288 The Marketing Book
But profit is an ambiguous goal. Are managers
to aim at short- or long-term profits? Should
they seek to maximize profits or achieve some
satisficing goal? Each alternative would lead to
radically different recommendations for mar-
keting mix decisions. It is fair to conclude that
most of the writing on marketing has described
the marketing mix but not provided a rational
framework for managing it.
In line with the new concept of value-
based management, we define the objective of
marketing as the development and imple-
mentation of a marketing mix that maximizes
shareholder value. This definition has two
advantages. First, it aligns marketing decision-
making to the goals of the board and top
management. The board is not interested in
sales or market share per se, but rather with
marketing strategies that will enhance the
company’s value. Corporate value is deter-
mined by the discounted sum of all future free
cash flows. Second, shareholder value provides
rational and unambiguous criteria for deter-
mining the marketing mix. The ‘right’ market-
ing mix is the one that maximizes shareholder
value.
This chapter focus on marketing mix deci-
sions for private sector firms whose major
objective is creating value for shareholders. In
non-profit and public sector organizations, the
objective is not shareholder value maximiza-
tion but attracting enough funds to perform
their social tasks.
The chapter explains the logic of this new
approach to the marketing mix and illustrates
its application to typical decisions about prod-
uct development, pricing, promotion and
distribution.
The traditional approach to the marketing mix
Marketing professionals have normally been
taught a four-step approach to marketing mix
decisions. Step one is to define the product’s (or
service’s) strategic objective. This emerges from
an analysis of its strengths, weaknesses, oppor-
tunities and threats. Marketers have found the
strategic matrices developed by consultants
such as the Boston Consulting Group and
McKinsey to be useful (for a good summary of
these matrices see Grant, 2000, and the com-
ments of Robin Wensley in Chapter 4). Typi-
cally, a strategic matrix has market growth or
market attractiveness as one dimension and
competitive advantage as the other. A product
in a highly attractive market with a strong
competitive advantage would normally have as
its strategic objective rapid sales growth. A
product in a poor market with no competitive
advantage would be targeted for divesting.
Step two is a detailed analysis of the
target market to assess the nature of the
opportunity. What is its size and potential?
How strong is the competition and how is it
likely to evolve in the future. Step three is
research into the needs of prospective custom-
ers. What is it that customers actually want?
Today, this goes beyond merely asking cus-
tomers what they are looking for, but
creatively seeking to discover needs that cus-
tomers cannot articulate because they are una-
ware of the possibilities offered by new tech-
nologies and the changing environment (see,
e.g., Hamel and Prahalad, 1991). To most
marketing professionals the marketing mix is
designed to meet these customer needs and
wants. Each element of the mix is designed to
meet a customer need. Lauterborn (1990)
articulated this with the concept of the four
Cs. Consumers have certain needs, which can
be grouped into four Cs – a customer solution,
cost, convenience and communication.
According to this popular view, the function
of the four Ps is to match each of these Cs.Four Cs Four Ps
Customer solution Product
Customer cost Price
Communication Promotion
Convenience Place