Understanding Marketing: The Other “P’s” — Packaging

Chapter 7: Packaging

Depending on whom you ask, people have different ideas about what other “P’s” should be added to the original four P’s of Marketing. Starting with this chapter, this author will cover each of these other P’s so that there can be proper appreciation for their respective roles in the marketing mix. Among these other P’s, Packaging appears to be what consumers might be most familiar with, as it is certainly the most visible. Packaging is in fact an industry unto itself and could probably stand alone even if the rest of the marketing ecosystem crumbles. After the creation of the product, packaging becomes the next most immediate need in the production process – ahead of the rest of the marketing mix. Packaging comes before Place (distribution) and Promotion. And usually, packaging will be a major consideration for the second P: Price. One cannot properly price a product without taking into account how it will be packaged.

Price and packaging in fact work together as most products are available in different sizes of packaging, with corresponding different prices for each packaging size. The universally accepted rule for packaging and pricing is that larger packages offer more product at lower costs per unit because the costs of packaging gets smaller in relation to the volume of product being sold – the old principle of cheaper by the dozen. To illustrate: a two-liter plastic bottle of Coca-Cola will always be cheaper per ounce than a regular 16-ounce can (500ml). If the can sells for a dollar, then four cans would be $4. A two-liter bottle contains four cans of soda, but it only sells for about $2 – effectively half the price per ounce compared to the canned version.

Consumer advocates actually recommend that people buy regularly consumed commodities in large quantities in order to save on packaging costs, as well as trips to the supermarket. Best example would be Costco, and their multi-pack offerings of every product they sell that could qualify for such volume purchases. It is hard to argue against this pricing strategy, as anyone can make the cost comparisons himself/herself. Costco bundles are very hard to beat. For example, Swiss Miss, a popular powdered instant chocolate breakfast drink comes in single-serve sachets. At a regular grocery store, a 10-pack box would retail for about $3-4, which puts the individual servings at $0.30 to $0.40 for each sachet. Costco sells them in large 50-piece cartons for $4.99, which means one individual serving will cost less than $0.10 each. Can’t beat that.

One key point for consumers looking to save on their grocery shopping costs: choose not just the bigger packs, but also the simplest, most inexpensive packaging options. Remember that the fancier the packaging, the higher its cost contribution to the retail price. If you are choosing an elaborate pump-operated dispenser for your toothpaste, then you are probably paying more for the packaging than for the actual product. Reach for the regular, tried and tested tube, and compare the price per ounce of product that you are getting out of each pack. Chances are, the tube will give you as much as 50% more product for the same amount of money that you are paying for the fancier pack version.

Packaging is not just an option, an add-on to be desired, an unnecessary trapping. It is an actual need, and many products cannot be conceived of without it. Think of any liquid product, like say olive oil, wine, vinegar, or beer… how do you market these things without packaging? Every single consumer good requires packaging: toothpaste, shampoo, perfume, detergents, processed foods like hotdogs and cereal, milk, coffee, soda, etc., etc., etc. – in fact the category is formally called consumer packaged goods. There is a subcategory that is the most visible to the consumer: FMCG, Fast-Moving Consumer (packaged) Goods. All the examples mentioned above, and all of the most heavily advertised and promoted consumer products fall under this subcategory. These are the beverages, canned goods, toiletries, household cleaning products, laundry detergents… in other words, just about everything that you will find in a supermarket. These products are where advertising agencies find their bread and butter accounts. Companies like Nestle, Unilever, Procter & Gamble, dominate most of the FMCG businesses globally.

What makes packaging so important? What is its real value to the marketer? First of all, in many cases, it is the very first available medium for advertising their product. At the barest minimum, any packaging material would explicitly display and shout out the brand that it carries inside. Without such prominent branding on the packaging, one can of soda would be indistinguishable from another. The more “generic-looking” a product is, the more intense its need for branded packaging. Obviously, for such products as beverages, shampoos, oils, and other liquid products, marketing the product is unthinkable without the packaging. There are certain products that may always be recognized without their packaging, but they are quite rare. One good example would be M&M chocolate candies – they actually have the brand imprinted on the product! Certain products can lend themselves naturally to this type of “baked-in” branding. Look at sports shoes: every pair of adidas has its signature three stripes clearly visible on the product, or the Nike swoosh, or the letter “N” on New Balance shoes. In fact, these items are displayed for sale without their packaging – the boxes that are used for these shoes are usually boring unadorned carboard containers with little advertising content on them. Other apparel items would have their logos displayed on the clothes – sometimes subtly, as in the little alligator on the chest for Lacoste shirts, at other times the logos are screaming all over the shirt, like what you see on the brightly colored jackets of motorcycle racing teams. You could read the brands, Suzuki, Kawasaki, Honda, Ducati, and so on, emblazoned on them even from very far away. That is intentional. The race drivers are walking billboards for their respective sponsor brands.

Are there manufactured products that can do without packaging? Yes. One example comes to mind: tires. You know, those round black things on which your car moves over the road? They are made of various grades and types of rubber and other elements that give it certain features and benefits, such as steel and/or nylon belts. These strings of very strong material provide the tire with stability and durability. In the past, new tires used to be wrapped in some kind of plastic tape that is wound around the tire to protect it from the elements during shipping. Well, guess what? The materials out of which the tires are made are far superior to any sort of plastic wrapper when it comes to protection from the elements. So why bother with the plastic tape wrapper?

Packaging is also important for creating the impression that the product is of high quality and high value. This is most evident in the very sophisticated designs for the bottles that contain fragrances or expensive alcoholic beverages like cognac and champagne. The iconic champagne brand Dom Perignon, for instance, has such a distinctive bottle and label that it can easily be identified even if the label is turned halfway to the side. Naturally expensive products like jewelry and high-end watches also require equally expensive, or at least expensive-looking, packaging. For the consumer to believe that the product is expensive, it has to look expensive. And packaging can deliver that look easily.

Packaging products are a product category unto themselves. The most common example would be giftwrapping paper, gift bags and gift boxes. During the holidays, otherwise known as gift-giving season, one well known life hack is to package your mediocre gift in expensive gift wrapping, and add a large bow. Your gift will look very special when you hand it over. Never mind if the gift inside is worth less than $25. The recipient will appreciate the effort you have put into making the packaging look so good (and expensive).

As in most elements of marketing, there is a spectrum of how well packaging serves the purpose for the marketer, or how well they take advantage of it. In some cases, it is in fact abused. When packaging is most unnecessary, that is usually when it tends to be most abused. One example is double packaging. This is when a product already has a perfectly functioning packaging yet the manufacturer adds another layer of packaging to exploit the device. Take a look at toothpaste, for example. As a product, it normally comes in a tube – a perfectly well designed and well-functioning package such that it has not been replaced since the product first came out. But why does it come in a cardboard box when you pick it up at the grocery or drug store? The obvious answer? So that the manufacturer can have more space for promoting the brand. In fact the boxes are usually a little bigger than necessary – there is a lot of air inside the box along with the tube of toothpaste. Boxes also stack better on the shelf. They stay upright so the brand is clearly visible and readable to the passing consumer, eye level or not. A tube could never deliver those benefits.

Such deviousness is not exclusive to toothpaste brands. The same tactic is employed by almost all other manufacturers whose products come in tubes. Particularly worth mentioning would be pharmaceutical products: creams, ointments, and similar formulations. Or products that come in small bottles, like eye drops and superglue. They are almost always repackaged in a bigger box or shrink-wrapped onto a large piece of cardboard that will stand up on the shelf to prominently announce the brand. Sometimes the product occupies less than half the space provided by the big box, and the rest of the available space is just filled by, well, air. You must have heard about how some consumers complain that potato chip manufacturers put very little product in their large packs that are filled with mostly air? Well, it is true. The product does not need to fill up the package. The package serves other purposes than simply containing the product, many times the product is actually already contained in some other package before it is inserted into the outer packaging that a consumer sees first.

In such situations, it is quite obvious that the outer packaging is no longer intended to primarily contain the product, but to serve another purpose, namely advertising the brand. Advertising is always or should always be medium-specific, meaning the design should be tailored to the unique attributes of the medium. In the case of advertising on packaging, it is the other way around: the medium is often designed to serve the needs of the advertising message it will carry. In other words, the box will be as big as how big the manufacturer wants his brand name to be displayed on the pack.

Companies that supply packaging to manufacturers are always looking for ways to improve their materials so that their clients can be more successful. The more products that their clients sell, the more packaging materials these clients will order from their packaging suppliers or vendors. Improvements and innovations in packaging are continuously being developed. Liquid soap (and many other liquid products) now comes in pump dispensers. Sometimes innovative packaging actually creates new product categories. Special versions of these dispensers allow the product to come out as foam instead of plain old liquid soap. Whoever imagined that would be a thing? Another example: toilet cleansers – they have been around for decades. But when the packaging companies came up with goose-neck bottles that allow the consumer to directly spray the product into hard-to-reach areas under the rim of the toilet bowl, an altogether new product category was created. Thank you, Toilet Duck.

But life for packaging vendors is not always rosy nor simple. Sometimes they get overtaken by technological developments and suddenly their products are no longer relevant to their clients. There is this story of such a supplier of packaging materials for a major toothpaste manufacturer. In the old days, all toothpaste manufacturers used aluminum tubes for their products. This supplier and his client had a great business relationship, and as the population of the third world country they were in kept growing, their business similarly grew by leaps and bounds. The vendor – let’s call him Mr. Prosperous – invested in ever larger capacities at his plant to deliver ever larger volumes of aluminum tubes to his client whose business simply kept on booming. And then economic tragedy struck. Someone somewhere in the higher up echelons of corporate headquarters at the toothpaste company made the decision to switch from aluminum tubes to plastic – globally. And new packaging suppliers have entered the market offering just that: plastic packaging. All of his investments are now about to go down the drain. Mr. Prosperous is now Mr. Sad. What to do?

Whether he came up with this idea himself or someone advised him is unclear, but instead of throwing in the towel and shutting down his packaging plant, he decided to launch his own brand of toothpaste using his existing manufacturing facility. Long story short, he has become a successful toothpaste manufacturer in his own right, with the second best-selling brand in the market. Mr. Sad is now Mr. Happy.

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Understanding Marketing, The Other “P’s”: Packaging

Answer to a Quick Question Asked on Quora: How can you tell if an ad agency is good at what they do?

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Answer to a Quick Question asked on Quora

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What exactly is marketing? (updated)

#marketing

#advertising

#understandingmarketing

What is marketing? First, let us define it by identifying what it is not.

Neither art nor science, Marketing is not one of those disciplines inherited from the ancient Greeks so beloved by academics. It is not a branch of science, and it may not pass muster to be considered an art form either. There may be elements of marketing that can be considered art, such as advertising creatives. Many people say that award-winning advertising creative materials can be truly impressive works of art. True, there are some advertising visuals that are far more artistic than actual art pieces in a museum or art gallery. The most notable ones are the visual illustrations that combine elements in such a way that the creators are able to embed additional layers of meaning within the same visual display that we see on a simple two-dimensional plane. The best examples are clever logo designs that incorporate hidden meanings in them, or visually illustrate the concept behind the brand. A popular favorite is the old logo for Formula 1 Racing – it only has the letter F in plain black and a field of red horizontal lines next to it. But the space between those two elements is shaped to form the number 1, and the horizontal lines give the impression of motion at a very fast speed. Incredibly clever and artistic.

But the whole of marketing is not about them. Similarly, there are elements that employ science and scientific principles and processes, such as the rigors involved in product development, manufacturing, and research, or the complex computations involved in the logistics part of distributing the product, or the near-esoteric field of audience measurements involved in media planning and buying. But again, marketing as a whole is not about the science behind these specific activities. They are all merely elements of marketing.

In studying marketing, there are no dogmatic ‘truths’ to be swallowed whole and blindly followed like what is found in revealed religions. There are no precise scientific formulas that are carved in stone like what you have in physics or chemistry. No complex mathematical equations or formulae like those used in algebra and statistics to be rote-learned and remembered forever. Instead the only essential skill required to excel in marketing is common sense, which ideally, should come with one’s ability to learn. To learn from your mistakes and the mistakes of your competitors – because many marketing lessons were actually developed through trial-and-error. If you do not believe that last line, consider this: many major manufacturers always run test market exercises – as they have done for decades (and continue to do so) – before they launch any new product, or even just a variant of an existing one. And yet, in spite of all the painstaking research and preparations involved in any new product introduction, many manufacturers still come up with duds and lemons, even today. If that is not learning by trial-and-error, then who knows what is.

So, what IS marketing? Marketing is simply common sense on steroids.

The problem with common sense is that it is actually not that common. Not exactly logical, but a reasonably valid observation nonetheless. Most people will acknowledge that they make the dumbest mistakes when they forget their common sense at home.

Let us dissect that further to determine what exactly is marketing. Let us use that old saying, “You can lead a horse to the water, but you cannot make it drink” for our analogy.

All of marketing is simply leading the horse to the water. Every element of marketing is designed to bring a prospective consumer to the point where he or she will purchase the marketer’s product – this is called the point of purchase. The point of purchase is the end-goal, or finish line – the point at which the “push” part and the “pull” part of marketing converge. If both sides of marketing do their jobs, then the point of purchase will in fact be realized as an actual purchase happens, and a sale is concluded. On the push side, it is all about getting the product to the shelf, and on the pull side, it is all about getting the consumer to that shelf. That is where they meet and the whole marketing process is concluded. For the most part, the push side of marketing is quite invisible to the consumer. The push side is pretty much providing the water for the horse, and the pull side is bringing the horse to the water. We will tackle the push side in subsequent articles, and the pull side in later articles after that.

But just to get an idea of how it is done, i.e., bringing the horse to the water – it can be as subtle as recognizing the car used in a movie scene – correctly identifying it as a Mercedes-Benz, for instance, because it had a three-pointed star in a circle as a hood ornament. This was quite common among older films, especially the ones shot in Europe. On a grander scale, you can have an entire movie dominated by images of a particular brand of automobiles and presenting them as the real heroes of the movie. This is what the Transformers movies are to marketers – they are full-length two-hour video commercials for Chevrolet. This tactic is known as product placement – where a product is inserted into a movie scene – or script – on purpose, in order to display the brand to the movie audience in a more subtle manner, as opposed to a regular 30-second video commercial shown before the start of the movie. A very good example would be the series of James Bond movies, particularly the one where Pierce Brosnan drives his BMW remotely, using his Nokia phone as a remote control device. A more recent notable example would be the red plastic cups or tumblers sitting on the table in front of the judges in the popular television show American Idol – they all carry the Coca-Cola logo very prominently. At the other end of the spectrum, it can be as in-your-face (literally) as the free samples offered as you walk by the different food stalls in a mall food court. It is about as direct as you can get – actually offering the product for free, and for immediate consumption right in front of where you can buy it. It is a better example of what people call direct marketing, versus the usual junk mail that clogs up mailboxes.

Between these two ends of the spectrum, there are infinite ways by which marketers try to influence consumer behavior towards making a purchase. The most visible element of marketing is advertising. It is a very powerful tool, and it actually powers large chunks of society and the economy. Advertising is inextricably linked to mass media. For the most part, media would not be feasible without advertising. Throughout its history and development, most of mass media, particularly broadcast – TV and radio – have only been possible because there was advertising to support it. Think about it – all those years that people watched their favorite television shows, and listened to their favorite programs on the radio, it was all very nice… but who was paying for it? It was always the advertiser.

Even in today’s digital environment, we take a lot of things for granted. Take Google, for example. How is Google able to provide so many services for free to the general public? You can search for anything under the sun, get all the information you want, watch all sorts of videos on YouTube, or avail of email services – all for free. Where does Google make its money? The simple answer: advertising. It is the same with Facebook, Twitter, Instagram, etc. – they are all advertising-funded.

There are countless books written about advertising and the media. But as elements of marketing, they only need to be understood for the roles they play in the grand scheme of things marketing. They actually belong to the last of the Four Basic P’s of marketing: Product, Price, Placement, and Promotions. But because they are the most visible elements of marketing, it is easy to see why they are the ones that get the most attention.

Marketing was created when a product needed help getting itself sold. Originally, products filled a need and therefore did not need any help getting sold. But life often gets complicated. Whatever the reason – there were more products in inventory than what the market was willing to buy, or alternatives became available – it became necessary to push harder to get the items sold, lest they go stale. First things first… it is the product that is at the heart of all marketing. If a company had a good product, it only had to make that product available to the consumer and that was it. As the saying goes, “Build a better mousetrap and the world will beat a path to your door.”

Secondly, if that product could be sold at a price where the company makes a decent profit, then the company was in business. If the price was right, consumers would see and appreciate the value being offered to them by this product and they could be reasonably expected to make repeat purchases, presuming the product satisfied the consumer’s need for it. Whether that need is real or imagined does not matter.

A product that satisfies a need at a price deemed reasonable by both buyer and seller. Does that complete the circle? What else do we need? But wait…  consumers and manufacturers are often not in the same place at the same time, so a regular venue where consumers could find the product became necessary.  Enter Marketing P number three: Place. Manufacturers needed to get their products to this venue, and consumers needed to know where it was. In other words, the product needed to be distributed – i.e., “placed” where it could be sold.

And then there were consumers who were not convinced they needed the new product. Finally, Marketing P number four: Promotions. It became necessary to promote the product to these prospective consumers. Convert them from prospects into actual consumers. Preach the gospel proclaiming the good news – that is, the benefits offered by this new product. Remember the dictum, “Build a better mousetrap and the world beats a path to your door”? Well, it is now quite obvious that the world first needs to know that you have invented this new and better mousetrap. Promotions became important otherwise people may not buy the new product at all. For many pioneering or breakthrough products, such as cutting-edge tech and pharmaceutical products, the marketing function is mostly dedicated to educating the consumer about the new product. Promotions were mainly informative and educational in nature. Many pharmaceutical companies still do this by having an army of medical sales representatives who visit doctors and explain the new drugs to them, hoping to get them to prescribe the new products. Initially, like with many new pharmaceutical products, these products had little or no competitors. But when competitors entered the scene, marketing and promotions became imperative and an integral part of the manufacturer’s overall business model. Welcome to modern times.

At the bottom of all of this, what is it that marketing is expected to accomplish? Make no mistake about it – there is only one goal for marketing: make a sale. In other words, get the horse to the water.

The 4th P: Promotions, Part 2

#marketing

#promotions

#advertising

Promotions, Part 2

Let us analyze that promotion example some more. What were the elements that went into its execution? Who did what?

Conceptualizing the promotion was the work of the marketing team. In most cases, they might have involved their advertising and/or promotions agencies. Someone took charge of the toys – getting the Coke logo printed onto the toy, finding a supplier, getting budgets approved, and scheduling deliveries and packaging it with the product. Someone else took charge of briefing the sales force about it and working out the logistics of implementing the promotion, to include communications materials for the retailers so they know how it is supposed to work and what they are expected to do. Typically, this will also involve a separate promotion for the retailers – to encourage them to carry out the consumer promotion properly, they would have to be incentivized. Translation: if they sell more Coke products during the promo period they will get higher commissions. This part of the sales promotion is known as the Trade Promotion – it is a separate activity targeted solely at the retailers, and its purpose is to entice them to support the sales promotion. To distinguish this part of the promotion from the rest of the many elements that are part of the promotion, some marketers use the term Consumer Promotion. It helps them keep things in perspective. To continue with the rest of the elements of the sales promotion, another person took charge of advertising the promo (in other words, the promo itself needs to be promoted): producing a television commercial, radio commercials, flyers, print ads, posters, preparing a media plan, and getting budgets approved for all of it. This would have involved working with a few outside entities including a creative services advertising agency and/or a design studio, broadcast production houses and studios to produce the TV and radio commercials, talent agencies if the productions involve using talents, and a media specialist agency for the media planning and buying functions.

Just from this one example it is clear that a “simple” promo such as giving away fidget toys is really not as simple as it seems. So much work and so many people and entities get involved in the simplest promotions. To recap, a sales promotion (an activity intended to boost sales) is also a consumer promotion (an activity targeted at the consumer), and often includes a trade promotion (an activity restricted to the retailers). It also happens many times that a company might decide to run an independent trade promotion, meaning a sales promotion that does not involve the consumer. This usually happens when the manufacturer wants to alter in some way how it is doing business with the retailers. For example, the company might have decided to change their bulk packaging, and that instead of the usual palette pack that contains 12 regular cases of Coke, they are switching to a bigger pack that has 24 cases of Coke per pack. This decision was made because savings will be generated from the cost of packaging perspective. Anticipating that there could be some resistance to this from retailers, the company will want to sweeten their deal with their retailers to smooth over the transition to the bigger packs. None of this affects the consumer. When the product reaches the shelf, it will still be in the regular 12 cans per case. So while the switch will mean more money for the manufacturer, it means more work for the retailer, and no impact on the consumer.

Apart from sales and giving away toys, are there other ways of doing promotions? Yes. Plenty of other ways. In fact we have to subdivide the category and still not be able to cover all the various ways that marketers can promote their product. Let us list those that we can easily identify.

1. Price off. This is a simple discount concept. Similar to a sale, a product is offered at a reduced price to entice a prospective buyer who may have been hesitating on the basis of price. You see this all the time among produce at the grocery. Fruits, for example, have a very limited shelf life. So after a few days, whatever is left of the stock of avocados is offered at 50% off to get them off the shelf before they expire.

• More product. You will see this most often on household items and toiletries. Detergents and deodorant brands, for instance, will add 20 – 25 percent more product for the same price. This is done by using a slightly bigger pack. And with the bigger pack comes more space to announce the offer.

• Sampling. Any opportunity to offer a free sample to prospective consumers should be availed of by a marketer. While this works best for food products, it also works for certain household products. For example, personal care products are known to offer a free sample pack of let’s say conditioner or body wash that is bundled together with their best-selling shampoo product. The proof of the pudding is always in the eating. So for many products, it will take an actual experience using the product before the consumer decides they want to make a purchase. This is similar to trying on apparel items such as clothes and shoes. Most people will not buy until after they have tried it on.

• Premium on pack. This was illustrated by the Coca-Cola promo discussed above. A free gift item is included in the package as an incentive to buy. A popular example would be McDonald’s Happy Meal. It is so successful that it is virtually institutionalized and the promo has become synonymous with the brand. Fragrances have been known to offer a premium item much larger than the product. Some years ago, at the Duty Free shops in Singapore, you could get a name brand designer travel bag if you buy a bottle of cologne.

• Bundling. As the term suggests, this simply bundles together one product with another. They need not be from the same manufacturer, although that is obviously easier to do. Hence, you will likely see a shampoo brand bundled with its conditioner sister product, whether or not they share the same brand name. One example of bundling products from different manufacturers that had been successful was when a cheese brand was bundled with a pasta brand. Although adding a tomato sauce into the bundle would probably have worked even better. These days the brands that most come to mind when you say “bundling” would be the many insurance companies such as Geico and Progressive, as they peddle their home and auto insurance bundles on TV commercials nonstop.

• Raffles and sweepstakes type promotions. You get a raffle ticket when you buy the product, and a winner is drawn at the end of the promo period. An attractive prize is offered to get attention. Prizes can range from cash to toys and gadgets, to trips and holidays.

• Charity angles. You help the needy every time you buy the product. The manufacturer makes a donation to charity with every product purchased. There is a brand of socks called Bombas that has made a big deal of this approach as they boasted having donated more than a million pairs of socks to charity – which is also a clever way of saying they have sold over a million pairs because their advertising says that they donate a pair with every pair that they sell.

• Themed packaging. This is usually a seasonal promotion. Cereal boxes can have Halloween themed packaging, and maybe even give away some toys or other free stuff to boost sales during the season. Confectionary products are the most visible promotions users during the holiday season.

• Couponing. Coupons are given out at the time of a purchase offering discounts on your next purchase. Or discounts on related products.

1. Special events tie-ups with other companies. One short term promotion that was very popular in Manila involved sponsoring a movie premiere. The manufacturer offers free tickets to an upcoming blockbuster film with a certain number of products purchased. The use of the term “premiere” can be misleading. It is not the standard gala type movie premiere, with celebrities on the red carpet. Instead, it is a simple, low-key early screening at a regular theater. But who cares? People get to see a free movie ahead of most other people, and that’s all that matters. Most of the time, this activity is done through a radio station. Now the promo becomes bigger and better, and gets even more attractive.

Here is how it works: the film company negotiates with a top-rating radio station for free ads on the station in exchange for an entire screening schedule on the first day of a film’s regular theater run. The radio station sells this event for sponsorship to say, M&M chocolate candies. The company agrees and pays for the entire package of media values: naming rights for PR publicity, product sampling at the venue, and radio ads. The station runs the ads and announces to its listeners that free tickets are available if they call the station and answer a simple question about the brand (M&Ms) that is sponsoring the entire event. Invariably, the caller will simply be asked to repeat the brand’s slogan or tagline, such as “Melts in your mouth, not in your hands.” This is a “win-win-win-win” scenario for everyone – the consumer gets a free movie (and free M&M samples), the film company gets its movie promoted for free, the radio station gets to promote itself to its listeners for free (and even make money on the sponsorship), and M&Ms get a fantastic promotion that consumers would really enjoy, at the cost of just regular advertising spots on radio. Even the movie house gets free publicity as the venue host.

The 4th P: Promotions, Part 1

            Promotions

#marketing

#promotions

#advertising

In this series, we started with a discussion of what marketing is, and have gone through three sections talking about the first three P’s: product, price, and place. We now get to the most visible section of the marketing mix, Promotions. For most consumer products, promotions is how consumers get to know about the products. Promotions is also where the “pull” side of the equation starts, in reference to the “push and pull” segmentation of the marketing mix. At this point, all the three other P’s (the “push” side of the equation) have already done their jobs, and the product is at the stage where it is about to come into direct contact with the consumer, perhaps for the first time, and hopefully not the last. The horse has been led to the water. From here on, the manufacturer turns over control of the product’s movement into the hands of the consumer (oftentimes quite literally). There is no longer anything that the marketing team can do to push the product any farther towards the consumer. This is the finish line. They cannot make the product jump into the consumer’s hands. All efforts now switch to getting the consumer to move his or her hands to pick up the product. It is time to make the horse drink.

How is this done? There are many, many tools available to the marketer. Let us start with the easy and simple ones. Using the bakeshop example from the previous chapters, let us say that you have produced a good batch of scones from your oven, thirty pieces. It is a new product offering using a new recipe and you are excited to see how well your customers will take to them. You put them in your store and wait for customers to buy them. Some do, some don’t. Towards the end of the day you have about eight pieces left. You don’t want them to spend the night there because tomorrow they will not be as fresh, and whoever buys them may resent that you have sold them some not-so-fresh bread. These customers might not want to go back to your store anymore after an unpleasant experience with your products. Marketers know that it is infinitely easier to get a satisfied customer to purchase your product again once they have tried it and were happy with their purchase, versus convincing someone to try it for the first time. And it is even harder to convince someone to try it again if they have already tried it once before and they were not happy with their purchase. Going back to your leftover scones, when you are faced with this situation, what do you do? You go into promotions mode. You put them on sale by offering them at half price, or you pack them two-in-a-bag for a buy-one-get-one (BOGO) offer, or you bundle one onto a loaf of your fast-selling sliced bread.

Promotions allow you to manipulate the other P’s to make your product more attractive to the consumer. A simple discount could get the job done. You simply tinkered with the price. If you repacked them and bundled two of them together, or added them onto some other product, then you have manipulated their packaging, not just their price. You could add some other item such as a single serve tub of herb butter to the bundle package, which means you have added a premium item to your bundle. That is called a “premium-on-pack” (POP) promotion. If your product is the premium item bundled onto another product that’s doing the promotion, then you have also manipulated your established distribution setup because you are now riding on the distribution system of the other product that is giving you away as their premium. One very popular example of the premium on pack tactic is the McDonald’s Happy Meal. The consumer gets a free toy when buying the kiddie meal. You can cut up one or two pieces of your brownies and offer the bite-size serving as a free sample to get your customers to try the product. This is called sampling and it is very effective particularly for food products. Costco stores in the US have been using this simple marketing tactic not just to promote particular items but taken together, as one of the attractions that draw foot traffic into the stores. On a good weekend, a customer could get quite full just trying out the many samples on offer. Some cookies here, some noodles there, and even some juice drinks to wash them all down with.

Apart from manipulating the other P’s, what else can promotions do to attract customers? The single biggest part of Promotions is an industry unto itself – it is called advertising. It is such a major part of marketing that it is often treated as a separate and almost equal entity in relation to marketing. It is certainly what most people are familiar with when they think of promotions, or even of marketing in general. And it is arguably the most visible element in the marketing mix. Advertising is such a large industry that its influence and scope extends to several ancillary sub-industries. We will need quite a few sub-chapters to cover all of the branches that grow out of the main tree trunk that is advertising. Just to mention some of the more prominent sectors: advertising agencies, commercial production companies, design studios, and the media. The media itself is also a large industry on its own, with its own set of subsectors: broadcast (television and radio), traditional print, outdoor (with its many variants), digital (also with its own set of variants), and cinema. There is also an endless variety of creative executions available for practically every medium. Billboards, for example, can be purely two-dimensional or three dimensional, stationary or mobile, and even incorporate a video element. Let us not forget research. Research companies do not just tell manufacturers who will likely buy their product, they provide marketers and advertisers with data to tell them what media these people consume – what they watch on TV, what radio stations they listen to, what they read in online media, blogs, social media, etc., etc., etc.

With such an expansive set of elements and options for the marketer, where do we begin a discussion on promotions? Let’s start with a definition. What exactly, is a promotion? The simplest explanation is that it is a tool used by marketers to boost sales. A promotion is normally resorted to as a means to achieve a certain sales goal. Hence a promotion is usually also known as a sales promotion.

A secondary definition looks at promotions as a discipline that is not limited to merely a tool to give sales a boost. This other definition is what some people might call Branding. What is branding? How is it different from promotions as defined in the previous paragraph? To help distinguish one from the other, let the first definition be referred to as sales promotion, and the second definition branding. A separate discussion on branding will follow in a subsequent chapter. For now, a quick description should suffice: branding is the creation and cultivation of a particular image and reputation associated with a brand to distinguish it from its competitors. This is achieved through various means mostly in communications, including, but not limited to advertising, PR publicity, and all forms of media visibility. Apart from communications, product design, packaging and even pricing can affect a brand’s reputation, In other words, anything that can enhance how people perceive a brand.

Let us circle back and work on the first definition. The simplest sales promotion is a SALE. You see this all the time among retail businesses. What is a Sale exactly? Usually it is a limited offer of reduced prices for certain products that would normally be priced higher. Many retailers conduct regular sales to move inventory. There is a popular shoe store in Manila named Via Venetto. It had a very strong following because they offered really good quality shoes. In fact their shoes were so good they cost more than their imported competitors, and in spite of the higher prices, people kept buying them. The owner once declared that whenever she needed money, for whatever reason, she would just do a sale. She did not even need to advertise the sale in the media. All she would do was put up handwritten signs on the display window that said, “Sale.”  And overnight (almost literally overnight) she would be awash with cash. Her loyal customers know the value of her products and they need very little prodding to buy more, whether or not they need more shoes at the moment.

There is a current equivalent of this shoe business model in the US today, an even better version of this model. It is a brand called Rothy’s. Their product is superior to most other brands because their shoes are exceptionally comfortable, and are made from raw materials that include recycled plastics – think bottled water plastics. While that alone is impressive enough, this also makes their shoes washable. You can throw them in your washing machine when they get dirty and they will come out good as new. But the real distinction of this brand is that it has gained a cult-like following. They have their own exclusive circles within certain social media platforms. Their loyal customers not just swear by their product, they go out of their way to endorse them, and go even as far as “investing” in some of their stocks when they feel they will be worth more after a certain period of time. This happens because their stocks are always limited, with many of their models and designs archived after a short run, and the few pairs that were acquired by the lucky buyers then become “collector’s items” fetching more than double their original price tags. Their social media circles allow them to buy and sell to and from each other. So if a particular design is no longer in stock in their Boston store but is still available at their Chicago store, a buyer could ask another group member to buy it for her and ship it to her separately. For a fee, of course.  

Going back to the discussion on promotions, how does a regular consumer product do a promo? What does that involve? Let us have an illustration. Let’s say Coca-Cola sales in the first quarter had been below average due to an extended and unusually cold weather. Management decides to run a promotion in the second quarter leading up to summer to make up for lost sales due to the decreased demand caused by cool weather last January to March. If the average sales volumes for Q2 in previous years was around 10 million cases a month, they would like to achieve a 20 percent improvement. So the new target for April-May-June is now 36 million cases (30 million plus 20 percent). How do they do that? The marketing team comes up with an idea to entice consumers to buy more Coke by offering a premium-on-pack giveaway item, and the trendiest toy at the moment is the fidget toy. They engage a supplier to provide six million fidget toys that will be given away to consumers who will purchase two six packs at a time (as opposed to the usual one). Number crunchers have determined that with this incentive, at least 20 percent of their consumers will want the toy and buy double their usual purchase to get it. If it clicks, they will achieve the goal and overall sales will more than make up for the loss in the first quarter. Let us say the promotion is a hit and they do indeed meet their target and even surpass it. Everyone is happy, and some of the top salespeople get performance bonuses.

This begs the question: if promotions are so effective at increasing sales, why don’t they just keep running them all the time? Because by their very definition, sales promotions are temporary and are done to achieve an artificial boost in sales. They are not what you would call organic growth, and are therefore unsustainable. Let’s take a closer look to get an explanation – remember that the people who bought twice their normal purchase only did that to get the toy. Once they have it, they are not likely going to do it again. In fact, they may discover that they have overstocked on Coke, and will simply not buy another case on their next grocery run. The promotion did not increase their thirst. It may have simply encouraged the consumer to advance what would have been his next purchase. What happens to sales after the promotion? In many cases, they go into a slump again. A sales promotion may not necessarily increase product consumption, but it is intended to increase product purchases. However, it does happen sometimes that actual consumption is increased – for whatever reason, such as seasonal factors, like warmer weather, parties, etc. – and so the extra case purchased to get the toy sometimes gets consumed anyway without disrupting the regular purchase cycle, meaning, the consumer still buys a case of Coke at his next grocery run.

Place or Distribution

            The Role of Place in Marketing

#marketing

#promotions

#distribution

The next key element in the marketing mix is Place, or Distribution, as it is more commonly referred to today. Simply defined, it is the process of placing the product within reach of the consumer. Yet this simple concept is not so simple in the real world. Distribution is a very complicated process and involves multiple stages between the point where a factory spits out the product and the point where a consumer picks it up.

Let’s start with the simple and easy. Let us say you operate a business, a bakeshop, to be exact. All the products that you churn out of your oven somewhere in the back of the store is brought up to the front of the store where a consumer can view it, and hopefully, purchase it. In this example, distribution involves only determining which glass display case you will place the croissants as opposed to the danish pastries, the scones and the dinner rolls – you get the idea. Nothing could be simpler. Now imagine you have become successful because you churn out really great products and there are now several retail shops, convenience stores, and restaurants in your city that are asking you to supply them with your products on a regular basis. In other words, you now have institutional customers, also called accounts. Things start to get complicated. You will now need trucks to deliver the goods, packaging to pack the goods in, employees to do the packing, deliveries, and order-taking. You now need an entire department dedicated to handling only this part of your business operations.

Whatever you decide to call this department, you will need to direct it to develop systems, procedures, and schedules for how to go about getting your products from where they are being made to where they are going to be bought by your end-users/consumers. Let us say your bestseller is your sliced bread, and it accounts for half of your volume… when do you bake the sliced bread?  and when do you bake all the others? Which of your institutional customers can you make deliveries to on the same trips? Maybe your two biggest accounts are located next to each other but their combined orders cannot be made to fit into your truck, or they want their deliveries to be made on different days. You will have to schedule separate deliveries to the two of them, and hopefully, maybe, you can also carry the orders from the other, smaller accounts, in order to minimize the number of trips your delivery truck will make every week, or every day, as the case may be. Some of the bigger accounts may require several deliveries per week. The situation now requires full time staff just to figure out the schedules, not to mention the investments required for a bigger space to house the stocks temporarily as they await deliveries, and the trucks and service vehicles for the sales team.

Now let us scale that scenario up to the level of a major manufacturer like Nestle, Unilever, Colgate or Procter & Gamble. Imagine scheduling deliveries for companies in the FMCG, or a Fast-Moving Consumer Good business, like a pack of hotdogs or a box of cereal – where factories are running three shifts a day, seven days a week churning out millions of products to be distributed to thousands of retailers across the country. If you can picture that in your head, then you can understand why there are sooooo many trucks on the road all over America.

There are very many companies that concentrate on doing just that – distribute products manufactured by someone else. This sub-sector is an industry in itself, and actually has its own sub-groups or sub-sectors. There are companies that focus only on one part of the distribution process, while other companies focus on the other parts. Just to mention a few: there are independent trucking companies who provide transportation services to one or more manufacturers, they bring the goods to warehousing complexes that are also independently owned (by a second set of companies) where goods from other manufacturers are similarly stored among the different individual warehouses, and from these warehouses another group – a third set of companies – would distribute the goods to retailers in a given area. Geographical considerations even come into play. You may find that warehousing costs are much cheaper in New Jersey compared to New York, but then you have to pay toll fees every time you cross the river. For very large-scale operations, items such as duties and taxes become part of the consideration if you will have trucks crossing international borders every day – like most of the products that are brought into the U.S. from Mexico and countries farther south. Avocados, for example, can come from as far south as Peru.

For these large-scale operations, there may be more than one set of warehouses where the goods are temporarily stored before they reach the retail outlet. For example, some products may require shipment by rail, and because trains follow their own set of schedules, goods riding on them may need to be stored for a while near the station while they wait for their train. Goods that require being transported by ship also go through this process. That explains why you have very large areas by the ports where shipping containers are piled up. All of those metal boxes are loaded with goods waiting for their turn to be loaded onto a ship. And on the other side of the ocean, they get offloaded and wait again for their turn to be hauled away by trucks. They are taken to a first set of warehouses where their contents are unloaded and sorted. After that they get transported by trucks again to another set of warehouses where different goods destined for the same retailers are grouped together, and from there they will finally be distributed to their respective retailers. At the retailer’s own warehouse, someone will pluck the products out of their palettes and put them on display shelves inside the store. Once the product hits the shelves, it has reached the end-point of its travel from the factory. This is also where the first three sections of marketing ends: product, price, and distribution. Three out of the four P’s are achieved at this point.

This is the traditional way manufactured goods are distributed all around the world. From a single source somewhere nobody really knows or cares to know about – the manufacturing plant – they get distributed to thousands of retail shops where they are within reach of consumers. An opposite network operates on the other side of the manufacturing plant. Inputs come together like in a funnel, and they get fused into a single product at the other side of the manufacturing plant. To get an idea of how this works, let us look at an automobile assembly plant. There are hundreds of parts that go into each car, and they come from many different places. They are all brought together at the plant (or very close to it), at the right time and in the right quantities, if they are to become part of the finished product. There is a lot to talk about with regard to this concept of the assembly line and the “just-in-time” approach that maximizes efficiency at these levels but that is the subject for a different book altogether.

Marketing vs Sales

So far we have only talked about the actual physical distribution of the product. There is more to Place than just physical distribution. The process described above presumes that that there are already retailers waiting for the product to be delivered to them. We need to take a few steps back and see where the process starts. How does a convenience store get to the point where they are expecting the delivery? If we are talking about a new product, that is a difficult process. This is where the manufacturer’s sales department comes in. A sales team is needed to actively push the product to the retailers. They will be armed with samples, brochures, and selling skills to convince the retail shop owners that their product is worth carrying in their stores. After the initial orders, the sales team will be making regular sales calls to monitor the product’s movement out of the shelves, and make sure subsequent orders and deliveries are made to prevent any stock out situations. This part of the process is sometimes called account management, or account servicing.

In this scenario, the sales department appears to be a small subsection under the heading Distribution – which is just one section of Marketing – in the organizational structure of the company. This setup is how a marketing person would like to have it. It’s a dream scenario for most marketers because reality is usually quite different. A sales person would place his department on an equal footing with the marketing department, if not higher. This thinking is premised on the idea that it is the sales people who generate revenues, and the marketing people are there mainly as a support team to make sure there is a demand for the products coming from the other side of the shelf: the consumer. In this alternative scenario, the marketing department is confined to the task of communicating with the consumer and making sure they know about the product and that they will look for it and purchase it when they see it. In other words, marketing would be limited to Promotions. We can talk about that in the next article.

Since we mentioned organizational structure, we have to talk a bit about why some companies have an employee with the title “Sales and Marketing Director” – with two managers under him, one for sales and the other for marketing. In this setup, sales and marketing are of equal importance and they report to one supervisor, normally a Vice President level officer. In some older companies, you would have a Sales Director who would supervise a sales manager and a marketing manager. Typically, in these older structures, there was a sales manager long before there was a marketing department. Marketing in the modern scheme of things is a fairly recent innovation in business management. For the longest time, businesses only had sales departments. As new people are hired to form the marketing department, they are made to report to the most senior employee in that region of the company, where the sales manager – someone who has been around for the last 20 years – gets promoted to sales and/or marketing director and will now oversee both sales and marketing. This scenario is a great example of the how the Peter Principle happens. And then there are companies that have someone referred to as the “Chief Marketing Officer,” which means he is at the level of the other top chiefs in an organization. This level is called the C-Suite. The most prime real estate in an office is reserved for the C-level executives: Chief Executive Officer, Chief Operating Officer, and Chief Finance Officer. These are the top three, and are routinely referred to as the CEO, COO and CFO respectively. There have been additional entries to this suite recently: Chief Information Officer, or CIO, for anything and everything related to Information Technology, and Chief Marketing Officer (CMO) for everything under the marketing umbrella, including product development (research), sales, and distribution. In this setup, there is no chief sales officer, as the leadership of this type of organizations believe marketing has far greater scope and importance than sales. You can have a Vice President for sales, but he is just one of many other VP-level officers and he does not carry the “chief” title and therefore does not belong in the C-Suite.  As seen in the examples above, there is more than one way to view the relationships between marketing and sales, and we should also consider how the other departments in a typical company relate to the marketing department. We will set that aside for now and take it up again in another article. There is enough material there for a separate discussion altogether.

The Push and Pull Sides of Marketing

These are actually two other P’s that are part of the marketing process. The PUSH side is mainly the Place or Distribution function, because it involves pushing the product forward from the factory to the store. Along the way it will run into hurdles and, depending on the hurdle, it is everyone’s job to keep moving it along past these hurdles until it reaches the point where it can be picked up by a customer. Let’s say a new law comes into effect that bans certain plastic packaging materials. Then whoever is in charge of that has to figure out a way to overcome that hurdle. Some disturbance, such as a strike, occurs in the Port of Baltimore, delaying cargo offloading by weeks. If the product is perishable, or needs to meet a certain delivery deadline, then whoever is in charge needs to get it out of that situation and move the product to the next nearest available port. Natural and man-made calamities and disasters often complicate the job of getting a product from point A to point B.

Sales people do most of the pushing figuratively, and the logistics people do the pushing literally. Salesmen, and increasingly saleswomen, sell the product to the retailers. They offer all sorts of incentives to convince shop owners to carry their products. These incentives often come in the form of additional discounts as their orders get bigger – enticing them with bigger profits if they sell more products. For example, if a 24-can case of Campbell soups costs $24, with $1 per can as its manufacturer’s suggested retail price (MSRP). The salesman could say he can give the store owner 2 free cases if he orders ten. This means that his $240 investment on the original ten cases is now $240 over twelve cases, bringing his cost down to $10 per case.

The PULL side is on the other side of the grocery shelf: from this point onwards, the product will no longer be moving because people involved in marketing and/or selling it are pushing it along. Instead, it will move off the shelf due to the pulling effect of all the marketing efforts that have been targeted at the consumer. Shelf off-take is the end result of all the pushing efforts from the manufacturer’s side of this equation and all the pulling effect generated by marketing communications on the consumer side of the equation. That entire section would fall under the next P: promotions. We will tackle that section in the next article.

            Packaging

Going back to the push side, one other major element of place/distribution is packaging. This part of the marketing process straddles the fence between Product and Place. Why? Because, with few exceptions, a product is normally sold encased in some kind of packaging. Even the simplest example, such as a plastic bag of fresh vegetables bought from a grocery store will invariably carry the name of the grocery store. The more complicated the product, the more important the role that packaging will play in its life cycle from manufacture to consumption – generally speaking. A good illustration would be tech products. Notice how complicated boxes are for things like cellphones and similar devices. The parts that come apart are wrapped in individual plastic bags and/or boxes, and then all of these elements are packed together in one box with separate compartments for each of the items – main phone component (with protection materials for the front screen to guard against scratches and breakage), battery, back cover, charger, charging cable, earphones, adapters, and more than one printed manual, user’s guide, and warranty card. A more current example would be vaccines. The Pfizer vaccine against Covid-19 has to be kept at temperatures well below the freezing point. Imagine the complicated process involved in providing the packaging for that product.  

Large items are also tricky. For television screens that are as big as 80+ inches wide, they will need special cardboard boxes with handles at both ends so that two persons can carry them safely. This also applies to furniture, and other large products that go into the home, like refrigerators. Packaging is mostly ignored by consumers because they are typically discarded after purchase. In fact some people view them as a nuisance because they can be so cumbersome and difficult to get rid of. There is data that says the biggest part of trash collected in any city is from paper and paper products, particularly packaging materials.  But packaging IS important. It is an integral part of the total marketing spectrum. For many smart marketers, packaging is exploited as an advertising medium. One great example is the retailer Marshall’s – they sell large reusable tarpaulin bags with various artistic designs and prominent Marshall’s brand logos on the side. Most retailers use this simple yet effective advertising technique. Like many retailers, Marshall’s saw the benefit of having their customers carry bags that display their brand and/or logo. Many retailers purposefully use extra large bags even if their merchandise is rather small precisely because they want to have a bigger canvas for advertising their brands. The free exposure that their brand gets from the people carrying them around all over the city more than pays for the cost of providing their customers with those bags. Marshall’s is smart enough to sell the bags, so they even make money while their customers are advertising their brand for free.

Is packaging part of the Product, or is it part of Distribution? The correct answer is Distribution, because technically, a product exists before it needs packaging, and it will only need packaging once you need to move it. To illustrate: a cake (or any baked good like doughnuts and sliced bread) is a good example of a product that can be produced and even sold without packaging, but after a customer pays for it, it will need to go into a box or a bag if the customer is going to take it out of the store. It cannot travel by itself. Most other products would require packaging before they are offered to the consumer, and they are actually referred to as “consumer packaged goods.” Let us look at another example: dairy products. Milk, eggs, butter, and cheese are normally sold in some kind of container. The point we are making here is that packaging is what makes branding possible for these products. You cannot stamp your brand on a stick of butter. You wrap that stick of butter in some kind of wax paper and you have your brand printed on that paper. That is how you sell butter. Similarly, you cannot place your brand on a liquid product, like milk or cooking oil for example. You use the bottle to package your product and you use that same bottle to put your brand on your product.

Packaging, like the supply chain portion of distribution, is also an industry unto itself. Specialty companies do a brisk business of designing packaging for other companies. Packaging products companies manufacture those packaging products and supply them to their customers who are manufacturers of consumer products that need to be put into some kind of packaging material before they can leave their factories.

There is an interesting story about San Miguel Corporation in the Philippines about packaging and how it can play some unexpected roles in marketing. Sometime in the mid-nineties, bottled water was a rapidly growing space in the FMCG arena. One of the major players was Wilkins, a brand of manufactured bottled water. It is not a natural spring water like most of the bottled water in the US. Instead, it is municipal water that has been processed or purified to such an extent that it can be labeled “distilled drinking water” through a process known as reverse osmosis. Theoretically, distilled water would be the purest form of water, and should therefore be the gold standard for water quality. The thinking behind this is, water is chemically known as H2O, and therefore anything other than those two molecules of hydrogen and one molecule of oxygen in the liquid would be an “impurity.” Following this line of thinking, Wilkins generated a huge following among consumers who bought into their advertising claims as being the purest, and sold itself at a slightly higher price than the other brands. They were particularly successful with mothers who were using bottled water for mixing their formula for their babies. If you could afford it, why wouldn’t you buy the purest water for your child?

San Miguel also had a brand of bottled water which was among the top brands – Viva mineral water. As could be expected, San Miguel fought hard to keep its market share, and as the war between the bottled water brands raged on, McCann-Erickson, the ad agency of San Miguel suddenly got a call to halt all campaigns directed against Wilkins. It turns out, San Miguel had a division called Packaging Products Division which supplied all the packaging materials – bottles, cardboard boxes, etc. – used by the Wilkins company. Given the size of the Wilkins account, San Miguel would lose more money of they won the bottled water war and lost the packaging products account.

How to value Price

A product always comes at a price. Price and product are inseparable. You cannot imagine marketing a product unless you have a price for it. Even more weird, you cannot imagine a price unless it is for a certain product. Imagine a conversation that starts with, “Hey, would you like to buy something from me? I’m not quite sure yet what it is, but the price is two hundred dollars.” Sounds like a line from the theater of the absurd, doesn’t it?

Needless to say, price is imperative to insure profitability. For without profits, the whole exercise of manufacturing and marketing becomes pointless. It is profit (and lots of it) that makes everything else possible. Budgets for salaries of the staff, rent for the office, advertising and other expenses… even Christmas parties and charitable donations are all made possible because profits exist. Profits can sometimes be seen as the be-all and end-all of all economic activity, and because of this, it has gotten some rather bad press in the past. But there is nothing evil about profits. It is simply a necessary part of the entire commercial enterprise – whether we speak of a single product, a company, or an entire nation. A necessary evil, if you must, but necessary is the operative word, not evil. For nothing can happen without it. Without profits as a motivating factor, why would an entrepreneur go into business? Why would a bank set up shop? Why would a farmer grow more produce than his family can consume?

Profit is the great enabler. This fact probably lies at the heart of its harshest criticism as a necessary evil. Because profits do enable all other activities – good and bad. A businessman who makes excess profits may be tempted to spend his money at a casino, and subsequently develop an addiction to gambling. Excess money can easily tempt its owner to spend on unwise luxuries, or worse, experiment with drugs and other evil substances. But to be completely accurate about it, it is not money per se that is the root of all evil, but the love of it. In other words, money by itself does not cause sin, instead, it is the condition of being much too desirous of it that often leads to sin – and crime. But enough moralizing about money and profits. For the purposes of this treatise, the focus is on Price, not Profit.

So, what else can Price do? Apart from ensuring profitability, price can also be used to support some of the brand’s claims. One good illustration is supporting a brand’s claim of superiority. A premium brand will always be expected to cost more than a lower quality competitor. Once a premium brand’s price goes below that of its competitor’s, consumers immediately begin to doubt its authenticity. Price is usually used as a reference by the consumer as a validation of the brand’s perceived value. In the consumer’s mind, a certain stratification exists – competing products are always categorized as either high-end or low-end, or something in between. Higher quality brands are expected to be priced higher. When they are not, consumers are happy with the pleasant surprise. But it also makes them wonder why. Maybe the product is a fake? Or defective? A reject by the Quality Control department? Whatever it is, a disparity between what a brand’s perceived value is and the price at which it is being offered raises questions in the consumer’s mind.

Conversely, a not-so-great product may use price as a tool to artificially enhance its image by precisely leveraging this well-known consumer behavior. This normally does not end well for the brand because sooner or later the consumer will recognize the trick and consequently drop the brand. If somehow the brand survives, it is usually because the consumer has found some other justification for the higher price he is paying, such as attributing some kind of psychological, sentimental, or emotional reason for staying with the brand. One loyal consumer of an expensive yet ordinary product once justified her purchase by saying, “My husband used to buy me these expensive chocolates.” For most other consumers, these brands will simply be remembered as overpriced.

At the other end of the spectrum, low-end brands thrive on low prices, and are usually able to build up good sales volumes, making their overall operations profitable in spite of slim margins from the low prices that they charge per unit. Low-value, high-volume products are the main drivers of most commercial activity in the world today. Most of these products are well-recognized brands. They can be so familiar that they have become part of our environment, or even part of our daily lives. To illustrate: Coca-Cola sells one million bottles of soda every minute of every hour, 24 hours a day, seven days a week, 365 days a year. That means even a mere $0.01 profit on each bottle translates into billions of dollars in gross profits at the end of the year. In truth, the company makes more than $20 billion every year. The numbers can be mind-boggling.

Most products fall under either of these two categories, price-wise: they are either high-volume, low value items, or they are low volume, high value items. Most consumer products are described as “FMCG” – fast-moving consumer goods. This covers most items that you find in grocery stores – everything from beverages (like soft drinks and bottled water) to shampoo and pet food. These are typically the high volume, low-value products. Manufacturers produce them by the billions and it is this huge volume that allows them to keep prices very low. Compare that to products like perfumes and automobiles. Sure, the US produces cars in the millions every year, and you could say that these are high enough numbers to qualify them as “high-volume” products. Not quite. Total volume of vehicles sold in the US has not reached 18 million in a year. How many bottles of soda does the Coca-Cola company sell? Over 1.8 billion per day – that’s 18 million times 100 times 365 days. Understandably, Coca-Cola is a far more valuable brand than either Ford, GM, or Toyota.

A product without a competitor is rare. However, any product that enjoys a monopoly, or at least some semblance of it, will also be expected to be premium-priced. Why? Common sense says, when you have no competition, you can name your price. But can you, really? Yes and no. Yes, you should be able to extract maximum profitability if your product has no competition. This is the situation seen every time a pharmaceutical company introduces a new drug that treats a medical condition for which there were no treatments previously available. The most memorable example is Viagra. In fact, not only was Pfizer able to generate enormous profits from Viagra, but they were able to do so with hardly any advertising at all. Instead, Viagra became a household word through the news media – the very first viral brand (even before “viral” as a media phenomenon existed). You could say Pfizer had a virtual monopoly over the erectile dysfunction market. In fact, the phrase “erectile dysfunction” became a household word because of Viagra. Before Viagra, most people did not know there was a term for that condition.

Compare that to the Segway. Here was a product that was also revolutionary, had no competitor either, and best of all, was seen as cool and hip. And yes, it was in fact rather fun to use. But while Pfizer raked in billions from Viagra (and continues to do so), Segway had miserably poor sales figures. Until today, Segway remains a curious oddity, whereas Viagra is practically mainstream. The only plausible explanation? The Segway was overpriced. In other words, the sky is not the limit even when you have a monopoly of a product.

Going back to Price as supporting a brand’s claims, it remains tremendously important for the manufacturer to be critically aware of what the consumer is willing to pay for his product, whatever the product promise may be, and regardless of its actual manufacturing cost. Within reasonable bounds, consumers will put their common sense to good use by figuring out what a reasonable price they should be paying for the product being offered to them. For instance, designer apparel will always be accepted as a premium product and therefore command a higher price than its less fashionable alternatives. House brands are expected to cost much lower than branded equivalents – to illustrate: Tide detergent is always priced higher than the house brand Kirkland at Costco. And the Kirkland brand is recognized as a respectable and not-too-inferior an alternative to the more established brands – but Tide’s sales figures are always so much higher than Kirkland (or any other alternative house brand from any other retailer, such as Target).

So how does a marketer determine the price at which his product should be sold? How does “MSRP” (Manufacturer’s suggested retail price) come into being? Apart from the obvious – tally up all the manufacturing costs: raw materials, equipment, packaging, transport and shipping, labor and other overhead costs, etc., then slap on a desired profit margin, make allowances for taxes, add them all up, and that’s your MSRP. Is there some other method for determining what’s a reasonable and optimally profitable price? There is. Marketers use research companies to ask prospective consumers what price they would be willing to pay for a product given the features and benefits that their product offers. It is a simple enough research test that is most helpful when introducing a new product – i.e., when there is no competitor’s price to use as a  “benchmark” against which one can compare the new brand’s price.

A simple price test asks respondents how much they are willing to pay for a product. It is usually a range of answers graphed as a bell curve where a “sweet spot” emerges that would give the marketer the highest possible price without losing the interest of too many prospective consumers. It would also show how low he can bring his price down to attract the most number of new customers without losing money in the process. This is important when designing promotions that will involve reductions in pricing. This test allows new products to be sold at the optimum price point where the manufacturer can make the most profit without killing the goose that lays the golden eggs. It is understandably a tricky balancing act, for if a certain “tipping point” is reached, then you can expect the product to follow the path of the Segway. Consumers will wise up to the manufacturer’s greed and just completely shun the new product.

Price wars.

This is where price gets more interesting or should we say, exciting. For very established brands, price can have some flexibility. Sometimes a challenger brand will undercut a market leader by cutting prices. This is called a price war. The challenger hopes to gain market share by offering a lower price. Obviously, this is most effective for a new brand trying to break into a market space already dominated by one or more other brands. A new brand has to find a way to break into the space. In marketing warfare terms, the brand needs a beachhead. It can be as major a launch as the invasion of Normandy, with assault troops on the ground transported by a flotilla of assault naval vessels, and air support from above. Translation: an aggressive, mobilized, and highly motivated sales force invading the retail outlets and heavy bombing from the air, a.k.a. on air advertising (i.e., on-air via broadcast media). In a matter of just a few weeks, a new brand can achieve high brand recognition and initiate product trials rapidly, hoping to sustain the initial sales with satisfied consumers wanting to make a repeat purchase after the initial purchase.

It also works for major competing brands that have achieved parity in stature (and therefore also price). A challenger starts the war by lowering his prices to gain higher market share at the expense of the market leader. A marketer does not do this to be more profitable, because lower prices mean less money, not more. But it is an effective tactic for gaining market share. The market leader can meet the challenge head on by also lowering his price. A second round of price cuts can ensue, and then a third, and so on. But he doesn’t have to. The wise brand manager of the market leader will instead offer something else – perhaps launch a promotion that will give the consumer extra product without changing the price. The additional product effectively brings down the cost per unit price, but the sticker price remains the same. For instance, bundling the product with a smaller pack, say a half-liter is offered free on a full liter purchase. That gives the consumer 50% more product at the same price. More value for his or her money. For the marketer, he simply moved 50% more inventory but did not raise his sales revenues.

Price wars are very expensive exercises, and marketers are always warned against going into them because previous exercises usually show no real winner. Except perhaps for the consumer. They can get a really great deal from both of the competing brands, regardless of their brand loyalties.

When is a price war worth waging? Only in instances where the challenger needs to grow sales to a certain volume where the totals can compensate for the lower revenues per unit of product sold. Translation: economies of scale. In most manufacturing operations, larger volumes enable the company to spread fixed costs such that the actual cost to manufacture a single unit of the product becomes lower. In other words, it is usually cheaper by the dozen.

To illustrate: if it costs say a million dollars a day to run a manufacturing plant to produce one million bags of chocolate chip cookies in a single 8-hour shift, then that means the unit cost of producing the cookies is $1.00 per bag. Most likely, it will not cost another one million dollars to run a second shift to produce a second batch of one million bags of cookies. Typically, the cost for the second shift can be as low as merely 50% of the cost of the first shift. Why? Because the first shift already paid for most, if not all, of the standing overhead costs – the factory and all the equipment inside, the rental for the property and the warehouse, the forklifts and any other vehicles operating within the premises, permits and licenses, insurance premiums, etc., for that day. That means the second shift will only have labor, raw materials, and direct operating costs (such as electric consumption) tallied as its total cost. That means that the overhead costs are now spread over two million bags of cookies instead of just one million. If that overhead cost was $0.50 per bag for the first million, then the new overhead cost becomes $0.25 per bag for two million bags. And production costs for the two million bags is now $0.75 per bag, instead of $1.00 per bag.

To complete the illustration, if the company sees that it can double its sales volume by reducing its price by as much as 25%, then they should do it.

There are also speculative price wars. Let us say two companies are in the business of providing transport services to producers of livestock, and both have a fairly equal share of the market. But the holidays are coming up. Their clients are going to have an increased need for transport services to get their turkeys out before Thanksgiving and their hogs out before Christmas. The smarter company will lease additional trucks from a vendor. This will increase his operating costs but he hopes to make up for it by growing his volume by so much more. He then starts offering discounted rates to the farmers, maybe as much as 40% off on a second truck just for the season. If the farmers bite, this will mean the transport company will double his volume and grow his revenues by 60 percent. If he only increased his operating costs by 30% paying for the additional trucks, then he would have grown his profits by 30%. If his competitor did not do anything to protect his market share, then the smarter company would now likely control two-thirds of the market.

Price brands.

Many times, when market leaders are being challenged, they develop “flanking brands” – these are essentially competitors to their own brands except that they are also owned by the company. How does this make sense? Simple: if your consumer is about to drop your brand in favor of a cheaper alternative, you will want that alternative to be one of your own brands (what we call a “price brand” or “flanking brand”), instead of the real competitor. That way, the consumer’s money will still go to one of your own pockets, instead of to your competitor’s.

This was best demonstrated in the Philippines during the protracted beer wars between San Miguel Corporation and Asia Brewery Inc. (ABI) in the 1970s up to the 1990s. SMC had been the sole beer brewing company in the country for decades. An early competitor, Halili Beer, was bought out and quietly killed. Along came Asia Brewery, owned by tobacco tycoon Lucio Tan. Tan had a robust war chest from the profits of his cigarette company (he was licensed to manufacture Marlboro and Philip Morris, among others). He launched brands one after another to challenge the market supremacy of San Miguel’s Pale Pilsen – the country’s number one beer for many generations. For very many years in fact, San Miguel was the only brand available. None of the challenger brands ever succeeded in making any serious dents into the market dominance of San Miguel. A huge part of SMC’ success in defending its turf was the flanking brand strategy. Before Asia Brewery could launch any of its new brands, SMC would already have launched another brand to compete with the new entrant head on. Typically, the flanking brand would be priced below the challenger brand, and this undercutting tactic would always make it impossibly expensive for ABI to compete. They would be forced to lower their price – to the point where they would be losing more money the more bottles they sold, if they sold any bottles at all.

An interesting “side effect” of this situation was the relationship that evolved between SMC’s Pale Pilsen and the flanking brands. One of these brands was Gold Eagle, a reasonable facsimile of the flagship brand Pale Pilsen but was always priced lower than PP. Gold Eagle was the main flanking brand used to draw buyers away from ABI’s brands. It became quite successful on its own and established its own base of loyal consumers. Gold Eagle created its own market segment, typically previously loyal Pale Pilsen drinkers who didn’t mind taking a slightly watered-down version of their favorite beer if it meant saving some money on every bottle. Another successful flanking brand was Red Horse, the one with a higher alcohol content and was billed as the “Extra strong beer” for consumers with higher testosterone levels (or thought they did) and the alcohol appetite to match. Clearly, with such a lineup of strong brands (there were a couple of other brands, including a non-alcoholic brand for the ladies, Lagerlite), SMC was making sure Asia Brewery would be facing an uphill battle every time they wanted to pick a fight.

Pricing was a key element in their differentiation from one another. It came to a point where if SMC needed to be more profitable, they would simply raise the price of Gold Eagle a little bit. That little trick would not just increase revenues per unit of sales on Gold Eagle, it would also lead some of its consumers to think that, “Hey look, the price difference between Gold Eagle and Pale Pilsen is now only a few centavos!” At this negligible price difference beer drinkers would then switch up back to Pale Pilsen. The small price difference tells them that for just a little bit more money, they can have Pale Pilsen, the benchmark brand, the gold standard for beer in the Philippines. Why settle for a second-rate beer brand if the top brand is only a negligible price difference away? Of course, as more of these consumers switched up to Pale Pilsen, SMC made even more money with every bottle sold.

What is a product?

In the marketing mix, what is a Product?

“Build a better mousetrap and the world will beat a path to your door.”

That was in the old days. Since the early days of the post-industrial revolution age, free enterprise and capitalism have made great strides, progressively changing the world. Today it is never going to be enough to simply invent a better mousetrap. It is infinitely more important to announce that you have built a better mousetrap. Many times, in fact, information alone about a better mousetrap can be far more valuable than the actual mousetrap.

Let us have an illustration: suppose a gold mining company strikes a mother lode. Everyone knows that the precious metal will always be valuable, and its price may rise and fall depending on the caprices of market forces such as supply and demand. And regardless of the price (around $1800 per ounce in 2021), gold will always be gold – the “gold standard” is gold. But that piece of information, that little tidbit of knowledge that Company X has struck gold – that is priceless. Should this valuable information be leaked, those who catch wind of it will undoubtedly invest all their available funds into the stocks of that company. And as soon as those few in the know start buying up the company’s stocks, others will speculate and quickly join the fray. A buying frenzy ensues, and the leaked information will likely cause the company’s stock to rise through the roof. Within a matter of days, millions, and maybe even billions of dollars will change hands and enormous fortunes will be made. Nobody knows how much the new find is really worth, if it is indeed worth anything. In all this time not a single ounce of gold has yet been extracted from the ground, but already so much money has been made and spent.

The interesting thing about this example is that this actually happened. A Canadian mining company known as Bre-X announced in 1995 that they had found a lode in their gold mine in Indonesia that could produce anywhere from 2,000 to 6,000 tons of gold. This made headlines around the world and thousands of people threw their money at it. The company’s stock was only worth pennies before the announcement and it went up to CAD $286.50 at the Toronto Stock Exchange, thereby giving the company a valuation of over CAD $6 billion. But it was all a hoax. The drilled ore samples were salted with gold dust – filings from jewelry. By 1997 Bre-X had filed for bankruptcy.  Welcome to the Information Age.

More on the Product.

A popular tactic used by advertisers is, “sell the sizzle, not the steak.” However, in spite of the hyper valuation that advertising attaches to related elements but are extrinsic to the product itself, the product remains at the very heart of any and all marketing plans, programs, and activities. You can only sell the sizzle so much. Sooner or later, the customer will want to take a bite, and actually sample the steak. If you have a product that can satisfy a need, deliver on a promise, or at the bare minimum be worth the price you are asking for it, then you are in business. At the very least you have something to sell. If all you have is the product and none of the other Ps, then you can engage other people to provide them for you. For instance, you can hire a distributor to distribute your product for you. If you have no promotional capabilities, you can always hire an ad agency, a promotions agency, even a PR agency.

What about price? Surely, if you had the product you would have its price. They are inseparable. Producing a product incurs costs. A producer or manufacturer (or inventor) must have a running list of things that were consumed in the production or creation of the product: materials used up, resources allocated, time spent, manhours consumed, and so on. At the most basic level, tallying up these costs gives you an idea how much the product is worth… to you, its producer or manufacturer. How much is it worth to the prospective consumer? You will need to figure that out separately. Whatever is the difference between these two costs is your gross profit. We will tackle that subject later.

Can you have the manufacturing capability but not have a product? In other words, can you be a producer, and yet not own a product? Yes. There is such a thing as toll manufacturing. You can be an independent company whose business is providing manufacturing services and facilities for someone else who has a product but does not have the capability to manufacture it on his own. Find that guy who has a product but cannot produce it himself. He is your client. Normally, toll manufacturers invest in their facilities on such a large scale that their capabilities enable them to produce products for other companies very efficiently. These companies have taken the concept of economies of scale to a very high level. Let us have an illustration. Let us say that a certain Mrs. P started a bakeshop many years ago. She now runs a factory that makes sliced bread able to produce 10,000 packs of a day for $1 a pack. This small family-owned bakery has been so successful that they have grown their sales volume to such a level that it made sense for them to put up their own factory. Over time the city population has grown and there are now several such bakeries but not all of them have the volume to invest in their own factories. Enter the toll manufacturer. Mr. TM builds a factory that can produce 60,000 packs of sliced bread running three shifts on two production lines, with each line producing 10,000 packs per 8-hour shift. How much do you think it costs Mr. TM to produce each pack of sliced bread? A good estimate would be around $0.20 per pack. How? First, he has two production lines under the same roof, then each line is working three times as hard as the small factory of Mrs. P – three shifts vs one. Now Mr. TM offers to do toll manufacturing for all the other bakeries in the city. They agree because his costs are so much better than if they built their own factories. They are now able to compete with the pioneer and market leader bakery of Mrs. P, and even offer lower prices. In this scenario, how does Mrs. P survive?

If you don’t have the product but you have the capability to place it into store shelves, then you are in the business of distribution. Place, or placement, a.k.a. distribution, is an important and a major part of marketing, but by itself, it is not marketing. Find that somebody who has a product but does not have the capability to distribute it. He is your client. If you have the promotions capability, but you do not have the product, then you are in the business of advertising and/or promotions. Perhaps you run an ad agency, or a merchandising company, but you are not a marketer. Find a marketer – he’s the one who has a product. He is your client. If you only have the price but not the product, then you have nothing. One does not exist without the other.

In the grand scheme of things marketing, notice that it is the guy with the product who is the central figure. In this industry, he is known as the client. He goes by different titles – brand manager, product manager, marketing manager, marketing director, etc., but his most important title is Client. He is the one who approves all the plans and proposals for how to market the product coming from everybody else.

Needless to say, any product worth marketing should be worth marketing well. A product that will not deliver on its promise will die a natural death, and any marketing or promotional effort put into selling it can only hasten its demise that much faster. The worst thing that can happen to an inferior product is for it to have great advertising. And there have been many such cases where the advertising was better than the product, and as soon as consumers discover this, they stop buying the product. Slick snake oil marketers can probably get away with fooling the consumer once or twice, but they certainly cannot expect to make a living out of it. Not in today’s world anyway. As one marketing director once put it, “The consumer is not stupid. I know that because I am married to her!”

But what exactly is a product? It is any object (and these days, it is more likely to be a service or a process) that fulfills a particular function. Examples of this function include the service that a babysitter provides, everything in fact that serves a function: from removing dirt from your clothes (detergent) to quenching your thirst (beverage), to bringing you from your location to a desired destination (transportation), to being given a pleasurable experience such as being entertained by a movie, a television program, or a Broadway play. Whatever it is, it is something that you as its prospective consumer finds valuable. The range of values is infinite. As a consumer, you may be willing to only pay up to a certain small amount for a simple item such as a safety pin that will help hold up your skirt. Or it may be as priceless as an engagement ring, or an Impressionist painting. Anything that a prospective consumer attaches a value to is a product.

Do all products need to be marketed? Not really. Obviously, there are far too many different kinds of products to be covered in one book. Suffice it to say that marketing comes into play only when there is a need to inform and/or educate the consumer about the product, or when there is competition for the consumer’s patronage between similar or alternative products. Competition created marketing. Need is the mother of invention, and the need to be more desirable than your competitor gave birth to marketing. Do products only compete among their equals under the category of “similar products”? In other words, does Coke only compete with Pepsi and other soft drinks? No. In many instances, a product will have direct and indirect competitors. In our Coke example, soda actually competes with all other beverages for the same consumers. This includes coffee, tea, fruit juices, and water. Any liquid that goes into a consumer’s throat to quench his thirst is a competitor. Back in the 1980’s, after Coca-Cola dethroned Pepsi as the number one selling soft drink in the Philippines, their advertising agency McCann-Erickson did not only keep track of their market share versus Pepsi and the other sodas under the heading Share of Market, they also kept track of all the other beverages under the heading Share of Throat. Any beverage that a consumer reaches for to quench his thirst was a competitor.

There are also generic or commodity-type products that are bought, sold and consumed with little regard for any differentiation among them. Good examples would be food items such as produce – vegetables are rarely branded. Wet market items such as seafood and meat are also usually unbranded. When you are buying kale, okra, bananas, or potatoes, you don’t really care if they carried a brand name or not, such as Del Monte, Chiquita, or Dole. Even if there might be real distinctions between the choices, consumers rarely pay attention. For instance, there are several varieties of potatoes, and where they come from can make a difference between them, but the brand they carry, if they have one stamped on them means nothing to most consumers. The same is true of other produce items – avocadoes, tomatoes, celery. Most consumers simply don’t care.

What they might care about instead could be what class of commodity is being offered to them. The best illustration of this would be organic produce vs ordinary produce. Or avocadoes from Mexico vs avocadoes from Florida. California wine vs wines from Chile or Australia, or from France. There are of course instances where the origins of a product can and does make a difference – a huge difference. Case in point: champagne vs sparkling wine. Legally, only grapes grown in the Champagne region of France may be called champagne. A parallel situation exists for cognac vs brandy, and there are also similar such situations among cheese and other deli products. You can buy countless varieties of ham at any supermarket. But does anybody know why hams from Spain cost so much more than all other hams?

The opposite is true in some other products that have no real differentiation and yet their brand names can be so strong that their consumers are so brand loyal you could mistake them for a cult. This is illustrated in the product we know as gasoline and what other countries call petrol. This product is essentially the same wherever or whomever you buy it from. And yet, thanks to fierce advertising and marketing campaigns by the big oil companies, some people will only put Shell into their cars, while others will only buy from Mobil or Exxon.

An even more fierce brand differentiation exists among fashion brands. People will pay double or triple for a pair of jeans that carries a strong brand label – Levi’s, Guess, Wrangler, Lucky, and so on. Are there true differentiations between them? Not really. They are all made from the same raw materials – denim fabric sewn together with the same threads, with similar styles and shapes. And yet their loyal consumers will swear that they are not the same. For some reason, a certain brand gives them a “better fit” more than the others. That “fit” is of course as much a function of their body shapes as the design or style of the brand. 

This discussion can go on and on ad nauseam. We can talk about so many other product categories where there is little if any distinction existing between the competitors and yet consumer perception sets them miles apart from each other. Coke vs Pepsi – research studies have proven time and again that most consumers cannot tell them apart in blind taste tests. This applies to most beverages, alcoholic or otherwise. When offered several brands of whiskey, an experienced drinker would savor the best, or the most expensive among them first. Because after his palate is already numbed by the first few rounds of alcohol, he may have trouble differentiating between the tastes of subsequent sips and gulps. There are many other product categories where product differentiation is negligible at best, and yet brand differentiation can be quite fierce – laundry detergent, dishwasher pods, toothpaste, most household cleaning products. Paper products – toilet tissue, paper towels, table napkins, and other paper products used at home and in the office, such as copy paper, envelopes, and other stationery.  Apparel – socks, sneakers, underwear; other products made from fabrics, bedsheets, pillowcases, towels; etc., etc., etc.

Product Parity

If this is inevitable, how can one brand effectively compete? How does one brand rise above the rest? Marketing guru, inventor of the concept of positioning, and best-selling author Jack Trout gives the best answer: Differentiate or Die.

There are countless examples of this being played out in every market even today. If you take a glass of Coke and a similar glass of Pepsi, for example, there is no way you can distinguish one from the other with just the naked eye. But even if you place them both under a microscope, you may not be able to differentiate one from the other. In fact, most people cannot tell them apart in blind taste tests. This research finding was exploited to the hilt by Pepsi when they launched their “Pepsi Challenge” campaign. The challenge was premised on the fact that in blind tests, “loyal” Coke drinkers will drink a Pepsi if they did not know it was a Pepsi (and presumably, vice versa). And yet brand loyalists from each side will swear they cannot be “tricked” into drinking their brand’s competitor. Obviously, both brands have done such a great job of differentiating themselves from the enemy that their respective consumer bases will blindly follow their brand into battle with the other side.

Branded vs Generic and “House Brands”

Most consumer products are available under more than one brand, and in many cases – particularly among pharmaceutical products – are also available as a “generic product”. What does that mean? The pharmaceutical industry enjoys the privilege of exclusivity for any new drug that they develop. The new drug is normally granted a patent that is good for a limited number of years, typically 15- 25 years. Why? The justification lies in the enormous cost and resources needed to invest in research and development before any new drug can be registered and released to the market. Many times this effort takes years before it bears any fruit, if at all. All of these investments into R&D will need to be recovered (and then some) for any drug company to even bother with doing the research in the first place. The patent protects the pharma company and encourages their industry to continue developing new drugs. The patent also practically guarantees profits because the new drug will enjoy a monopoly until the patent expires. This explains why most new drugs are so expensive. The drug companies that manufacture them need to make as much profit from it within the lifetime of the patent – before competitors come in and start offering generic versions of the drug at lower prices. Competitors can price their generic versions much lower because they do not have to recover any sunken costs that went into the research and development of the new drug. Generic versions of most drugs are distinguished from each other by identifying their manufacturers, they are not allowed to place their own brands on the product.

Sometimes a new drug is “discovered” by accident, as opposed to being intentionally developed. A good example is the case of Viagra. Its generic name is sildenafil. Viagra was actually discovered by accident in 1996 when Pfizer was working on a treatment for high blood pressure and angina pectoris, a symptom of heart disease. The idea behind the drug was to increase blood flow around the heart muscles to help it perform better at pumping blood. Clinical trials showed that it was not so effective. However, the patients were reporting an interesting, if not surprising, side effect: the men were experiencing penile erections after taking the drug. It appears that the drug was indeed doing what it was originally designed to do: increase blood flow to the muscles, except that it was going to a different set of muscles than intended. Pfizer had stumbled on a cure for an ailment that, up to that time, nobody even recognized as an ailment or what to call it. Today everybody knows what the words “erectile dysfunction” mean. And Viagra is an outstanding success story.

What about non-pharmaceutical products? These products usually do not have patents, and that means any manufacturer can produce their own versions of them anytime. Hence the bewildering array of competing brands for most popular consumer products: potato chips, hotdogs, soaps, pasta, shampoos, toothpaste, cleaning aids, detergents, breakfast cereals, ice cream, cosmetics, beverages – alcoholic and otherwise – candy, chocolates, toys, T-shirts, underwear, and other forms of apparel, including footwear, ad infinitum. Or, just about everything that you can find in a grocery, supermarket or department store. The popular technique employed by some marketers of generic household/consumer products is to use what is called a “house brand” – creating a new brand that is available exclusively only at a particular chain of stores. In the US, the more popular/successful brands include Kirkland from Costco and Up&Up from Target. Drugstore chains like CVS and Walgreens use their own name as the brand for such products, validating the use of the moniker “house brand” for these products. In the Philippines, the most visible house brand is “Bonus”, from the SM family of supermarkets, department stores, and malls.

Are generic and/or house brands any good? How do they compare with the top brands? Generally speaking, generic versions of pharmaceutical products are almost identical to the branded originals. That is because pharmaceutical products have to follow strict government guidelines in their manufacture and specific ingredients have to be identified and indicated in their labels. A generic drug must have equal efficacy as its branded equivalent. This rule does not apply to regular consumer products. A roll of toilet paper can have varying specifications in terms of thickness, width, length, and so on. They used to come in different colors, too, but in the last few decades, people began having health and environmental concerns about the dyes used in coloring them. In 2004 they became singularly white. But the point was, for as long as the product performs its stated function, then it is fine. A roll of Kirkland toilet paper is cheaper than a roll of Charmin, and they will both do the job. But consumers might feel a little better shelling out more money for something that feels softer against the skin in their bottoms.

Differentiation need not be found in the product itself. It need not be a physical difference between a brand and its competitor. In most cases, as demonstrated by the Coke vs Pepsi example, it can be almost impossible to tell them apart. As the concept of The 5^th P puts it: it is the perception of a difference that matters. What the consumer believes is what counts.

How strong a motivator is belief? The best example to illustrate this point is religion. No need to elaborate.