immense pricing pressures on manufacturers.

Managing a response
A classic response to price pressure is cost-cutting. This is, of course, helpful, but the only way to secure and sustain higher profit margins in a more competitive world is through innovation. The innovation then needs to be exploited through creative pricing strategies. Google's unique auction algorithm for search placements has proved profitable. Apple's iPod pricing reflects an awareness that early users of new products are different, and notably less price sensitive, than later users. 

Choice 4: Promotion

The old question:  Where do I spend my marketing dollars?

The new question: How can I break through the clutter to engage the consumer?

What's changed?
My furniture retailer is already in regular contact with me, along with my online camera retailer, eBay, Dell and a host of others. Now that I've signaled that I'm a (potentially) valuable customer, they're trying to build a relationship and extract value from it.

These marketers have broken through the clutter, partly with my compliance. At the same time, other marketers are reaching out to capture their share of my modest spending. Consumers are now exposed to more marketing messages per day than at any time in recorded marketing history. Who's listening?

Managing a response
The old line, "I know that half of my advertising is wasted; I just don't know which half," is often cited as an enduring insight into the nature of marketing. In light of the increasing message clutter, one might even be tempted to view the statement as overly optimistic. Yet, increasingly, the perspective the quote embodies seems dated and destructive.

Sure, reaching our consumer has never been harder. It has also never been easier. We know who she is and where she is; we know a lot about her. We have marketing tools and channels our marketing forefathers didn't dream of. The challenge for marketers is to put it all together. This is partly an issue of marketing education and knowledge-- like the physicists, we lack a "unified field theory." More practically, it is a matter of finding ways to leverage the old and new tools with creative insight and first-rate execution. That's something that hasn't changed.