Guest Blogger Hongjie Wang: The Four Ps -- Alive and Well in Marketing and Strategic Analytics

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4P has not become completely irrelevant. If anything, marketers in the CRM space should use them more.

Price, Promotion, Product, and Place have been among the traditional marketing instruments for decades. However, "Four Ps" marketing has been criticized by professionals and academics in the direct marketing/database marketing and CRM space. These experts correctly point out that 4P conspicuously lacks any meaningful consideration of customers. In fact, many in the CRM industry dismiss the usefulness of these old concepts and argue that customer-centric analysis and marketing is the only way to go. Some even call such change a paradigm shift both from marketing strategy and execution standpoints.

It's true that a strong customer-centric approach should be the overarching strategy framework, and that the 4P way of thinking has not adjusted itself to reflect the Internet and today's multichannel world, where there is a noticeable change in the way customers consume information. These changes have had a dramatic effect on marketing landscapes.

But 4P has not become completely irrelevant. If anything, marketers in the CRM space should use them more. Despite of all the changes in media, marketing culture, and practice, these four instruments remain important. No one would argue that Price, for instance, no longer matters; the Internet has given consumers considerably more information about pricing and tools to compare competitive prices. The real change is coming from the technologies we use to execute marketing. In the old days, 4P strategies were designed at a mass level. Today we have the data and technology to tailor them to smaller segments or even to individual customers. Such individualization of the 4Ps is not only an improvement -- it has become a necessity for companies to stay competitive in the long-term.

Let's use Price Setting to illustrate the point. The traditional approach of determining price is based on some sort of econometric marketing mix model or a conjoint analysis across the entire population. In other words, one would determine some "average" price that we could promote, something that made sense when the predominant marketing channels were mass "push" channels. As technology has enabled targeting of increasingly small segments, marketing researchers are increasingly using segment-based conjoint analysis to get a more complete picture of the differences in price preference among segments. Even for industries where different pricing is not realistic or desirable in practice, such more customized information allows more diversified product/feature/service packaging, as well as bundling tailored to different types of consumers.

One retail executive client half-jokingly stated that if one wants to know the optimal price of a product, the answer can be found on eBay. Dan Ariely, author of Predictably Irrational, illustrated how Apple uses behavioral economics and social media to set the reference price for its new products. In any event, what has changed is how pricing decisions are derived and how pricing is promoted. What has not changed is that pricing remains a paramount decision variable in marketing.

CRM professionals have been right in their criticism of the old style of 4P analysis and marketing. However, at the same time they have ignored the importance of these elements. For example, back to pricing: I do not see many models in the CRM sector, especially on the practitioner side, use pricing variables at all. This is extraordinary. How can we build marketing models without using the basic marketing mix variables?

What about combating attrition? It's good to know with relative precision which customers are at risk for leaving, but it is much more important to understand what the drivers are among various segments. By not including such factors as price, models provide no strategy for addressing attrition.

Some believe that as long as we send the people the right offer and mail them enough times, we will make sales. Much of our marketing today does not trigger a sale so much as it triggers research by customers, who will invariably consider price. So such blind marketing may end up driving sales, but potentially to competitors who have a better understanding of fundamental drivers.

Forrester research in a recent study advocated correctly that we need to elevate CRM to go beyond database marketing. It is a process, enabled by technology solutions that help companies uncover customer insights, design customized strategies, solve business problems, and promote sustainable and profitable long-term relationships. In essence, we need to elevate CRM to a broader and strategic level. Reaching that goal requires that we appropriately adapt the 4Ps into our analysis and modeling.

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About the Author: Hongjie Wang is chief scientist and vice president of customer analytics at Fulcrum.

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