Integrated Marketing 2.0
Marketing: The Evolution of the four P
"Marketing is so fundamental that it cannot be seen as a separate operational function. Marketing encompasses the entire enterprise, viewed from the bottom line, i.e., from the customer's point of view." (Peter Drucker)
Marketing is a corporate philosophy and central corporate strategy that encompasses market- and customer-oriented planning and action in the areas of product, price, distribution and promotion. These universally known 4 Ps are sufficient, since the often propagated additional 3 Ps (Packaging, People and Positioning) are either directly covered by the product experience or result from the combination of the 4 Ps.
Customers buy products. A product is a complete package consisting of functionality, customer value, customer experience and cost. Marketing usually takes place at the vendor level and at the product level. The vendor tries to position himself so that its brand stands for customer benefit, customer experience and functionality. This simplifies the marketing of its products.
The focus here is on IT products and IT-based products, as these have the most complex properties on company and product level.
Four cornerstones define a product: functionality, customer benefit, price and customer experience. They also largely determine the potential customer base. The decisive factor for the customer is not only the functionality at the time of purchase, but also the functionality over the planned useful life. The customer benefit is objectively determined by the totality of the performance characteristics of the core product and the associated contribution to the customer's problem solution. The performance characteristics include not only functionality but also implementation. Functionality alone is no guarantee for a customer-oriented and competitive customer experience. This refers to the subjective experiences of the customer, which he makes from the product consultation - over the purchase and the start-up - up to the end of the product use. In addition to user-friendliness and integrability, this also requires customer service that is efficient for the customer. This helps the customer with product-specific problems and ensures that the customer can use the product as planned during its service life.
Integrated marketing is embedded in product development from the outset through product marketing, among other things. It ensures that product development is customer and market oriented and takes the lead in creating important basic documents. The Business Requirement Document (BRD) shows which problem should be solved by the product for which customer group and how this solution should look like. The Market Requirement Document (MRD) shows the requirements that the product must fulfill and the market in which this product must exist. It usually contains a list of the required functionality, a market and competitor analysis, the definition of functional and non-functional requirements, the prioritization of functionality and requirements and finally a description of use cases. The market analysis shows the current market, including competitors and existing market dynamics. The potential customer base determines the potential of the overall market, while the targeted customer base defines the market requirements to be met. The Market Requirements Document forms the basis for the Product Requirements Document (PRD), which identifies the requirements from a product perspective. This goes into greater detail with regard to performance characteristics and functional requirements and regularly also includes user interface and interaction processes. The PRD is the basis for the Functional Specifications Document (FSD), which defines the complete details of the functional product requirements with a focus on implementation. It can be used directly by developers as a basis for development and is also the basis for estimating the development effort. This consists of the financial and time effort for product development. This results not only in the costs to be apportioned, but also in the earliest possible market availability.
In order to accelerate market entry and generate revenue as quickly as possible, the initial customer base is usually limited to "early adopters" and the functionality is restricted to what is necessary. For the rest there is a roadmap and a PowerPoint presentation. Thus, the market entry does not take place with the actually planned product, but with a preliminary stage. This has corresponding effects on the possible customer base and the initial market potential. It also explains the initially short "innovation cycles" and frequent generation changes, which can be found especially in the application area. Almost every available product is a trade-off between performance characteristics and quality on the one hand and time and cost on the other. In this trade-off, product marketing must ensure that the product delivers the targeted customer value and is competitive.
Marketing produces data sheets, application examples, training documents and competitor comparisons. It also takes care of customer service and the user community. Online forums can be used to provide not only help but also a moderated place for users to share their experiences. Since customers also exchange ideas away from the venues provided by the vendor, proactive product marketing also requires participation in discussions in these venues. The assistance and the conversation must be customer-oriented and must therefore take place where the customer wants to exchange ideas.
The price of a product is determined by four main factors: Cost, customer value, competition, and positioning. The price must not only cover the vendor's costs, but also lead to a profit, because this is the only way to ensure the vendor's survival. On the other hand, it must also be in line with the market. The higher the price, the clearer the addressable market. If the price is too high, the market potential is reduced both because of the limited competitiveness and because of the poorer price/performance ratio. However, if the price is set too low, i.e. lower than the price the customer would be willing to pay, the vendor is leaving money on the table.
Price is also a component of a product's positioning. A premium product has a price that is perceptibly higher than the market average. However, if the priority is to gain as much market share as possible, the price is designed in such a way that the market potential is not limited by the price and competitors with lower prices for products with competing functionality and similar customer experience cannot realize most of the market potential.
Another factor is the difference between the official list price and the price effectively paid by the customer. The latter is also known as the street price or project price. Particularly in the project business, the competitive situation can sometimes lead to massive price reductions.
Price and cost transparency
Price transparency is not uniformly available. Search engines have made prices in the retail sector transparent. Using price search engines, it is easy to find the cheapest vendor for a particular product. The situation is different in the project business, where prices are highly project-dependent. In the traditional model, where the customer buys a product and also signs a maintenance contract, both investment costs (CapEx) and operating costs (OpEx) are incurred for the product. The large discounts in the project business are mainly granted on the CapEx, while discounts on maintenance contracts are usually much smaller. However, this implies that the cost of the maintenance contract is calculated in relation to the list price and not in relation to the price paid. In the case of managed services, where product functionality is offered as a service, only any installation costs (set-up fees) are attributable to CapEx, while otherwise only OpEx and no direct investment costs are incurred. The possible discounts depend on the type of service purchased. Often discount structures are determined by the quantity of the service purchased. For software, the price flexibility is higher than for other services. For managed services, however, the greatest price flexibility is in the service level agreements (SLA): the better the guaranteed service, the more expensive the offer.
Price is also used to position a product. A premium product is usually in the top quarter of offerings in terms of price. In the customer's perception, it is therefore more expensive than other offers. Given a free choice, a customer will generally opt for the product that he expects to offer the best benefits. An important decision factor here is the price/performance ratio. The customer has the greatest benefit if he acquires the required functionality at a reasonable price. The decisive criterion here is the value for the customer, from the customer's point of view and not from the vendor's point of view. Low-priced products with limited functionality are only a viable alternative for the customer if the functionality offered is sufficient for the intended use. The direct and indirect consequential costs of product selection and acquisition are usually given too little attention in the price discussion. However, it is precisely the total costs over the planned period of use that best provide information on the value for money of a product and thus on the appropriateness of the price.
Product demand requires that the customer has knowledge of the existence and functionality of a product. If no information is available and the product is not known in any other way, the starting point for customer demand is missing. The prerequisite for this is presence and findability. Advertising and public relations ensure that the offer is known in the target market. They are the push element that leads to a pull from the customer, the appetizer that should trigger the desire for more. Any activity aimed at arousing customer interest qualifies as a push: advertisements, dialog, event and direct marketing, and PR. The company's own physical and digital presence serves as the foundation for all marketing communications and is the destination to which the customer is directed. The digital presence plays a crucial role here, as it also serves as an information hub. A distinction is made between direct and indirect push. Direct push goes to existing customers and known addresses, while indirect push is handled via the presence of third parties and also addresses previously unknown prospects. Indirect push includes advertisements as well as press releases and sponsored "technical articles". The desired market presence and positioning can be achieved through the use of different measures that are coordinated in terms of time and space. Promotion is the attempt to influence the existing dynamics in the affected submarket in one's favor by means of communication instruments. If the chosen measures are not customer-oriented, their efficiency is only marginal, because after all, marketing should lead to the customer who is ready to buy. How well this succeeds depends on many different factors. Besides the stage of development of the submarket, it also depends on the competitors. Market dynamics result from the market position and the actions of all market participants. In this ecosystem, consolidations can have a massive impact on market dynamics. If a large vendor with a lot of market power takes over a small vendor that has good products but limited market power, market power and good products combine, which can lead to a market shift. However, well-planned and implemented integrated marketing campaigns by a vendor that has competitive product and is well established in the market can equally lead to market share gains. However, the goal of integrated marketing communication is not limited to shifts in market share within the existing market, but also includes increasing demand, sales and profits by enlarging the market.
Business-to-Business versus Business-to-Consumer
In business-to-business (B2B), this works differently than in business-to-consumer (B2C) or sequential business-to-business-to-consumer (B2B2C). This is due to the different decision-making and purchasing processes. In addition, many products from the B2B area are not suitable for the consumer. On the other hand, more and more consumer products such as smartphones, tablets and cloud-based services are finding their way into companies. The B2B market is thus mutating into a hybrid B2B/B2C market. In the traditional B2B market, it is mostly higher-priced and high-value products that make sense in the context of corporate use and also have a reasonable return on investment (ROI). It is also usually the corporate customers who can justify a purchase of products in early stages of development with the expected ROI.
An early development stage of the targeted submarket places higher demands on integrated marketing. If the development stage is between "bleeding edge" and "leading edge," the necessary expertise in the market is sparse. If the necessary expertise is still lacking in the market, the vendor must compensate for this by informing and training the market. In an indirect sales model, the channel and customers must be informed and trained. In addition, the information must be prepared in such a way that third parties can competently report on the technology and products. The basis for the information and training is created by product marketing, because it is familiar with both the product and the targeted market. It also knows how the customer benefits from the product.
In the B2C sector, products are on average significantly cheaper and more mature than in the B2B sector. Development costs can be passed on to massively higher unit numbers and maturity avoids high support costs and damage to reputation.
Traditional models no longer work
Traditional models of integrated marketing communication assume communication controlled by the vendor: The vendor positions itself and the products in the market via appropriate measures. The control of what is published when and where lies predominantly with him. Web 2.0 and social media have overturned these traditional models. True to the motto "Markets are conversations" propagated in the "Cluetrain Manifesto," discussions about manufacturers and products are widely scattered on the Internet. They increasingly counterbalance the official pronouncements of manufacturers. Search makes these discussions easy to find. Syndication formats and referrals on social networks help spread the word. Support forums on the vendor's website show not only the problems customers are having with the product, but also how the vendor is dealing with problems they know about. The vendor must adapt to these new realities. Communication is not a one-way street, but a dialogue with the market.
For marketing communication, it is important to position the product correctly. If the functionality promised in advertising proves to be at least partially a fiction or is only available under limited scenarios, the expectations created will be disappointed. This leads to a loss of trust and a damaged reputation.
Marketing communication has to be as customer and market oriented as the other three Ps. After all, it is only one of four main elements of integrated marketing.
4. Distribution channel
Lack of distribution structures affects the availability of the product and thus the market potential. Distributors multiply the number of places where the customer can obtain a product. Whether distribution is two-stage - via distributor and reseller - or single-stage - directly from vendor to reseller - is irrelevant as long as the vendor has direct contact with the reseller. Otherwise, multi-level distribution distances the vendor from the reseller. Direct contact is encouraged by both channel marketing and field marketing. Channel marketing motivates, supports and informs the channel partners, while field marketing serves to support the channel partners with the customer. The latter also has the advantage that the vendor is close to the customer and can thus gain important insights in terms of customer needs, which are then in turn sent to and processed by product marketing. The right sales partner will also already have existing customers who match the vendor's target audience. This facilitates access to the customer and allows them to purchase products from a source they are familiar with and already have. However, there are also customers who prefer to purchase products directly from the vendor. Both direct and indirect models are used in the B2B segment. Many vendors use a hybrid sales model: the product is available both directly from the vendor and through channel partners. Software-as-service and other cloud-based models are mostly available both from the vendor itself and through partners. If the vendor of a cloud service is an American company, that company is subject to the Patriot Act and the Cloud Act and customer data is unprotected from access by American authorities. If the same or an equivalent solution is offered by a European vendor with a European data center, this issue is to a large degree mitigated. Many solutions are also available for use in a private cloud environment, which additionally ensures that one knows where exactly the data is stored. So again, direct and indirect distribution models are possible.
The distribution model is an important factor in customer acquisition costs. An indirect sales model outsources part of the customer acquisition costs to the sales partners. These are usually only insufficiently compensated for this. Normal resellers can only dream of the 30% margin that Apple and Google allowed themselves for a long time in their AppStores for customer acquisition and product delivery. But even that is changing after many many years. Not that the margins of resellers would increase, but that the AppStores would adjust their margins downwards.
Search, social media, Web 2.0 and now Web 3.0 play a significant role in sales. Through search, customers not only find products, but also sources of supply. Social media is used to share experiences with sources of supply, and Web 2.0 is what made SaaS offerings possible in the first place.
Integrated marketing only works properly when the four Ps (Product, Price, Promotion and Places) are well aligned. But if this is the case, integrated marketing leads to market success and satisfied customers, without requiring excessive sales efforts.