What is marketing really all about? When asked, many people will talk about sales. Some will say advertising or putting together materials to support sales. Often marketing is called upon to sell all of the stuff that we make. Some “enlightened” organizations might say that marketing is about finding out what the customers want and then giving it to them.
What marketing is really all about is making the most money for the least amount of effort possible. That means working smarter, not harder. Sure, marketing involves finding out what people want, but it doesn’t really involve giving it to them. Marketing actually evolved out the study of economics as an attempt to maximize profits.
How many times have you been involved in a negotiation when, after it was finished, you scratched your head and said, “That was too easy. Maybe I could have gotten more for my product or service.” Or if you were the purchaser, you may have thought to yourself that you really got a good deal and that you would have paid much more for what you just bought. What you probably paid or received was a “market price.” Economists observed that when transactions were made at market prices, there were a number of people who valued a product much more highly than the market price but were not given the opportunity to pay more because the price had been established in the marketplace at a lower level. There were also people who would have been purchasers if there was a lower-priced product available in the marketplace, creating a much larger, but perhaps not as profitable, market.
What the economists tried to figure out was how they could get more money from those people who were willing to pay more for a product or service but didn’t have the opportunity to do so because the market had established an equilibrium price at a lower level. This study led to the marketing concept of market segmentation, which is simply a way of grouping people who value things in a similar fashion together so they can be communicated with in the most efficient and effective manner.
Professional sports teams have figured out a way to segment the market so those who are willing to pay more (luxury box buyers) have the opportunity to do so while still offering product for those who don’t value the product as highly or don’t have the resources to make a more expensive purchase.
Think of a professional baseball game. Everyone at the game is watching the same product – the baseball game. Some people sit in cheap obstructed view seats and may have only paid a few dollars. Others may have paid hundreds of dollars to sit in luxury boxes to view the same game. If the team owners charged the same price for every seat in the stadium (perhaps $40) they would lose money on the luxury seats and they would have a bunch of empty bleachers since many of those people could not afford or would not be willing to pay that much. The segmentation approach allows the team to get more money from those who are willing to pay it and still get revenue from those with few resources or who don’t value the product as highly.
You can also see examples of segmentation in just about any section of a grocery store. There are often higher priced or premium products, popular priced products and lower priced private label or generic products, all in the same section of the store. There may not be a lot of difference between a premium can of peas and generic can of peas, but if they were all priced at an average market price, the people who are willing and able to pay more would not have the opportunity to do so and those who could not afford the average price or were not willing to pay it would buy nothing.
By having alternatives, the grocer has been able to appeal to different segments. It is very expensive, however, to be all things to all people. Offering a very broad selection at all sorts of different price points requires lots of space and inventory and isn’t always practical. It can also be confusing to the customer if they don’t know what to expect. After all, not everyone can afford to build billion dollar stadiums or 80,000-square-foot grocery stores. This is why many successful retailers have positioned themselves to do a very good job with certain segments of the market. Think of Aldi, who has been successful with a limited selection of low priced goods for the people who are very value conscious or who can’t afford higher priced goods, and Starbucks, who has positioned themselves for people who value quality and convenience. Both Aldi and Starbucks have figured out how to make the most money by appealing to a select segment of the market. They are making the most money by working the least and investing the least because they are meeting the needs of one segment better than anyone else.
How can you make more by working smarter, not harder? What segments of the market that you deal in are willing to pay more but don’t have the ability to do so because they are just paying market rates? What segments of the market don’t exist now because they are effectively priced out of the market place? What do your potential customers value most? How can you deliver it to them in a way that your competitors won’t or can’t replicate? When you have asked and answered these questions, you have found the path to making more money by working and investing less and are truly “marketing.”
About the author: Scott Francis is president of Topline Development LLC, a strategic marketing consulting group that provides new product identification, advertising plan development, go to market strategies and sales support programs. To learn more about Topline Development LLC, visit their website at ToplineDevelopment.com or contact Scott directly at Scott@ToplineDevelopment.com.