Know-How Exchange : Student Questions

Allyssa,

Randall's right. (Hi, buddy) Here's some more questions to think about:

Why does a lemonade stand owner use the 4P's? Let's put you into the smallest business we can think of - a lemonade stand. You are now the proud owner of a lemonade stand out in front of your house. First, HOW would you implement the 4P's? Take them one at a time.

PRICE
How do you develop a pricing strategy? Well, the price depends on the value perceived by the customers and the competition. If you have lemonade stands at each house around you and they charge One Utile (the money denomination in Allyssaland), then surely you can't charge 1.01U Utiles for your lemonade and expect much if all other things are equal - right? Of course, we have to know some things like what's your production capability for lemonade? If you have limit production capability - say, one glass a day - then maybe if you set the price at 1.01U and this guarantees you sell out every day, but at 1.02U, sometimes you have a glass left over for the day - well, 1.01U is the price that guarantees you will maximize your profit so you set your price there. There are many other pricing strategies to think through, but you get the idea. Let's move onto the next strategy.

PRODUCT
If your lemonade is just like everyone else's and you can't charge a higher price - say, 1.5U, perhaps you can use the product dimension to differentiate your product? Make it lemonade with strawberry flavor in it or maybe with iced tea (where it becomes an Arnie Palmer instead of lemonade). You do this, of course, by knowing what your customers' needs are and meeting them. For instance, you (probably) wouldn't want to mix lemonade with brussel sprouts because I don't think many people would go for that differentiation. Let's move to the next P.

PROMOTION
If you want to attract more customers to your stand, you can put up a big sign with flashing lights. You can put signs on corners. You can place fliers on people's car windshields. Each of these "promotional" items can explain how your lemonade is the best - natural ingredients, you don't use child labor like the other stands because your mother makes it, and you donate 100% of your proceeds to college scholarship funds (which the company happens to have picked YOU to receive). With promotional materials, you control the mind of the customer as far as how they think of your product versus the other competing products. This helps people look for you versus the other stands and possibly make them willing to pay 1.5U for your lemonade. Next P.
PLACEMENT
With placement, you worry about how you get your product to the customer - distribution and sales channels. With your lemonade stand, you are in front of your house with all your competition all around. Perhaps it would be better to set up a stand on the corner versus the middle of the block so that people come to your stand first and buy their lemonade without ever looking at the other stands. Or in another neighborhood - your grandmother's neighborhood which is an adult community with no kids, for instance. For placement, the question is, how do you reach the most customers in the most efficient and effective way?

So getting back to my question of you: Why does a lemonade stand owner use the 4P's? When you answer this question, you will have the answer to your question.

I hope this helps.

Wayde

OK, Allyssa, good response and thank you for putting some thought into the problem. Let me point this out to you. The marketing mix is important - the 4P's - but it's important to mix them right. If you mix the right product strategy with the right promotion strategy with the right position strategy, you can charge the right price for lemonade such that you optimize the profit for the company. Keep in mind that everything we do in marketing is to meet the goals of the firm. Almost every firm has a goal to maximize profits. So the aim of having the right marketing mix is to maximize profits.

By having strawberry lemonade (product strategy) at a stand that is in your grandmother's neighborhood (position strategy) and putting up the right signs to let people know where you are and what your advantages are over your competition (promotion strategy), you are able to charge a premium price (price strategy) so you maximize your profit.

You have it almost right, Allyssa. Think about it from the perspective of the lemonade stand's goal of optimizing profits and you will see why the 4P's are important. They are strategies for optimizing profits.

Now, how does this apply to the fashion industry? What actions do they take to optimize profits (their goal too) with price strategy, product strategy, promotions strategy, and position strategy?

Keep going, Allyssa - you're almost there.

Wayde

Allyssa,

You have it correct and good job with your thought process and analysis.

As you have correctly concluded, the 4P's help the fashion industry in maximizing their profits when they correctly manage each individual strategies (price strategy, product strategy, position strategy, and promotions strategy).

Another conclusion to take away from this example: Marketing strategies are independent of the industry. If you can apply the principles to a lemonade stand, you can apply the same principles to the fashion industry. Or the computer industry or the cell phone industry or the tea industry in India or the ice cream industry in the UK.

Good luck in your scholastic efforts.

Wayde