Question: I’m the CEO of a medium size maker of RTWs (ready-to-wear). We market through our own dozen shops mostly in Metro Manila shopping malls. We’ve completed our 2015 business plan last month. Four years ago, my top management and myself attended your Accountable Marketing seminar. We tried your advice of having a first draft marketing plan in August. But we just could not continue even though 2015 is now our third try.
We continue to debate about our plan’s marketing mix strategy. The issue that continued to divide my planning team has been how to craft a marketing mix that not only is revenue raising but, more importantly, also profit raising. Your Accountable Marketing seminar told us that today marketing is called to be accountable for both the topline revenue as well as for bottom line profit.
Our 2 previous attempts were only half right. Our first try raised revenue even beyond its quota, but marketing contribution fell. Our second attempt raised profit but this came at the expense of revenue. Please tell us how our marketing mix can raise not only revenue but profit as well.
Answer:It was Josiah Go who led me to the framework for the correct crafting of a marketing mix that will gain for you the simultaneous increase in revenue and profit. The framework is in Josiah’s version of Kim Chan’s Blue Ocean strategy. Specifically, it’s in the “cost-value matrix” model of Blue Ocean.
We illustrate and explain through a case how the cost-value matrix works in selecting the marketing mix levers to raise revenue and profit. This is The French Baker case. I am grateful to Josiah Go for lending me his notes on this case.
I’ve made adaptations on the framework and on the case facts. Those adaptations were drawn from my segmenting book and consumer coping behavior study series.
In September 1998, Johnlu Koa, founder of The French Baker, opened his first branch at SM North Edsa. In an interview, Johnlu was proud to announce that his vision for his bakery was “to allow every Filipino consumer to enjoy freshly baked high quality bread.”
He defined his primary target market (PTM) segment this way: “I want to go after bakery shop customers who like and can afford to enjoy freshly baked high quality bread.”
In selecting and sorting the marketing mix levers to execute The French Baker corporate vision, we can deconstruct that selection and sorting along what the cost-value matrix will tell us makes marketing sense. We start with what the matrix calls the value-creating quadrants for raising revenue.
The first of these 2 quadrants asks: “What marketing mix levers can we develop, add or introduce to raise revenue?” My segmenting book prescribes that these should be the marketing mix levers that can satisfy the unserved needs of Johnlu’s primary target market segment.
Students frequenting The French Baker told us that their unserved needs that the bakery shop has failed to satisfy were: “real-time freshly baked breads,” “open façade store design,” and “visible on-going baking.” The French Baker made these available, which led to the rise of the customers’ store visits. Those were revenue raising marketing mix levers.
The second of the value-creating quadrants asks: “What marketing mix levers can we increase or improve for raising revenue?” The Market Segmenting, Self-Segmenting and Desegmenting book tells us that these are the marketing mix levers that can fill the underserved needs of French Baker’s PTM segment.
The increased or improved marketing mix levers that The French Baker used to raise revenue were: (1) Use of quality materials as against using standard and conventional ones; (2) increased pricing instead of catering to the low-end market segment; (3) using bakers as the shop’s customer servers as against using conventional waiters; (4) for inducing trial purchase, use of food PR and publicity events in place of conventional trial inducing price-driven promo; and, (5) setting up the shop for on-premise customer self-served purchasing process to happen instead of the conventional order placing and delivery process.
We now proceed to what the cost-value matrix calls the cost-minimizing quadrants for raising profits. There are also 2 sets of marketing mix strategies for minimizing costs and raising profitability.
The first of these 2 sets of cost-minimizing strategies asks: “What marketing mix levers can be eliminated or dropped to minimize marketing costs?” My consumer coping behavior study prescribes that those are the marketing mix levers that customers of the PTM segment say they can “definitely do or live without.” There seems to be at least 2 of such cost-eliminating marketing mix levers: (1) the use of preservatives; and (2) the resort to mass advertising replaced by publicity and PR.
The second set of cost-minimizing strategies asks: “What marketing mix levers can be cut or reduced so as to minimize marketing expenses?” My consumer coping behavior study reveals that those marketing mix levers are what your PTM segment customers say they can “generally do or live without.” Two such cost-reducing marketing mix levers are: (1) replacing mass baking with real-time baking; and (2) giving discounts during each day’s last shopping hour to minimize throwaways.
I don’t have the solid data to conclusively say that the foregoing revenue-raising and cost-minimizing marketing mix strategies did the job of raising both revenue and profit. But even a quick review of the above 8 revenue-raising and 4 cost-minimizing initiatives should unavoidably lead to the conclusion that both revenues and profits were indeed raised.
Keep your questions coming. Send them to me at ned.roberto@gmail.com.