Ignore the 5 Ps of marketing at your own peril
In the various social networking groups that I belong to I often see people talking about “strong” products. The argument goes that success in the marketplace is reliant upon the importance of having software with strong feature sets using current technology.
I always find this to be an interesting point of view.
Interesting, but wrong.
In general, customers don’t purchase products solely based on strong features and current technology. Most companies routinely select products that are not considered the best on features alone because of other considerations in the decision-making process.
These considerations usually involve evaluation upon the 5 Ps:
- Product – This is the solution and focuses on benefits and values.
- Price – This is fairly obvious but can be subtle by including different pricing options to make it easy to purchase. Pricing needs to be competitive and reasonable.
- Promotion – This is the amount and type of information that you provide for prospects to ease decision making.
- Place – This is where and how you get the product into the customers’ hands and can include a channel, direct sales and retail among other options.
- People – This is the factor that defines the relationship between the customer and the product.
If we evaluate a company (and product) such as Salesforce.com, you will find many folks that believe in the superiority of their product because of their success. The argument goes “they are successful, so their product must be the best”. Their success as a company has led people to believe in the strength of the product.
This logic is inverted and, with some digging under the hood and comparing Salesforce.com at the product feature level with comparative products, people quickly find that is not the case.
This is not to say that their product is defective but rather, like all other software products, it has value and benefits in certain areas and deficiencies in other areas.
Salesforce.com as a company grew quickly not because of reliance on the single P of product but because they performed extremely well on the other elements - in particular, price, promotion and place.
Think about this: most software purchases are run by accounting and IT groups who get invovled to slow down the process and introduce barriers to any single vendor.
By pricing and placing and promoting the Salesforce.com product the way they did – in a time where others were selling software in a traditional fashion (requiring accounting and IT group input), Salesforce positioned themselves to have a quick go – no go decision made at the departmental level within departmental spedning limits.
No accounting or IT involvement needed and, most likely, those other departments only found out about the purchase after the fact and entrenchment had begun.
This allowed Salesforce to turn sales faster and make more sales possible in a compressed amount of time as compared to the traditional solutions.
As an interesting aside, because of their tremendous success, Salesforce has created a situation where they are now at a crossroads as they continue their drive for bigger and more. Will they transition outside of their core business successfully (like Nike) or will they fragment into a confusing mess (like Microsoft)?
Putting aside Salesforce’s current challenges, let’s talk about the flip side to how Salesforce acheived their success.
What happens to a company that has so-so product and they fail to execute exceedingly well on the other 4 Ps?
As a specific example, what would happen to a company that had such so-so products (either by missing the mark of customer desires or by not keeping product features and technology current) but instead of executing like Salesforce, they:
- Priced themselves too high (price) – either by price increases or simply not paying attention to the competition.
- Dramatically shifted how customers are introduced to the products (place) – this could be by eliminating or alienating a current distribution method (retail stores, channel partners, etc.).
- Replaced quality support with untrained staff (people) – this could be a result of shifting distribution methods or not investing properly in customer service.
I think in this type of situation, a vendor might see some short-term bottom line gains until the marketplace adjusts to the new reality. After such time, the long-term outcome for this company would begin looking bleak.
Let’s focus on just one of the elements above – specifically how a weak placement would impact a vendor. In particular, let’s say a vendor organization decides to restructure their current distribution method and start using direct sales efforts that either completely replaces their channel or actively competes with it with no regard to properly communicating their plans with their channel.
The immediate impact should be a short-term revenue increase as the shift reallocates monies that formerly went to support channel activities in to the vendor’s coffers.
I say “should be” because changes of this nature can create a short-term downfall as well during the transition as existing channel members would be distracted, confused and otherwise spending too much time absorbing changes as opposed to traditional activities such as marketing, selling and servicing new accounts.
And long-term? The situation is less certain for the vendor.
This all hinges on the fact that channels exist for many reasons – most of which are economic in nature. (Some might naively feel that the channel is only in place to show brochures and conduct sales demonstrations but this is a short-sighted view at best.)
Channels serve many critical functions – particularly with vendors that are weak in multiple facets of the 5 Ps. A strong channel supplements and complements the vendor’s activities to ensure proper penetration and exposure of the products.
When discussing the effectiveness of a channel, it is important to start by understanding the fundamental idea that channel business owners have a high economic interest to sell and service their selected vendor’s product. This is their livelihood and their financial and personal goals are intrinsically tied to doing a great job in representing the selected vendor’s products.
Typically, this vested interest goes far beyond those of a standard employee in a similar direct sales role. In fact, most vendors actively discourage consolidation in channels as one plus one usually equals less than 2 as former owners become employees.
In such a situation where consolidation is actively or passively encouraged by vendor policies, a fragile situation can occur in which big channel partners are dramatically impacted by even the smallest shifts in the vendor’s channel.
In such situations, such partners built upon consolidation can be placed in precarious situations that jeopardize their solvency if the vendor makes moves such as cutting margins or shifting to direct sales. This is a dangerous situation for everyone involved – the channel partner, the vendor and the customers.
The other long-term consideration is that when you eliminate (or being competing with) a channel and do not consider the costs of replacing these functions, there will be unintended consequences across the customer’s perception of the vendor and the vendor’s products.
This will quickly start to erode efforts in creating or continuing vendor brand development as new employees at the vendor with less education and understanding of the products are placed on the front lines in replacement of long-standing channel partner employees with countless years of real-world experience and understanding of customer business needs.
Ultimately, the results of this type of shift is robbing tomorrow for today’s gains.
These types of situations look good for the short-term but the long-term is uncertain at best and a train wreck at worst.
This is just one example and, of course, many companies without strong products exist without a channel or a weak placement component. However, their success is contingent upon them executing exceedingly well on the other elements.
In our example above, the hypothetical company is looking at deficiencies in four of the five Ps: product, price, place, people.
If I was a shareholder of such a company, I would be concerned.
In summary, the five Ps have been a long established tenet of successful businesses. Ignore them at your own peril.