PURDUE EXTENSION
EC-730Marketing’s Four P’s:First Steps for New Entrepreneurs
Cole Ehmke, Joan Fulton, and Jayson Lusk
Department of Agricultural Economics

Marketing your business is about how you position it to satisfy
your market’s needs. There are four critical elements inmarketing your products and business. They are the four P’sof marketing.
1. Product. The right product to satisfy the needs ofyour target customer.

Audience: Business managers
Content: Presents the four elements of marketingyour products and businessOutcome: Readers will be aware of the range ofmarketing decisions they need to make

2. Price. The right product offered at the right price.
3. Place. The right product at the right price available
in the right place to be bought by customers.
4. Promotion. Informing potential customers of theavailability of the product, its price and its place.
Each of the four P’s is a variable you control in creating themarketing mix that will attract customers to your business.
Your marketing mix should be something you pay carefulattention to because the success of your business depends on
it. As a business manager, you determine how to use thesevariables to achieve your profit potential. This publication
introduces the four P’s of marketing and includes worksheetsthat will help you determine the most effective marketing mix
for your business.

Product“Product” refers to the goods and services you offer to yourcustomers. Apart from the physical product itself, there are
elements associated with your product that customers may beattracted to, such as the way it is packaged. Other productattributes include quality, features, options, services, warranties, and brand name. Thus, you might think of what you
offer as a bundle of goods and services. Your product’s
appearance, function, and support make up what the customer
is actually buying. Successful managers pay close attention to
the needs their product bundles address for customers.
Your product bundle should meet the needs of a particulartarget market. For example, a luxury product should create
just the right image for “customers who have everything,”
while many basic products must be positioned for priceconscious consumers. Other important aspects of product may
include an appropriate product range, design, warranties, or abrand name.
Customer research is a key element in building an effective
marketing mix. Your knowledge of your target market andyour competitors will allow you to offer a product that willappeal to customers and avoid costly mistakes.

If you are considering starting a new business or adding a
new product, then make sure the product bundle will fit yourbusiness’s strengths and weaknesses, and that it will provide
an acceptable risk/return tradeoff. For instance, if your businessis very good at timely response to customers, then timely
service should be an important part of your product bundle.
Think long term about your venture by planning for the ways
you can deepen and broaden your product bundle. For
instance, you may be able to take advantage of opportunities
to add value through processing, packaging, and customer
service. Other future growth may allow you to offer yourproduct to different customers. Start-up businesses are mostsuccessful when they concentrate their efforts on one productor one market, like a restaurant or a car service center does.
Later growth may occur in the same location or may be indifferent geographic regions.
A different type of growth would be a diversification of
products, with your business offering related products.
Offering a whole range of products is most successful if the
raw materials, production processes, and distribution methods
are similar, which means you do not have to acquire new
suppliers, skills and equipment, and distribution methods.

Price“Price” refers to how much you charge for your product orservice. Determining your product’s price can be tricky andeven frightening. Many small business owners feel they must
absolutely have the lowest price around. So they begin theirbusiness by creating an impression of bargain pricing.
However, this may be a signal of low quality and not part ofthe image you want to portray. Your pricing approach shouldreflect the appropriate positioning of your product in themarket and result in a price that covers your cost per item andincludes a profit margin. The result should neither be greedy
nor timid. The former will price you out of the market;
pricing too low will make it impossible to grow.
As a manager, you can follow a number of alternative pricing
strategies. In the next column are eight common pricing
strategies. Some price decisions may involve complex
calculation methods, while others are intuitive judgments.
Your selection of a pricing strategy should be based on yourproduct, customer demand, the competitive environment,
and the other products you will offer.
2• Cost-plus: Adds a standard percentage of profit
above the cost of producing a product. Accurately
assessing fixed and variable costs is an important partof this pricing method.
• Value-based: Based on the buyer’s perception ofvalue (rather than on your costs). The buyer’s
perception depends on all aspects of the product,
including non-price factors such as quality,
healthfulness, and prestige.
• Competitive: Based on prices charged by competingfirms for competing products. This pricing structure isrelatively simple to follow because you maintain yourprice relative to your competitors’ prices. In somecases, you can directly observe your competitors’
prices and respond to any price changes. In othercases, customers will select vendors based on bids
submitted simultaneously. In those cases, gathering
information will be more difficult.
• Going-rate: A price charged that is the common or
going-rate in the marketplace. Going-rate pricing iscommon in markets where most firms have little orno control over the market price.
• Skimming: Involves the introduction of a product at
a high price for affluent consumers. Later, the price isdecreased as the market becomes saturated.
• Discount: Based on a reduction in the advertised
price. A coupon is an example of a discounted price.
• Loss-leader: Based on selling at a price lower thanthe cost of production to attract customers to the store
to buy other products.
• Psychological: Based on a price that looks better,for example, $4.99 per pound instead of $5.00 per
pound.
After you decide on your pricing strategy, the amount ofmoney you will actually receive may be complicated by otherpricing aspects that will decrease (or increase) the actual
amount of money you receive. You will also have to decide
how to determine:• Payment period: Length of time before payment isreceived.
• Allowance: Price reductions given when a retailer
Purdue Extension • Knowledge to Goagrees to undertake some promotional activity foryou, such as maintaining an in-store display.
• Seasonal allowances: Reductions given when anorder is placed during seasons that typically have low
sales volumes to entice customers to buy during slow
times.
• Bundling of products/services: Offering anarray of products together.
• Trade discounts (also called “functional
discounts”): Payments to distribution channel
members for performing some function such as
warehousing and shelf stocking.
• Price flexibility: Ability of salesperson or reseller tomodify price.
• Price differences among target customer
groups: Pricing variance among target markets.
• Price differences among geographic areas:
Pricing variance among geographic regions.
• Volume discounts and wholesale pricing:Price reductions given for large purchases.
• Cash and early payment discounts: Policies tospeed payment and thereby provide liquidity.
• Credit terms: Policies that allow customers to pay
for products at a later date.
The methods discussed here should be a base from which toconstruct your price. Your options will vary depending on how
you choose to sell your product. For instance, if you make aproduct but don’t sell it directly to the customer, then you will
want to know who sets the retail price and what margin they
will require. Tracing the path of your product from production to final purchase is a useful exercise to discover thisinformation. The research needed to understand the pricing
along the distribution path will be more than worth the time
it takes.
Whatever your price may be, ultimately it must cover yourcosts, contribute to your image by communicating theperceived value of your product, counter the competition’soffer, and avoid deadly price wars. Remember, price is the one“P” that generates revenue, while the other three “P’s” incur
costs. Effective pricing is important to the success of yourbusiness.
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Place“Place” refers to the distribution channels used to get yourproduct to your customers. What your product is will greatly
influence how you distribute it. If, for example, you own asmall retail store or offer a service to your local community,
then you are at the end of the distribution chain, and so you
will be supplying directly to the customer. Businesses thatcreate or assemble a product will have two options: selling
directly to consumers or selling to a vendor.

Direct Sales
As a producer, you must decide if supplying direct is appropriate for your product, whether it be sales through retail, doorto-door, mail order, e-commerce, on-site, or some othermethod. An advantage of direct sales would be the contact you
gain by meeting customers face to face. With this contact you
can easily detect market changes that occur and adapt tothem. You also have complete control over your productrange, how it is sold, and at what price.
Direct sales may be a good place to start when the supply of
your product is limited or seasonal. For example, direct sales
for many home-produced products can occur through homebased sales, markets, and stands.
However, direct sales require that you have an effective retailinterface with your customers, which may be in person orelectronic. If developing and maintaining this retail interface
is not of interest to you or you are not good at it, you should
consider selling through an intermediary.

Reseller Sales (Sales Throughan Intermediary)
Instead of selling directly to the consumer, you may decide tosell through an intermediary such as a wholesaler or retailer
who will resell your product. Doing this may provide you witha wider distribution than selling direct while decreasing thepressure of managing your own distribution system. Additionally, you may also reduce the storage space necessary for
inventory. One of the most important reasons for sellingthrough an intermediary is access to customers. In many
situations, wholesalers and retailers have customer connections that would not be possible to obtain on your own.
However, in selling to a reseller you may lose contact with
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your end consumer. In some cases, you may also lose someof your company identity. For example, your distributor may
request that your product be sold under the reseller’s brand
name.
One factor that may influence whether you can find anintermediary to handle your product is production flow.
Wholesalers want a steady year-round supply of product todistribute. If you can deliver a steady year-round supply that isof consistent quality, then selling through an intermediary
may be a good strategy for you.

Market Coverage
No matter whether you sell your product direct or through areseller, you must decide what your coverage will be in
distributing your product. Will you pursue intensive, selective,
or exclusive coverage?
Intensive distribution is widespread placement in as
many places as possible, often at low prices. Large businesses
often market on a nationwide level with this method.
Convenience products—ones that consumers buy regularly
and spend little time shopping for, like chewing gum—do
better with intensive (widespread) distribution.
Selective distribution narrows distribution to a few
businesses. Often, upscale products are sold through retailers
that only sell high-quality products. With this option, it may
be easier to establish relationships with customers. Productsthat people shop around for sell better with selective distribution.
Exclusive distribution restricts distribution to a single
reseller. You may become the sole supplier to a reseller who, inturn, might sell only your product. You may be able topromote your product as prestigious with this method, though
you might sacrifice sales volume. Specialty products tend to
perform better with exclusive distribution.

Other Place Decisions
Product characteristics and your sales volumes will dictate
what inventories to maintain and how best to transport yourproducts. Additionally, the logistics associated with acquiring
raw materials and ensuring that your final product is in theright place at the right time for the right customers cancomprise a large percentage of your total costs and needs
careful monitoring.

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You may decide to have a combination of all the distribution
methods. Whatever you decide, choose the method which you
believe will work best for you.

Promotion“Promotion” refers to the advertising and selling part ofmarketing. It is how you let people know what you’ve got forsale. The purpose of promotion is to get people to understandwhat your product is, what they can use it for, and why theyshould want it. You want the customers who are looking for a
product to know that your product satisfies their needs.
To be effective, your promotional efforts should contain aclear message targeted to a specific audience reached via an
appropriate channel. Your target audience will be the people
who use or influence the purchase of your product. You
should focus your market research efforts on identifying these
individuals. Your message must be consistent with youroverall marketing image, get your target audience’s attention,and elicit the response you desire, whether it is to purchaseyour product or to form an opinion. The channel you selectfor your message will likely involve use of a few key marketing
channels. Promotion may involve advertising, public
relations, personal selling, and sales promotions.
A key channel is advertising. Advertising methods to promote
your product or service include the following.
• Radio: Radio advertisements are relatively
inexpensive ways to inform potential local customers
about your business. Mid-to-late week is generally thebest time to run your radio ad.
• Television: Television allows access to regional or
national audiences, but may be more expensive thanother options.
• Print: Direct mail and printed materials, including
newspapers, consumer and trade magazines, flyers,
and a logo, allow you to explain what, when, where,
and why people should buy from you. You can send
letters, fact sheets, contests, coupons, and brochures
directly to new or old customers on local, regional, or
national levels.
• Electronic: Company Web sites provide useful
information to interested consumers and clients.
Password-protected areas allow users to morePurdue Extension • Knowledge to Gointimately interact with you. Advertisements allow
broad promotion of your products. Direct e-mailcontact is possible if you have collected detailed
customer information.
• Word of Mouth: Word of mouth depends on satisfied
customers (or dissatisfied customers) telling theiracquaintances about the effectiveness of your products.
• Generic: Generic promotion occurs when no specificbrand of product is promoted, but rather a wholeindustry is advertised. For instance, generic advertising
is commonly found for milk, beef, and pork.

Sales promotions are special offerings designed to encouragepurchases. Promotions might include free samples, coupons,contests, incentives, loyalty programs, prizes, and rebates.
Other programs might focus on educating customers throughseminars or reaching them through trade shows. Your target
audience may be more receptive to one method than another.
Additional sources of promotion may be attending or participating in trade shows, setting up displays at public events, andnetworking socially at civic and business organizations.

Final Comment

Public relations (PR) usually focuses on creating a favorable
business image. Important components of a good public
relations program include being a good neighbor, being
involved in the community, and providing open house days.
News stories, often initiated through press releases, can begood sources of publicity.

The four P’s—product, price, place, and promotion—should
work together in your marketing mix. Often, decisions on one
element will influence the choices available in others.
Selecting an effective mix for your market will take time andeffort, but these will pay off as you satisfy customers andcreate a profitable business. The worksheets that follow will
help you construct your marketing plans.

Personal selling focuses on the role of a salesperson in yourcommunication plans. Salespeople can tailor communication
to customers and are very important in building relationships.
While personal selling is an important tool, it is costly. So you
should make efforts to target personal selling carefully.

Once you have a good marketing mix—the right product at
the right price, offered in the right place and promoted in theright way—you will need to continue to stay on top of market
changes and adopt your marketing mix as necessary.
Marketing is a part of your venture that will never end.

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Four P’s Worksheets
The following set of worksheets will help you understand and tailor your marketing mix to your customers’ needs. The four sections
relate to the four P’s of product, price, place, and promotion. In the first part of each section, you will complete a table to help you
gain a better understanding of what you are offering and what your competitors are offering. In the “Further Assessment” part ofeach section, you will answer questions to help you tailor your marketing mix to your customers’ needs.

Product
Describe your product’s characteristics in the first column and the characteristics of your competitors’ product in the second column.
Your ProductYour Competitors’ ProductProduct(e.g., fresh fruit beverage)
Product Variety
Product Appearance
Product Quality
Product Features
Product Functionality
Services
Brand Name
Packaging
Warranties

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Further Assessment
1. What features are considered basic
features by your customers (ones thatmust be offered)?
2. What features are missing from the existingproduct/service choices in the market place?
How can your product/service address this gap?
3. What are the key features/benefits of your productand service, especially as they compare to what yourcompetitors are supplying?
4. How can your product give you an advantage inthe marketplace?

Price
For each of the following pricing strategies, describe the advantages and disadvantages of using that method for your product.
Which is the best one for you to use?
Advantages and Disadvantages for Your ProductCost-Plus
Value-Based
Competitive
Going-Rate
Skimming
Discount
Loss-Leader
Psychological

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For each of the following pricing aspects, describe the advantages and disadvantages for your product in the first column.
In the second column, describe to what extent your competitors are following that approach.
Advantages and Disadvantages
for Your ProductTo What Extent Are Your Competitors
Using This Policy for Their Products?

Payment Period
Allowance
Seasonal Allowances
Bundling of
Products/Services
Trade Discounts
Price Flexibility
Price Differences Among
Target Customer Groups
Price Differences Among
Geographic Areas
Volume Discounts andWholesale Pricing
Cash and Early
Payment Discounts
Credit Terms

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Further Assessment
1. How sensitive is your target market
to changes in prices?
2. How does your expected pricing
compare to your competition’s pricing?

3. Will pricing make your business special?
4. How will your products/services provide
a better price-performance balance thanyour competitors’ products/services?

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PlaceIn the first column, describe how your product is distributed. Describe your competitors’ product distribution in the second column.
Your ProductYour Competitors’ ProductDirect Sales
Reseller Sales
Market Coverage
Inventory
Transportation
Logistics

Further Assessment
1. What is the best way to sell your product?
Direct selling? Through a reseller?
Will this be a competitive advantage
or disadvantage?
2. How will your plan for coverage andother place decisions compare to thoseof your competitors? Will this be acompetitive advantage or disadvantage?

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Promotion
Describe your product’s promotion in the first column and your competitors’ promotion in the second.
Your ProductYour Competitors’ Product

AdvertisingRadio
Television
Print
Electronic
Word of Mouth
Generic
Public Relations
Personal Selling
Sales Promotion

Further Assessment
1. What promotion efforts are mosteffective for your target market?
2. How can your promotion strategy
give you an advantage in the marketplace?

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NotesVisit Us on the Web

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www.agecon.purdue.edu/planner

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Agricultural Innovation & Commercialization Center
New Ventures TeamNew Ventures Teamwww.agecon.purdue.edu/newventures

Center for Food & Agricultural BusinessNew 5/05

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