Skip to 0 minutes and 2 secondsAs we've seen, there are many different opinions about the most important factors for business success. There will always be a range of contributory factors, but business success is sometimes summarised in terms of the four Ps that are critical when making key business decisions, product, price, place, and promotion. Product means the features, benefits, and appearance of the item or service we want to sell. For example, we may try to create a strong brand image for our product to make it stand out from the competition. Or we might try to give it a unique selling point to persuade the buyer that it is better than the competition. Any product needs a price.
Skip to 0 minutes and 50 secondsBut should we aim for a premium price or a budget price? When deciding, we need to think about our customers. Who are we aiming the product at? Wealthy customers who want something that stands out from the crowd? But that may increase the cost of manufacturing the product. Cost conscious customers may just want the basic functions and features. We also need to think about our competitors. What are our rivals doing? If we try to sell a product for 50 pounds when everyone else is selling it for 10 pounds, then the chances are we won't have any sales. Costs are another key thing. It's pointless making a product unless we can sell it at a profit.
Skip to 1 minute and 35 secondsSo we have to work out how much it costs us to produce it. Place is also critical. Where are we going to sell our product? Are we aiming to sell it on the high street? If so, retail stores have to pay rent, staff, and other overheads. And this will eat into our profits. If we are selling a luxury product, we have to ensure that our store reflects the luxury itself to create the right selling environment. Of course, we could sell by mail order or via website to reduce overheads. But we need to ensure we get goods to customers quickly and reliably. And we need to be sure potential customers know about us. This means promotion.
Skip to 2 minutes and 20 secondsHow are we going to make customers aware of our products? Are we going to advertise? If so, that increases our overheads and eats into our profits. Or are we going to give sales promotions such as Buy One Get One free? Or give discounts to customers who recommend us to new customers. Again, this has cost implications that will eat into the business profits. But it may be worth it in terms of the benefits of growing sales. In summary, the decisions made regarding the four Ps are crucial to the direction of the business and also to its sales, revenues, and its costs. There is no magic mix of the four Ps that is always correct.
Skip to 3 minutes and 5 secondsBut as we will see, the foundation for any successful business is a clear plan for how it can balance the four Ps in a way that allows the business to build up its sales and cover its costs.
The 'Four Ps' and successful businesses
In this video we see how business success is often summarised in terms of four Ps: Product, Price, Place and Promotion.
As Peter explains, a good business needs a clear plan for how it will combine the four Ps in a way that allows the business to cover its costs and build up its sales.
Without thinking through the four Ps properly, it’s unlikely an entrepreneur will be able to steer their business or plan financially for the future.
Remember that you can use the course glossary if you are unsure about any of the terms used in this video.
The four Ps are one component of a business plan. This is the document that those starting a business need to put together to set out their vision and persuade others to put up their money to fund it. We’ll look in more detail at business plans in the next step.
Have your say
Think of one example of a business or organisation that you regard as successful. What important choices do you think it has made between the four Ps that are key to its success? Also, can you think any of examples where an organisation’s choices about the four Ps have not worked? Use the comments section on this page to share your views.
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