Sunday, November 24, 2013

Marketing vs Profitability (Marketing)

As most businessmen know that marketing is an amazing tool to communicate with targeted customers with specific messages. Hopefully, these messages can some how influence customers to buy their products instead of their competitors. Therefore, sales volume is always a measurement of marketing practices.

However, marketing can go much beyond than increasing sales volume. It can also increase profit margins of their products and services. The simple equation of profit margin is Profit Margin = Selling Price - Total Cost Of Goods. Effective marketing practices can improve on both the Selling Price and the Total Cost Of Goods elements directly.  

Marketing can add an important additional dimension in these two elements. This dimension is called perceive values. Personally, I call it "Hopes and Dreams". Perceive values are something emotional, intangible, and flexible elements in the equation. There are two types Customer Perceive Values and Supplier Perceive Values. 

Effective marking strategies should aim to develop positive Customer Perceive Values toward to their products and services. The Customer Perceive Values offer intangible expectations and fantasies on certain products and services. For example, sugar water gives you happiness (Coca Cola), below average quality coffee offers you middle class status (Starbucks), cheap 2 dollars shop offers high quality products (Daiso), freshest food is offered at your doorstep everyday (Woolworths), cheap fast food can be healthy and tasty (Subway), and fairy-tails is reality (Disney)  etc.  

These Customer Perceive Values provides additional emotional satisfaction to their customers without changing their products and services much. Targeted customers are most likely to spend more money to obtain these satisfaction. Hence, companies can sell their products and services at a higher price. 

Powerful and focused marketing strategies also provide perceive value to their suppliers. Suppliers are more willing to form business partnerships with well-regarded companies in their industries. Furthermore, suppliers are also willing to offer better deal with market leaders.  

A well structured marketing strategy will influence the profit margin equation like that: Profit Margin = New Selling Price (Market Price + Customer Perceive Value) - (Total Cost Of Goods - Supplier Perceive Values). Therefore, if you are planning to launch a new product or service to the market, you should also deliver a set of well formulated Hopes and Dreams with your offering. Trust me, you will be surprised with the result.  

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