The marketing mix and customer value

In depth

Where the idea came from

The phrase comes from Harvard Business School in the 1940s. James Culliton, studying manufacturers’ marketing costs in a 1948 report, described the business executive as a “mixer of ingredients” who sometimes follows a recipe, sometimes adapts one and sometimes invents a new one. His colleague Neil Borden took up the idea. By his own account Borden used the term “marketing mix” in his teaching from the late 1940s; he spoke about it in his 1953 address as president of the American Marketing Association and set it out in an article in 1964.

Borden’s list had twelve elements for a manufacturer: product planning, pricing, branding, channels of distribution, personal selling, advertising, promotions, packaging, display, servicing, physical handling, and fact finding and analysis. He paired it with the market forces the mix has to respond to: consumers, the trade (wholesalers and retailers), competitors and government. He was modest about the idea. He did not present the mix as a scientific theory but as a checklist to guide judgement, and he expected the building of a mix to remain largely an art.

In 1960 E. Jerome McCarthy, in his textbook Basic Marketing: A Managerial Approach, grouped the decisions under four headings organised around a target market: product, price, place and promotion. Four Ps were easier to remember and to teach than twelve elements, and they became the standard structure of introductory marketing courses, this one included. The table shows one way Borden’s elements fit under McCarthy’s headings.

Servicing could equally sit under place, and fact finding fits under none of the four because research informs all of them. The headings sort decisions; they don’t seal them off from each other.

The four decisions, applied to Lantern Cold Brew

Product is what the customer gets: the goods, services and experiences on offer, with their features, quality, branding and packaging. For Lantern Cold Brew the main product decisions are the liquid and the range. The market file offers three liquids, called tiers: a Classic blend (taste score 6, costing $0.58 a can to make, fill and deliver to the distributor), a Single-origin Ethiopian (7.5, $0.74) and an Organic single-origin (8.5, $0.88). Lantern can launch one flavour, Original, or three: Original, Oat Milk Latte and Vanilla. The 250 ml can matches the rest of the category. Product is where most of the value is created, because it decides which benefits a customer can get at all. Lessons 2 and 3 cover it.

Price is what the customer gives up in money, and the terms on which they pay. It is the only P that brings in revenue directly; the other three mainly cost money. Competitors’ cans sell for $2.29 to $3.79, and the simulator’s default plan charges $3.49. Price does two jobs at once. It captures value: what Lantern keeps depends on it. And it communicates: shoppers who can’t taste a can before buying it read the price as a clue to quality, so a price out of line with the positioning undermines it. Module 2 covers pricing.

Place covers how the product reaches the customer: which channels sell it, how widely it is available and the logistics behind it. Lantern can sell through supermarkets, convenience stores, natural and specialty grocers, and its own cafés and online shop, and each channel changes both who can buy and what Lantern keeps. Supermarkets sell 45% of the category’s cans; there the distributor and retailer together keep 32% of the shelf price and charge $9,000 a year for each flavour stocked. In its own cafés and online shop Lantern keeps the whole price but pays $0.45 a can for packing and delivery, and reaches only its own customers. Module 3 covers place.

Promotion is how the business communicates with its target market and persuades it to buy: advertising, sales promotions, personal selling, public relations, and direct and digital marketing. Lantern’s first problem is attention. Only 12% of category buyers know its name, against 50% to 75% for the three established brands. The market file offers four promotion vehicles: social and search ads to build awareness, in-store sampling and displays to turn awareness into trial, trade promotions that fund temporary price cuts in stores, and PR and events. The default plan spends $120,000 a year across them. Module 4 covers promotion.

Fit: the four decisions must agree

A mix is judged less by its individual decisions than by how well they fit together. Fit has two sides. Internal consistency means the four Ps send the same message and support each other. External fit means the mix suits the target market and positioning, stands up against competitors and is within what the business can afford and deliver.

Consider a plan that looks sensible decision by decision: the Single-origin liquid, because it tastes better than Arcadia and Daily Grind; a price of $2.29, matching Daily Grind, to win volume; and convenience stores only, because commuters buy there. Each choice has a reason. Together they contradict each other.

• Product and price disagree. A taste score of 7.5 says premium; a $2.29 price says value brand, and a shopper who can’t taste the can will believe the price.
• Price and place disagree. Convenience stores keep 40% of the shelf price, the highest share of any channel, so a low price leaves Lantern little: $2.29 × 0.60 = $1.374 a can, or about $0.63 after the $0.74 cost of the can and its contents. At $3.49 in the same stores Lantern would keep $1.354 a can after costs, more than twice as much. And the market file notes that convenience shoppers compare prices less than supermarket shoppers, so the low price gives money away where it is least needed.
• Place and promotion disagree. A premium story (Ethiopian origin, a 20-hour steep) needs telling, but a convenience-store chiller is where people grab a familiar brand on impulse. With no tastings or displays, nothing at the shelf explains why this can is different.
• The whole mix disagrees with the positioning. “Café quality, below café price” has become “a cheap can with an expensive liquid inside”. It confuses the target customer and makes poor money for Lantern.

There is more than one consistent alternative. A premium mix keeps the Single-origin (or Organic) liquid, prices close to Summit, sells where quality-minded shoppers buy (natural grocers, supermarkets and Lantern’s own cafés) and spends on sampling so people taste the difference. A value mix switches to the Classic blend, prices near Arcadia, chases volume in supermarkets and convenience stores and leans on trade promotions. Both could work, for different target customers. What can’t work is half of each.

Criticisms and alternatives

The 4Ps are a way of sorting decisions, not a tested theory, and they have well-known weaknesses. Use them knowing what they leave out.

The first criticism is that the Ps describe the market from the seller’s side of the counter. In 1990 Robert Lauterborn, writing in Advertising Age, proposed four Cs seen from the buyer’s side instead. The 4Cs are consumer wants and needs (in place of product), cost to satisfy (in place of price), convenience to buy (in place of place) and communication (in place of promotion).

The 4Cs don’t add new decisions: Lantern still has to choose a liquid, a price, channels and a budget. Their value is the change of viewpoint, which is why this course uses the 4Cs as a check on a 4P plan rather than as a replacement for it.

The second criticism is that the boundaries between the Ps are fuzzy. Packaging is part of the product, but on the shelf it is also promotion. A trade promotion is paid from the promotion budget but works by cutting the price shoppers pay. Customer service could be product or place. Where a decision is filed matters less than making sure no decision falls between the headings.

The third criticism is that the mix was built for mass-marketed consumer goods bought in single transactions. Christian Grönroos (1994) argued that treating marketing as the management of four Ps had become a “straitjacket” that encouraged toolbox thinking, and that in services and business markets the work that matters most is building and managing long-term relationships with customers, not tuning the mix for each sale.

Services raise a related problem. A hotel stay or a training course can’t be inspected before it is bought, is produced while the customer is there and depends on the people who deliver it. Bernard Booms and Mary Jo Bitner (1981) proposed adding three Ps for services: people, process and physical evidence. The resulting 7Ps are the subject of course M03; in this course services appear only as examples.

Business markets and consumer markets

The mix applies whether the customer is a household (business-to-consumer, or B2C) or an organisation (business-to-business, or B2B), but the decisions look different. Compare Lantern, selling cans to shoppers, with a fictional company, Ridgeway Energy Storage, which designs and installs battery-storage systems for warehouses and factories.

Two lessons follow. First, in business markets the services around the core item (design, installation, maintenance, warranties) and the relationship itself often matter as much as the item, which is part of Grönroos’s argument. Second, Lantern is in a business market too. Before any shopper can buy a can, a distributor and a retailer’s buyer must agree to stock it, and they judge Lantern’s mix by what it is likely to earn them. The mix has to create value for them as well, just as the AMA definition says.