David Cullwick

PositioningDemarketingStrategy

t^arketers must integrate the changes in the businessenvironment into effective new product, pricing,

distribution, and promotion strategies.

IN contemporary management, growth is im-plicitly a central element of successful mar-keting practice. This philosophy has developed ina marketing environment in which it was as-sumed that there would always be more con-sumption potential that could be serviced bymarketing organizations. However, the continuedgrowth of consumption in the early 1970s, to-gether with more recent inflationary pressuresand materials shortages, have tested the market-ing system's ability to fully meet its objective ofachieving customer satisfaction and long-termprofitability.

The development of a marketing orientationspecific to this new marketing environment is thebasis of the concept of demarketing.' This conceptmaintains that the marketer's task is to shapedemand to conform with long-term objectivesrather than blindly engineer increases in saleswithout regard to such objectives. Interest in de-marketing has rapidly increased intemationallyas companies worldwide have faced the decisionproblems associated with raw material or prod-uct shortages.^ These problems include the natureand level of advertising that can be justified, therole of the salesman, the clients who are to bedropped, the desire to alter product pricing toequate supplies and demand, the allocation of

1. Philip Kotler and Sidney J. Levy, "Demarketing, Yes,Demarketing," Harvard Business Review, Vol. 49 (No-vember/December 1971), pp. 74-80.

2. E. B. Weiss, "Autos, Trucks and Other Products ChangeDirection in Shortage ET&," Advertising Age, June 17, 1974,p. 101; July 22, 1974, p. 48; and "Coping With Shortages,"Business Week, September 14, 1974, pp. 56-86.Journal of Marketing, Vol. 39 (April 1975). pp. 51-57

limited supplies of products to distributors, andbases for product substitution. Business concemwith these problems has been accentuated by thespeed with which the situation developed and thewide range of company activities affected bythese changes.^

Decision making in times of severe change pre-sents substantial problems to marketers.Specifically, two questions need to be answered:What is the relevant marketing orientation fordeveloping strategy? What strategy altemativesare available for marketing mix elements? Thisarticle attempts to provide answers to these ques-tions and to apply them to help marketing mana-gers position demarketing strategy relative tooverall marketing strategy.

A Changing Marketing Orientation

The functions of marketing have character-istically emphasized the task of creating andmaintaining demand in an environment ofabundance."* However, recent changes in the bus-iness environment have focused attention on awider range of marketing tasks which includethat of reducing overfull demand, or demarketing .^Marketing management's strategy response dur-ing times of shortages tends to vary considerablydepending upon the company's perception of theseverity or permanence of the shortages. Despite

3. Philip Kotler, "Marketing During Periods of Shortage,"JOURNAL OF MARKETING, Vol. 38 (July 1974), pp. 20-29.

4. See Philip Kotler, "The Major Tasks of MarketingManagement," JOURNAL OF MARKETING. Vol. 37 (October1974), p. 43; and William J. Stanton, Fundamentals of Mar-keting (New York: McGrau-Hill Book Co., 1971), p. 1.

5. See same reference as footnote 1.51

52 Journal of Marketing, April 1975

temporary pressure on the relevance of a market-ing approach, it is generally believed that market-ing will remain an essential part of managementdecision mztking and emerge in a healthier form.*

To assess the nature and extent of reorientationnecessary to develop effective marketing man-agement in the increasingly dynamic businessenvironment, it is valuable to reconsider the cen-tral elements of marketing philosophy. Theseelements are: an integrated approach, a customerorientation, and long-term profitability in relationto customer satisfaction.

An Integrated ApproachMarketing has been characterized as the man-

agement of change with respect to opportunityassessment in the market and the integration ofchange into organizational decision processes.^After some months of shortage-related marketingproblems, however, it is apparent that it is change,both extensive and rapid, which marketers have notbeen readily able to integrate into existing marketingorientations and strategy.

In reacting to this change, it is important thatthe marketing programs chosen for implementa-tion consider long-term effects as well as the moreidentifiable short-term effects. Likewise, the de-marketing situation requires that a firm knowmore, not less, about the effects of its actions onits relationship with customers. Hence, the de-velopment or presence of a marketing orientationin the organization remains a viable approachthat is consistent with company profitability ob-jectives.

In an environment of excess supply, the de-velopment of marketing strategy has emphasizedthe integration of product, price, distribution, andpromotion decision variables. In the excess-demand situation, marketers have been forced torecognize the importance of long-term supply re-lationships which may involve a compromise interms of minimizing the cost of the raw materialor product. This has accentuated the strategy ofvertical integration, backwards toward the sup-plier. Similarly, the purchasing function has in-

6. A. B. Blankenship and John H. Holmes, "Will Short-ages Bankrupt the Marketing Concept," MSU Business Top-ics. Vol. 22 (Spring 1974), pp. 13-18.

7. P. F. Drucker, "InnovationKey to Marketing Prog-ress," Proceedings, American Marketing Association Confer-ence (Chicago: American Marketing Assn., 1963), pp. 3-10.

ABOUT THE AUTHOR.David Cullwick is professor of marketing in the De-partment of Business Administration, Victoria Univer-sity, Wellington, New Zealand.

creased in status in many organizations.* How-ever, as marketers develop substantial strategychanges in these decision areas, it is critical thatthey give due consideration to the extent andpermanence of change that has taken place.A Customer Orientation

Manufacturers and retailers can readily identifythe problems that have arisen for them in thecurrent situation, but it is the extent and natureof problems that have been created for theircustomers that should receive primary attention.Does the customer perceive the problem to be asgreat as the marketer does? Does the customerstill believe a particular company is interested in,and tries to solve, his particular problems? In ad-dition, marketers whose products depend uponderived demand must be aware of the problemsand trends in the ultimate market. For example,manufacturers of pumps for gasoline outletsquickly found themselve in a declining market asgasoline shortages persisted.'

In attempting to solve problems at the cus-tomer level, the marketer may endeavor tochange the customer's perspective as to whichproducts and services will satisfy his end-use ex-pectations. One approach utilizes the concept ofgeneralization, which attempts to broaden therange of goods and services that the buyer maysee as satisfying his needs. For example, bar soapmay be promoted as a substitute for liquid de-tergent or powdered soap. A second approachutilizes the concept of discrimination to narrowthe use expectations of a raw material or product.For example, the Arab countries are actively en-couraging the viewpoint that oil should only beused in petrochemical industry development andnot as an energy source. In demarketing, market-ers are faced with managing social changetheshifting of social values and behavior away fromextensive consumption to limited consumption.Attitude behavior research indicates that it ismore difficult to achieve changes in directionthan it is to reinforce existing attitudes and be-havior. The problem then, of implementing generaldemarketing, is a very challenging one.

The excess-demand marketing environment ismainly considered in terms of the problems thathave been created. Yet marketers need to recog-nize that a problem to one organization is an op-portunity to another. This is particularly true

8. G. Tavemier, "The Rising Importance of the Purchas-ing Manager," Intemational Management, Vol. 29 (Sep-tember 1974), pp. 42-52.

9. "The Pump Slump Crisis," Business Week, January 5,1974, pp.60-61.

Positioning Demarketing Strategy 53

when the problems are associated with productshortages or the inability of business to satisfycustomer demand. For example, does the in-creased price of synthetics due to the increased oilprices provide a better marketing opportunity forwool fibers? Likewise, a variety of efforts are nowfocused on the further development of coal,solar, and water-based energy and associatedbusiness opportunities.Long-Term Profitability

Whatever the market environment, marketersare faced with balancing the level of marketingeffort directed to achieving customer satisfactionand corporate profitability. In times of excesssupply the theme has been sales growth toachieve profitability, which resulted in extensiveproduct and service proliferation as "me-too"products were directed at increasingly smallermarket segments. These trends have been ques-tioned by consumerist groups, retailers, and nowby management, as profitability rather thansales growth has become a critical objective.Profitability analysis has always been a part ofthe performance evaluation of the alert firm, buteven in the present situation a marketing-orientedrather than cost-oriented approach is needed.

An assessment of what a satisfactory or optimallevel of marketing effori; is will be influenced (1)by the marketer's perception of an integrated ap-proach, (2) by the product differentiation-marketsegmentation decisions of the organization, and(3) by long-term versus short-term objectives. Theevaluation of a particular input should be basedon both profitability and consumer expectations.For example, sales force objectives are readilydefined in terms of sales performance, yet notquite so readily in terms of establishing buyer-seller relationships, and certainly less readily interms of market intelligence. As an excess-demand situation develops, these latter two ob-jectives will increase the importance of the salesforce rather than encourage sales force reduction.

The positioning of a company's demarketingstrategy relative to its overall marketing strategyrequires recognition of alternate objectives: re-ducing overall demand, general demarketing;*^ ormaintaining a holding position, controlled demar-keting. Initial assessment indicates the value ofthe general approach for permanent shortages,and the controlled approach for temporary shor-tages. A precise determination of the strategy tobe implemented will depend upon the expecta-tions of consumers, competitors, and the govern-

10. Same reference as footnote 1.

ment in the shortage situation relative to the"normal" marketing environment. For example,gasoline advertising budgets were cut almost onan industrywide basis as oil shortages becamecritical, but brand promotion was reinstated assupplies improved. However, governments arenow expressing the viewpoint that energy conser-vation is necessary because of a long-term energyshortage and thus that only conservation-themeadvertising will be acceptable in the future.

Strategy for Marketing Mix ElementsDemarketing is an integral component of gen-

eral marketing and must be positioned from abroad, rather than a narrow, viewpoint. Overall itis necessary that marketing management beaware of the general priority changes that haveoccurred for specific marketing mix elements asthe marketing environment shifts from one of ex-cess supply to one of excess demand. Table 1summarizes these changes, and in the followingsections each decision area is considered in rela-tion to strategy evaluation. The importance formarketing management of integrating the effectsof changes in the marketing decision variablescannot be overemphasized.Product Strategy Evaluation

The shortage situation has focused attention onraw material and product substitutes to ensuregetting supplies of existing products to the mar-ket, but marketers should also refocus attentionon product quality, product elimination, andproduct diversification decisions.

The concept of product substitutes deals withvarying the raw material input to achieve supplyand price stability. If traditional inputs are risingin price in conjunction with the shortage envi-ronment, is it not better to substitute other in-puts? For example, as meat prices rose rapidly inthe U.S. market, there was a marked increase inthe substitution of meat analogues. In developinga substitution strategy, marketers should evaluatepossible altematives in terms of supply trends,price trends, technical compatibility, productquality acceptability, degree of irreversibility in-troduced, time interval to achieve change, cost ofchange, and political stability. The weighting tobe given to each criterion will vary across productcategories, but the impact of substitutes on prod-uct quality requires special consideration. Prod-uct demand is related importantly to the abso-lute level of quality and consumer expectations.An understanding of consumer behavior indicatesthe potential weakness of any general strategy

54 Journal of Marketing, April 1975

MARKETING MIXELEMENT PRIORITIES

Product

Price

Distribution

Promotion

MARKETING OBJECTIVES AND

Create and MaintainDemand

New products"Me-too" productsQuality/valueDiversificationEliminate productsSales growthStable pricingTarget pricingLiberal creditExtensive servicesCustomer satis-faction serviceMass distributionExtensive outletsRetailer powerPromote consump-tion themeSales-orientedsalesmenTask-level budgets

TABLE 1MARKETING MIX ELEMENT PRIORITIES

MARKETING OBJECTIVESRation

DemandProduct allocationEliminate productsSubstitute productsLower quality

Financial stabilityControlled pricingCost-plus pricingTight creditTrimmed servicesOrder-takingserviceOuota distributionControlled outletsSupplier powerReduce budgetsLegislativecontrolsService salesmenNational interestthemes

ReduceDemand

Specialist segmentsEliminate productsSubstitute productsLess obsolescenceCreative productsProfit growthIncreased pricesTarget pricingStrict creditSpecialist servicesCustomer-orientedserviceTarget distributionSegmented outletsBalanced powerConservation themesMarketing-orientedsalesmenTask-level budgetsLegislativecontrols

that includes significant decreases in productquality to overcome the shortage problem. Op-portunity for downgrading a product will existprimarily in areas where consumer expectationsare lower than the product's specific attributes orwhere a latitude of acceptance exists.

The current environment reinforces man-agement's task of eliminating unprofitable prod-ucts and market segments." Analytical ap-proaches to the elimination decision are availableand have been extended to include criteria rele-vant to the current situation.'^ These criteria are(1) the rate of retum on investment and (2) an-nual sales growth in relation to a life cycle trajec-tory. The findings of such analysis may result insecondary products being elevated to primarystatus, and introduce a complementary decisionareaproduct diversification.

General growth strategy criteria will be ex-panded to include supply stability, the oppor-tunities in specialized products and/or servicesrelative to mass marketing, and unit profitabilityrelative to sales volume. A key element of amarketing-oriented approach is for managementto see the product shortage difficulties as oppor-

tunities rather than insurmountable problems. AsKotler stated:

Periods of shortages are an opportunity to theenterprising firm. The very definition of ashortage is that customers' needs are notbeing met . . . . A shortage of heating oilmeans an opportunity to increase the sales ofsweaters, fireplaces, and electric heatingblankets.''Central to management's use of this analysis is

the development of improved forecasting tech-niques for both market and supply prediction.Market research has focused mainly on develop-ing profiles of purchase pattems. This focus ispartly related to the difficulties involved in re-searching attitude systems to predict behavior.However, researchers are increasingly aware ofthe need to make progress in their ability to as-sess future behavior, and a continuous monitoringtrend approach oflFers interesting potential."*

Overall, the increasingly dynamic market situa-tion will force companies to be more flexible withtheir product ranges and component materials.

11. "The Squeeze on the Product Mix," Business Week.January 5, 1974, pp.50-55.

12. Same reference as footnote 3, p. 22.

13. See same reference as footnote 3.14. Jack J. Honomich, "Consumer Research Goes to Work

in Energy Shortage," Advertising Age, February 4, 1974,pp.30-31.

Positioning Demarketing Strategy 55

Product evaluation will become more profitabilityspecific and new product marketing will remain ahigh risk area as cost increases and marketchanges continue. Hence, new product develop-ment will have to be based on real improvementsrather than the "me-too" approach.Pricing Strategy Evaluation

Rapid inflation and extensive shortages haveaccelerated the institution of price stabilizationregulations. To many in management, this hasplaced substantial restrictions on the use of pric-ing as a major marketing tool for equating supplyand demand. While marketers acknowledge theimportance of keeping prices down, the shortagesituation has been associated with rapidly chang-ing costs that must be recovered if the product isto remain profitable. Likewise, distributors andretailers have become stricter in their screening ofless-profitable products in order to control mar-gins better. The current situation requires thatmarketers develop a flexible approach. Of interestin strategy evaluation are pricing objectives, pricelevels, and discounts.

During times of excess supply, pricingstrategies have been developed to achieve salesvolume as the basis for corporate profitabilityand, therefore, have emphasized penetration pricelevels. In the current situation of supply short-ages, increasing attention is being given to theprofitability of such pricing approaches and com-panies are showing less interest in new oppor-tunities with low profit margins. For example,Fairchild Camera & Instrument Corporation re-cently bowed out of a price war with Texas In-struments for two control modules for PolaroidCorporation's SX-70 camera, because the profitmargin would not be sufficient given the new bus-iness environment.'^

In a purely economic sense marketers can re-duce demand for their product by increasing theprice. However, this approach is limited both bycontrol regulations and by the nature of competi-tive price levels and consumer expectations. Thecompetitive effect is represented by traditionalprice leadership or by distinct altematives interms of price skimming or penetration strategies.These factors reinforce the view that pricing deci-sions include an important element of relativity;but with the rapid changes in base costs, it isessential that marketers appraise their prices fre-quently. While a yearly price setting may be suit-able in stable conditions, current developments

require at least a monthly evaluation. Consumerexpectations relative to price levels and theirchanges are also an integral part of the priceevaluation process. If the price increase effectivelyplaces a product at the top of the price rzinge forthat product clciss, demand might increase as aresult of the product's higher quality perception,but too high an increase could curtail demand.For example, consumers have expressed their in-tent not to pay high prices for food. Del MonteCorporation has reacted by focusing on basicfoods, rather than expensive convenience foods, asnew products.'* For durable products, initial con-sumer analysis indicates an exf>ectation of rollingprice increases but with an associated desire forimproved quality.

The setting of price levels and associated mar-gins for each part of the distribution channel issignificantly affected by the service and discountpolicies of the company. In the past, cis directprice competition became less evident, companiesachieved differentiation in the trade decision aireaby offering a vciriety of extra services. Evaluationof trade credit terms now affords an opportunityfor cost savings. This has resulted in stricter tradecredit terms, but taking this approach to itsextremes would be ageiinst the long-termmarketing objective of favorable (or positive)supplier/customer relationships. A high degree ofsensitivity is necessary in this area. Companieshave also offered a range of service factors fortheir products to achieve sales growth in themarket. The cost effectiveness of these services inrelation to sales, profitability, customer expecta-tions, and competitive offerings is often not clearand represents an area of potential savings.Distribution Strategy Evaluation

The development of effective channels of dis-tribution requires time and, as a result, there isrestricted flexibility for short-term changes. Anera of shortages affords companies the opportu-nity to develop significant changes in the dis-tribution system rather than just competitivereaction responses. In the short-term approach,the major focus is on product allocation withinthe distribution system and an order-takingorientation to customer service. This is satisfac-tory while customers expect shortage-relatedsupply problems, but customer-oriented service isstill relevant for achieving long-term profitability.The concept of mass distribution is also underpressure in the present environment, and market-

15. "Pricing Strategy in an Inflation Economy," BusinessWeek. April 6, 1974, pp. 42-46.

16. "The Two-Way Squeeze on New Products," BusinessWeek, August 10, 1974, pp. 130-131.

56 Journal of Marketing, April 1975

ers should be aware of the opportunity for overallplanned restructuring of the distribution channel.

An integrated evaluation of distributionstrategy focuses initially on the balance betweencustomer service indexed by distribution outletcoverage, speed of delivery and service, and theprofitability of a specific combination. An envi-ronment of abundant supplies and competitivemarket situations hcis forced companies to in-crease the service side of their product and dis-tribution offering. In New Zealand, where abun-dance and high-level competition have been onlymarginally present in the automobile market forsome years, an order-taking level of service is anintegral part of marketing strategy. Customershave never had higher levels of service, so theirexpectation levels have been consistent with theservice levela form of general demarketing. Theincreasing emphasis on profitability orientationin marketing requires that marketers evaluatetheir performance in this area. In many countries,gasoline marketers have been reducing thenumber of outlets because profitability analysisindicated overinvestment in this area. Extremereductions in market coverage are perhaps possi-ble if the product is held in high esteem or isconsidered a necessity, but for other products itwill create a marketing opportunity for com-petitors.

As the marketing task emphasizes reducingconsumer demand, marketers can implement thestrategy of target segment distribution. The un-certainty of the shortage situation does not makethis a clear altemative, so quota distribution isnecessary to deal with the current shortages ofgoods and services. The problem for marketingmanagement is how to allocate the available prod-uct supplies and maintain the goodwill of dis-tributors and customers. A first come, first servedbasis accelerates panic buying or hoarding, whichmay not be in the company's best interest.Likewise, quotas based on historical sales levelsreinforce existing market structures, which maynot be sufficiently sensitive to change. And whilea projected market potential basis is consistentwith market opportunity assessment, it may hurttraditional outlets or customers and result in animage of discrimination.

Distribution development during the 1960s hasseen a shift in the balance of channel power frommanufacturer to retailer. Shortages move thisbalcince back toward the manufacturer, but if thepower is exercised in a coercive manner a majordistribution channel outlet may be lost. Market-ers need to develop their short-term strategies in

conjunction with estimates of market trends, dis-tribution trends, and customer expectations. Theemphasis here is on determining the extent andreal directions of market changes and adjustingdistribution strategy to those changes.

Promotion Strategy EvaluationEvaluating the cost effectiveness of a particular

promotion program continues to be an area ofuncertainty. Many marketers thus tend to cut ad-vertising and sales force budgets in the face of adecline in supply. In this direction, food advertis-ing in the U.S. was cut back about 25% in the firsthalf of 1973 because of the tinavailability of essen-tial ingredients, inadequate product profitability,and Phase 4 of the economic stabilizationprogram.'^ Further reports indicated that sales-men were being laid off or reassigned. These ap-proaches may have undesirable long-term effects,and the real need may be to develop new promo-tion strategies for the traditional task-levelbudgets. The net benefit of changing the level ordirection of promotion will depend upon thechange strategies of competitors, govemment pol-icy, and the absolute level of promotion that ismaintained. Marketing decision makers shouldrecognize that an unsatisfied demand associatedwith a shortage of supplies is more readilysatisfied than a satisfied demand associated witha "loss-of-leader" image.

Traditionally, sales force performance has beenbased on sales volume and quota criteria. In thepresent market environment, however, an exten-sion of performance criteria is necessary andshould include service orientation and marketingintelligence. The service focus requires thatsalesmen solve their customers' supply problemsand be well informed on product availability andallocation procedures.'* Certainly in the processthe salesman and the company should conductcustomer evaluations in terms of long-termprofitability growth criteria. The marketing intel-ligence function should assess the competitivesupply situation for the company's main buyers,assist in locating substitute products, and deter-mine whether traditional buyers are moving intoother areas of business activity. Whether theoverall objective is to create or reduce demand,the broadening of the salesman's activity re-quirements points to the need for an increasinglymarketing-oriented approach for the long run.

17. Advertising Age, August 27. 1973.18. "The Salesman's New Job: Drumming Up Supplies,"

Business Week, October 26, 1974, pp. 54-61.

Positioning Demarketing Strategy 57

The shortage situation has accentuated thepressures on advertising from both a business andsocietal perspective. Never in its history has ad-vertising faced compulsory legislative and moralchange on such a vast scale and with suchabruptness." Consistent with this analysis, theFederal Energy Administration warned marketersagainst gasoline promotion other than that re-quired to protect the company's market share,-"even when supplies were freely available. Newpromotion themes have focused on "national in-terest" conservation in the short run. As theshortage situation continues, however, a major re-orientation in advertising is taking placefromthe general conservation approach in the energy-related industries, to specific demarketing utilizedby Foster-Grant for polystyrene.^' Expectation ofbehavior change from such programs must below following the years of advertising of the"promote consumption" variety; as advertisingthemes develop under the new approach, therewill be an important credibility gap to be bridgedbetween companies and individuals. In develop-ing major changes in consumer orientation, thefocus in advertising should be on creating newattitudes that relate to emerging social value pat-tems and that specify action altematives for con-

19. E. B. Weiss, "Planning Marketing & AdvertisingStrategy for the Energy Crisis," Advertising Age, July 9,1973, p" l .

20. "Energy Crisis," special section in Advertising Age,February 4, 1974, p. 27.

21. "Energy Boss Warns Oil Marketers: No GasolinePromotion," Advertising Age, August 12, 1974, p. 1.

sumers. The problem is considered to be a majorone which requires substantial funding.^ ^

ConclusionThe development of an environment of short-

ages reinforces the need for marketers to recog-nize marketing as the management of change. Anin-depth consideration of central elements ofmarketing philosophy and response criteria formarketing mix elements clearly indicates the con-tinued benefits that are available to companieswith a marketing orientation. Demarketingstrategy is an integral part of overall marketingand focuses on reducing or rationing demand.The market situation that has accelerated interestin demarketing offers new opportunities to thealert marketer and important opportunities forall companies to increase the productivity of theirmarketing expenditures.

In the future it is reasonable to expect oscilla-tion in the market environment between market-ing to create or maintain demand and marketingto ration or reduce demand. Marketing reseairchshould increase its focus on social and technologi-cal trend analysis relative to historical profiles ofsales and purchase behavior. This will assist mar-keters in obtaining early warnings of substantialchanges in the market environment and in de-veloping sensitive strategies to respond to thechanges.

22. E. B. Weiss, "Wanted: One Billion Dollar Ad Budgetto Sell Energy Conservation to Public Industry," AdvertisingAge, October 8, 1973, p. 39.

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