Does 4 Ps apply to Semiconductors?

With the advent of e-Commerce, Internet, globalization & low cost communication several leading thought leaders declared that the era of the 4 Ps is effectively over. The new thinking is that product, promotion, price and place are no longer key to providing sustainable differentiation.

Does this imply that 4-Ps do not apply to high tech products such as semiconductors?

The answer simply stated is "No". To explain, I will talk about the relevance of 4-Ps in high tech product such as semiconductors.

Sure globalization has changed the game for all players. New competition has emerged from China, Korea, Malaysia and India. New contract manufacturers of semiconductors have emerged in China and design companies in India. New global brands like SMIC, Amkor, ASMC etc, are emerging and taking dominant form.

Customers are now more savvy, information-driven and have more choices than ever. Many established companies and industries are under threat from this new competition. Yet the established companies (e.g., Intel, TI, IBM, AMD, Broadcom) are not only surviving in global economy, they're thriving. Some are regional players and others span worldwide empires.

A common denominator for these semiconductor companies is that they leverage the power of the marketing mix (4 Ps) to achieve new heights, capture new markets and grow revenues at astronomical rates. Some are mastering one aspect of the marketing mix, some are attempting to be dominant in all of them. But one thing is certain—differentiation can still be created from the 4 Ps.

Product

While the global economy has made rapid time-to-market an imperative, especially since competitors are quick to copy good ideas, there's still competitive advantages to be found in innovative products. The consumer is looking for products that capture the imagination, or sometimes just plain work better than alternatives. One of the main bastions of differentiation in semiconductors is product design.

Broadcom, a leading networking semiconductor provider, would be an ideal example. Broadcom created an effectient ethernet MAC chip - which was Cisco was looking for. With in next few years, Broadcom became a leading networking semiconductor provider - riding high on product innovation.

Today, Broadcom is still the leading supplier of ethernet MAC chips - while industry gaint Intel still trails Broadcom. Product innovation is the key for Broadcom’s success.

In another example, Apple computer has emerged from a has-been to one of the hottest product companies in the past 10 years. One need look no further than the iPod for a dominant product.

iPod has 92.7% market share in the MP3 player market. Incredibly, the closest competitor struggles with a mere 3% of the market. With a simple-to-use operating system that is truly intuitive, and small ear-bud headphones that could be considered the best on the market, the iPod is far and away not only the market leader but also the market favorite.

Apple doesn't win because it has a product that no one can copy. Indeed, Dell's DJ, Creative's RIO and other MP3 players are arguably very similar in features. Industry watchers also see a challenge to the iPod's dominance with cellular phones that play MP3 files.

While competitive devices swarm into the marketplace, Apple will keep winning in the marketplace because the iPod captures our imagination. It brings the universality of music into a compact device that's so easy to use—the owner's manual can be thrown in the trash. This year alone, according to the Apple Insider, Apple is challenging its retailers to move over 100,000 iPods a week!

Two simple examples, Broadcom and the red-hot iPod, prove that Product can still win in the marketplace.

Promotion

When it comes to promotion, there's probably no one better at promotion than Intel Corp. It's aggressive branding and joint marketing ensured that Centrino was a big time success. Intel has mastered the art of branding, selling to end customers through carefully articulated promotion of its products. TI follows another approach towards promotion. The company works closely with cell phone manufacturers such as Nokia, Samsung etc, also works with software developers and supplies an entire platform of semiconductors and associated software support to win a customer. Working closely with all the members in the cell phone supply chain helps promote TI chips. This strong working relationship between vendor and customer has helped TI maintain its leading position even while competing with Intel. Intel's cell phone chip "Manitoba" has failed to get any significant market penentration even after 2 years in the market.

Price

Pricing decisions are rarely easy, and in fact are most often complex. In the semiconductor industry prices based on customer’s volume demand and bargaining power - ensures that different customers get different pricing.

Semiconductor gaints Intel & TI helps vendors like Dell, HP and Nokia manage risk and forecast demand for their products based on customer buying patterns. The more data - past sales, seasonality, technology changes, etc., are made available to pricing decision makers, the more pricing can be adjusted in near real time to maximize revenues.

Pricing can take on a new dimension when seeking new market opportunities. Let's turn again to Apple Computer: Marketing professionals at Apple saw that the price point of $299 for an iPod, or $249 for the iPod mini, was reasonable for most consumers. Market research, however, showed that a whole new segment of buyers would jump on board at $99 for an Apple MP3 player. Hence, the Apple iPod Shuffle was born.

Small, sleek and hip, the Shuffle is a flash player that gives users the ability to hear music files in order of download or in a random format. Walt Mossberg of the Wall Street Journal notesthat the Shuffle is "a good product that will enlarge the iPod's appeal, especially with kids, people on low budgets, or people who work out. I imagine some existing iPod owners will also buy Shuffles as sort of add-on players. And the iPod juggernaut will roll on."

In the marketing mix, "price" does not necessarily mean "cheapest." There are plenty of enterprises across the globe selling products and services at premium prices. One popular example is Intel’s Pentium-4 Extereme Edition. Intel sells these chips at a premium price - whose main customers are teen aged kids!!

In this age of commoditization and cost reduction, companies are feverishly trying to figure out how to lower their costs and in many instances are turning to the outsourcing of labor, production and even design. And while those might be good strategies to stay competitive on cost, pricing strategies should not be overlooked.

Companies should be asking their customers "What product/service would you want to buy from me—and at what price?"

Place

While many enterprises have long looked at product, pricing and promotion as ways to expand revenues, one of the strongest strategies in the marketing mix is place. There are many companies that have mastered the art of distribution, although few of them have achieved competitive advantage.

Intel Corp, with its market directly to consumer model and extensive challel partners based sales strategy, is commonly cited as one of the best examples of dominating a retail channel in semiconductors. The company is bent on expanding its brand, ubiquity and availability - and uses "place" as a key competitive differentiator.

Internet, low cost telecommunication and rapid flow of information cannot replace the need to be close to the customer. Firms need to have sales offices near customer locations. Often Field Application Engineers are sent to customer locations to work closely with customer’s engineers to develop new products. Customers for semiconductors do not necessarly expect their vendors to have offices near by, but they expect a close and extensive application support from the vendor - which can be provided either by having a sales/customer support office nearby or by having their engineers work at the customer’s location.

In semiconductors, "place" is much broader than simply having sales office. It's also optimizing the supply chain. An effective supply chain can be the difference between a barely profitable company and one that dominates. Getting the right product to the right place at the right time and at the right price ultimately increases customer satisfaction and prevents money from being left on the table.

Placement is still a winning strategy. Going forward, companies that have mastered distribution channels and can supply those channels with a high-touch support will enjoy the upper hand in the battle with competitors.

Mastery of the 4-Ps

Some of the enterprises profiled in this article have mastered one of the 4 Ps; others, such as Intel, Apple, are enjoying advantage in two or more aspects of the marketing mix.

Success does not come easily, however. The strategy, while plain and simple, is difficult to execute. The winning strategy, and mastery of the 4 Ps, requires for an enterprise to know the customer.

Connecting to customers needs is essential for success. Customer connectedness is a pervasive attitude across the enterprise that is genuine, real and consistent. It's not enough to have the lowest price, the locations, the best product or the best promotional strategies. Mastery of the 4 Ps requires deep customer intimacy. Intel, Broadcom, TI, Nvida etc, know their customer, customer’s needs and have mastered the art of exceeding those needs.

Mastery involves asking which of the 4 Ps is most important to the customer and then assessing what can be delivered—profitably. For gamers, low prices are not the issue, performace is. Intel is therefore able to charge a premium price for its fastest processors.

Customers care about quality service, convenience of getting the required support, and a quality product.

The 4 Ps aren't dead—not even close. Differentiation can still be squeezed from the marketing mix. To win in the marketplace, an intense and intimate knowledge of the customer is required in a way that no competitor can match. That understanding must then be applied in a relentless focus on the elements identified by the customer as most important.

Talk to customers, engage customers, live and breathe them. Then use the marketing mix to satisfy them.