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Three Lines Theory of Marketing | Explained

Updated: Oct 16, 2023

What exactly is marketing and how does it relate to a theory of three lines? Well, It's a broad question, but the three-lines theory tries to summarise it in three lines!


Video Overview



Acknowledgment

Section 4 (a business education platform) is the original creator of this concept, so feel free to check them out, but I'm not a subscriber and am not endorsing them; I just wanted to acknowledge them.





What is the marketing three lines theory?

Three-line theory is a marketing theory that summarises marketing into three lines.


Cost, Price, and Perceived Value are the three lines.

The goal of marketing is to increase a brand's perceived value, allowing a company to raise prices and increase margins or sell more to more people.


Let’s go over the 3 lines in detail;

* Cost is the cost of producing the product (COGS) or the cost of delivering a service.

* Price refers to the amount you charge for your products and services.

* Perceived value is the amount of money that people believe your products and services are worth.


The main idea behind this theory is that these lines cannot cross.

Costs cannot be higher than the price or you will go bankrupt, and prices cannot be higher than the predetermined value or no one will buy.


Of course, there are nuances to this, such as lowering prices below cost to drive out competitors or offering loss leader products/services, but the concept remains.

The job of marketing is to increase the perceived value of a brand.


Why is it important for all brands to increase perceived value?

The majority of businesses fall into one of two categories:


Value and Premium brands

Each now has a very different business model, but both benefit equally from increasing perceived value.


They simply employ different strategies:

Premium brands use perceived value to raise prices and margins.

Value businesses, on the other hand, use perceived value to increase market share rather than raise prices.


Both businesses grow in different ways, all by increasing their perceived value.


Conclusion

I hope this helps you better understand how Marketing is used to increase the perceived value of your brand in order to grow your business. Whether your goals are to increase your margins or increase your market share.

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