Exemplary Marketing Techniques Teach Fundamental Principles

by George Nordhaus

The basic lessons of marketing reveal that every product or service experiences three stages: innovation, imitation, and production.

During the innovation stage, the product or service is the 'only game in town'; there is no competition. It is the best of all worlds - a seller's market. The product or service can cost just about any price. Marketing and advertising emphasize the product or service, solely.

This is not the scenario in the imitation phase. In this situation, the product or service has been developed by the competition. Now the price becomes the number-one sales tool. To gain the advantage in the marketplace, the price must undercut the competition's. There will always be price buyers who purchase the least expensive brand.

The final stage, production, describes a framework in which many businesses offer the product or service, and undercutting price is not sufficient inducement for potential buyers. Prices are competitive because they have been driven down by the imitation stage. Consequently, the major sales emphasis is placed on service of the sale.

If evidence is needed to prove this formula works, consider State Farm as a case in point. When State Farm was first founded and during its formative years, it was innovative in its coverages. The company was innovative in its approach to farmers and other rural customers. It was innovative in its membership program, as well as its exclusive agent program.

With this advantage and having developed a distribution system, State Farm's marketing people knew the company could successfully incorporate the imitation stage into its business. It imitated the products of other companies and seized the opportunity to sell these copy-cat products with a price advantage. Some of the old State Farm advertisements stated: 'We can save you $10, $20, $30, or more.' For years, State Farm advertised as the 'lowest-priced' insurance provider. Obviously, it worked.

Today, State Farm is not the lowest-priced insurer in most jurisdictions. The company recognizes that it cannot continue to sell the least expensive insurance products and still prosper. As a result, State Farm, in the production stage, sells the same product that other companies sell, and sells it at about the same price. But State Farm also sells service: 'Like a good neighbor, State Farm is there.'