Managing the marketing mix 289
An effective marketing mix is then one
which offers a product that solves the custom-
er’s problem, that is of low cost to the customer,
that effectively communicates the benefits, and
that can be purchased with the utmost
convenience.
The problem with this ‘marketing’ view of
the marketing mix is that it ignores whether the
mix makes economic sense for the company.
While it maximizes value for customers it can
easily minimize value for shareholders. For
example, the product that gives the best cus-
tomer solution is likely to be one individually
tailored to a specific customer, incorporating all
the features of value to that customer. But for
the company, this would require a very broad
product line with high manufacturing costs and
substantial investment requirements. Unfortu-
nately, what customers also want is low cost,
which in most situations will mean offering
them low prices. Similarly, the unconstrained
pursuit of convenience and communication of
the brand’s benefits also involves higher costs
and investment. The formula of low prices,
high operating costs and high investment in
promotion and distribution is not one that
builds successful businesses.
A striking example of the problems of the
marketing-led approach to the marketing mix
has been the collapse of the Japanese economic
miracle (Porter et al., 2000). Until the early
1980s, the Japanese were held as the paragons
of successful marketing (e.g. Ohmae, 1985;
Hamel and Prahalad, 1994). Japanese com-
panies such as Nissan, Matsushita, Mitsubishi,
Komatsu and Canon appeared set to dominate
their markets. Their formulas were similar: an
overwhelming focus on investing in market
share, and a marketing mix based on fully-
featured products, low prices, aggressive pro-
motion and an extensive network of dealers.
The strategy did lead to gains in market shares
as consumers appreciated the superior value
that Japanese companies were offering. But the
profit margins and return on investment earned
by these companies were very poor. For a time,
the support of the Japanese banks disguised
their inadequate economic performance. But in
the 1980s the bubble burst, investors lost
confidence in the ability of Japanese companies
to earn an economic return on capital and Japan
entered a two-decade recession.
The dot.com ‘bust’ of 2000 illustrated the
same sort of weaknesses. These start-ups made
market share their sole priority. Products and
services were given away free or below cost.
Huge sums were spent on advertising and
promotion in the belief that if they achieved a
dominant market position in the ‘new economy’
everything else would fall into place. The result
was large number of visitors to their sites, but
the companies generated no profit and even-
tually they ran out of cash. In 2002, Yahoo!
counted its global users in millions, but it
worked out the average spend per head amoun-
ted to less than a cup of coffee annually. It was
hardly surprising that, despite its dominant
market share and brand leadership, the value of
the company collapsed by 90 per cent.
Successful businesses understand that
building brands that satisfy consumers is neces-
sary but not sufficient. Without generating an
economic return to shareholders, a marketing
mix is not sustainable.The accounting approach to the marketing mix
Faced with poor returns, some companies,
especially in the UK, adopted an accounting
approach to marketing. The marketing mix was
seen not as an instrument for gaining and
retaining customers, but rather as a tool for
directly increasing the return on investment.
Return on investment can be increased in four
ways – increasing sales, raising prices, reducing
costs or cutting investment. The marketing mix
is the central determinant of each of these
levers.
For example, cutting back on the number
of product variants offered to customers will
reduce costs and investment. Raising prices