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OUTLINE
The foundation of marketing is exchange, in which one party provides to another party
something of value in return for something else of value. In a broad sense, marketing
consists of all activities designed to generate or facilitate an exchange intended to satisfy
human needs.
To prepare to be a marketer, you need to understand what marketing is, how it works,
what is marketed, and who does the marketing.
Marketing is tricky, and making the right decisions is not always easy. Skillful marketing
is a never-ending pursuit.
What is Marketing?
Marketing deals with identifying and meeting human and social needs. One of the
shortest definition of marketing is "meeting needs profitably".
American Marketing Association suggests that marketing is "the process of planning and
executing the pricing, promotion, and distribution of goods, ideas, and services to create
exchanges that satisfy individual and organizational goals."
What is Marketed?
Marketing people are involved in marketing ten types of entities: goods, services, events,
experiences, persons, places, properties, organizations, information and ideas.
A. Goods: Physical goods constitute the bulk of production and marketing efforts.
B. Services: A growing portion of business activities are focused on the production of
services. The U.S. economy today consists of a 70-30 services to goods mix.
C. Events: Marketers promote time-based events such as trade shows, artistic
performances, and the Olympics.
D. Experiences: By orchestrating several services and goods, a firm can create and
market experiences such as Walt Disney World's Magic Kingdom.
E. Persons: Celebrity marketing is a major business.
F. Places: Cities, states, regions and whole nations compete actively to attract tourists,
factories, and new residents.
G. Properties: Are intangible rights of ownership of either real property (real estate) or
financial property (stocks and bonds).
The marketing concept is the philosophy that firms should analyze the needs of their
customers and then make decisions to satisfy those needs, better than the competition.
Today most firms have adopted the marketing concept, but this has not always been the
case.
The production concept prevailed from the time of the industrial revolution until the early
1920s. The production concept was the idea that a firm should focus on those products
that it could produce most efficiently and that the creation of a supply of low-cost
products would in and of itself create the demand for the products.
At the time, the production concept worked fairly well because the goods that were
produced were largely those of basic necessity and there was a relatively high level of
unfulfilled demand. Virtually everything that could be produced was sold easily by a
sales team whose job was simply to execute transactions at a price determined by the cost
of production..
The Sales Concept
By the early 1930s however, mass production had become commonplace, competition
had increased, and there was little unfulfilled demand. Around this time, firms began to
practise the sales concept (or selling concept), under which companies not only would
produce the products, but also would try to convince customers to buy them through
advertising and personal selling.
The sales concept paid little attention to whether the product actually was needed; the
goal simply was to beat the competition to the sale with little regard to customer
satisfaction. Marketing was a function that was performed after the product was
developed and produced, and many people came to associate marketing with hard selling.
Even today, many people use the word "marketing" when they really mean sales.
After World War II, the variety of products increased and hard selling no longer could be
relied upon to generate sales. With increased discretionary income, customers could
afford to be selective and buy only those products that precisely met their changing
needs, and these needs were not immediately obvious.
When firms first began to adopt the marketing concept, they typically set up separate
marketing departments whose objective it was to satisfy customer needs. Often these
departments were sales departments with expanded responsibilities. The marketing
concept relies upon marketing research to define market segments, their size, and their
needs. To satisfy those needs, the marketing team makes decisions about the controllable
parameters of the marketing mix.
Relationship Marketing
1. Marketing must not only do customer relationship management (CRM) but also
partnership relationship management (PRM).
2. Four key constituents for marketing are:
a. Customers
b. Employees
c. Marketing partners (channel partners)
d. Members of the financial community
3. The ultimate outcome of relationship marketing is the building of a unique company
asset called a marketing network.
A marketing network consists of the company and its supporting stakeholders (customers,
suppliers, distributors, retailers, ad agencies, university scientists and others) with whom
it has built mutually profitable business relationships.
Integrated Marketing
A. The marketer's task is to devise marketing activities and assemble fully integrated
marketing programs to create, communicate and deliver value for consumers.
B. The 4Ps of marketing: product, price, place and promotion.
Marketing – Mix decisions must be made for influencing the trade channels as well as the
final consumers.
1. Robert Lauterborn suggests that the sellers 4Ps correspond to the customers'
4Cs
4Ps 4Cs
Product Customer solution
Price Customer cost
Place Convenience
Promotion Communication
C. Two key themes of integrated marketing are:
1 Many different marketing activities are employed to communicate the deliver
value
Internal Marketing
A. Holistic marketing incorporates internal marketing, ensuring that everyone in the
organization embraces appropriate marketing principles.
B. Internal marketing must take place on two levels:
1. At one level, the various marketing functions (sales forces, advertising,
customer services, product management and marketing research) must work
together.
2. Secondly, marketing must be embraced by the other departments - they must
"think customer." Marketing is not a department so much as a company
orientation.
Market Definition
In marketing, the term market refers to the group of consumers or organizations that is
interested in the product, has the resources to purchase the product, and is permitted by
law and other regulations to acquire the product. The market definition begins with the
total population and progressively narrows as shown in the following diagram.
MARKET ANALYSIS
MARKET SIZE
The size of the market can be evaluated based on present sales and on potential sales if
the use of the product were expanded. The following are some information sources for
determining market size:
♦ government data
♦ trade associations
♦ financial data from major players
♦ customer surveys
A simple means of forecasting the market growth rate is to extrapolate historical data into
the future. While this method may provide a first-order estimate, it does not predict
important turning points. A better method is to study growth drivers such as demographic
information and sales growth in complementary products. Such drivers serve as leading
indicators that are more accurate than simply extrapolating historical data.
Important inflection points in the market growth rate sometimes can be predicted by
constructing a product diffusion curve. The shape of the curve can be estimated by
studying the characteristics of the adoption rate of a similar product in the past.
Ultimately, the maturity and decline stages of the product life cycle will be reached.
Some leading indicators of the decline phase include price pressure caused by
competition, a decrease in brand loyalty, the emergence of substitute products, market
saturation and the lack of growth drivers.
MARKET PROFITABILITY
While different firms in a market will have different levels of profitability, the average
profit potential for a market can be used as a guideline for knowing how difficult it is to
make money in the market. Michael Porter devised a useful framework for evaluating the
attractiveness of an industry or market. This framework, known as Porter's five forces,
identifies five factors that influence the market profitability:
♦ Buyer power
♦ Supplier power
♦ Barriers to entry
The cost structure is important for identifying key factors for success. To this end,
Porter's value chain model is useful for determining where value is added and for
isolating the costs.
The cost structure also is helpful for formulating strategies to develop a competitive
advantage. For example, in some environments the experience curve effect can be used to
develop a cost advantage over competitors.
Distribution Channels
The following aspects of the distribution system are useful in a market analysis:
Existing distribution channels : can be described by how direct they are to the customer.
Trends and emerging channels: new channels can offer the opportunity to develop a
competitive advantage.
Channel power structure: for example, in the case of a product having little brand equity,
retailers have negotiating power over manufacturers and can capture more margin.
Market Trends
Changes in the market are important because they often are the source of new
opportunities and threats. The relevant trends are industry-dependent, but some examples
include changes in price sensitivity, demand for variety, and level of emphasis on service
and support. Regional trends also may be relevant.
The key success factors are those elements that are necessary in order for the firm to
achieve its marketing objectives. A few examples of such factors include:
♦ Technological progress
It is important to consider that key success factors may change over time, especially as
the product progresses through its life cycle.
Market Segmentation
Market segmentation is the identification of portions of the market that are different from
one another. Segmentation allows the firm to better satisfy the needs of its potential
customers.
The marketing concept calls for understanding customers and satisfying their needs better
than the competition. But different customers have different needs, and it rarely is
possible to satisfy all customers by treating them alike.
Mass marketing refers to treatment of the market as a homogenous group and offering the
same marketing mix to all customers. Mass marketing allows economies of scale to be
realized through mass production, mass distribution, and mass communication. The
drawback of mass marketing is that customer needs and preferences differ and the same
offering is unlikely to be viewed as optimal by all customers. If firms ignored the
differing customer needs, another firm likely would enter the market with a product that
serves a specific group, and the incumbent firms would lose those customers.
Target marketing on the other hand recognizes the diversity of customers and does not try
to please all of them with the same offering. The first step in target marketing is to
identify different market segments and their needs.
♦ Substantial: the segments should be sufficiently large to justify the resources required
to target them.
♦ Unique needs: to justify separate offerings, the segments must respond differently to
the different marketing mixes.
♦ Durable: the segments should be relatively stable to minimize the cost of frequent
changes.
A good market segmentation will result in segment members that are internally
homogenous and externally heterogeneous; that is, as similar as possible within the
segment, and as different as possible between segments.
♦ Geographic
♦ Demographic
♦ Psychographic
♦ Behavioralistic
Geographic Segmentation
The following are some examples of geographic variables often used in segmentation.
Demographic Segmentation
♦ Age
♦ Gender
♦ Family size
♦ Family lifecycle
♦ Income
♦ Occupation
♦ Education
♦ Ethnicity
♦ Nationality
♦ Religion
♦ Social class
Many of these variables have standard categories for their values. For example, family
lifecycle often is expressed as bachelor, married with no children (DINKS: Double
Income, No Kids), full-nest, empty-nest or solitary survivor. Some of these categories
have several stages, for example, full-nest I, II or III depending on the age of the children.
Psychographic Segmentation
♦ Activities
♦ Interests
♦ Opinions
♦ Attitudes
♦ Values
Behavioralistic Segmentation
Location
In industrial markets, customer location may be important in some cases. Shipping costs
may be a purchase factor for vendor selection for products having a high bulk to value
ratio, so distance from the vendor may be critical. In some industries firms tend to cluster
together geographically and therefore may have similar needs within a region.
Company Type
Behavioural Characteristics
I. Situation Analysis: A thorough analysis of the situation in which the firm finds itself
serves as the basis for identifying opportunities to satisfy unfulfilled customer needs.
In addition to identifying the customer needs, the firm must understand its own
capabilities and the environment in which it is operating.
The situation analysis thus can be viewed in terms of an analysis of the external
environment and an internal analysis of the firm itself. The external environment can
be described in terms of macro-environmental factors that broadly affect many
firms, and micro-environmental factors closely related to the specific situation of the
firm.
The situation analysis should include past, present and future aspects. It should
include a history outlining how the situation evolved to its present state, and an
analysis of trends in order to forecast where it is going. Good forecasting can reduce
the chance of spending a year bringing a product to market only to find that the need
no longer exists.
If the situation analysis reveals gaps between what consumers want and what
currently is offered to them, then there may be opportunities to introduce products to
better satisfy those consumers. Hence, the situation analysis should yield a summary
of problems and opportunities. From this summary, the firm can match its own
capabilities with the opportunities in order to satisfy customer needs better than the
competition.
There are several frameworks that can be used to add structure to the situation
analysis:
♦ 5 C Analysis: company, customers, competitors, collaborators and climate.
Company represents the internal situation; the other four cover aspects of the
external situation.
II. Marketing Strategy: Once the best opportunity to satisfy unfulfilled customer needs
is identified, a strategic plan for pursuing the opportunity can be developed. Market
research will provide specific market information that will permit the firm to select
the target market segment and optimally position the offering within that segment.
The result is a value proposition to the target market. The marketing strategy then
involves:
♦ Segmentation
III. Marketing Mix Decisions: Detailed tactical decisions then are made for the
controllable parameters of the marketing mix. The action items include:
♦ Product development: specifying, designing and producing the first units of the
product.
♦ Pricing decisions
♦ Distribution contracts
IV. Implementation and Control: At this point in the process, the marketing plan has
been developed and the product has been launched. Given that few environments are
static, the results of the marketing effort should be monitored closely. As the market
changes, the marketing mix can be adjusted to accommodate the changes. Often,
small changes in consumer wants can addressed by changing the advertising
message. As the changes become more significant, a product redesign or an entirely
new product may be needed. The marketing process does not end with
implementation—continual monitoring and adaptation is needed to fulfill customer
needs consistently over the long-term.
In order to profitably satisfy customer needs, the firm first must understand its external
and internal situation, including the customer, the market environment, and the firm's
own capabilities. Furthermore, it needs to forecast trends in the dynamic environment in
which it operates.
Company
♦ Product line
♦ Culture
♦ Goals
Collaborators
♦ Distributors
♦ Suppliers
♦ Alliances
Customers
♦ Market segments
Competitors
♦ Actual or potential
♦ Direct or indirect
♦ Products
♦ Positioning
♦ Market shares
♦ Strengths and weaknesses of competitors
♦ Economic environment: business cycle, inflation rate, interest rates and other
macroeconomic issues
The analysis of these four external "climate" factors often is referred to as a PEST
analysis.
INFORMATION SOURCES
♦ Product: The Product management and Product marketing aspects of marketing deal
with the specifications of the actual good or service, and how it relates to the end-
user's needs and wants.
♦ Pricing: This refers to the process of setting a price for a product, including
discounts.
♦ Placement or distribution refers to how the product gets to the customer; for
example, point of sale placement or retailing. This fourth P has also sometimes been
called Place, referring to "where" a product or service is sold, e.g. in which
geographic region or industry, to which segment (young adults, families, business
people, women, men, etc.).
These four elements are often referred to as the marketing mix. A marketer can use these
variables to craft a marketing plan. The four Ps model is most useful when marketing low
value consumer products. Industrial products, services, high value consumer products
require adjustments to this model. Services marketing must account for the unique nature
of services. Industrial or b2b marketing must account for the long term contractual
agreements that are typical in supply chain transactions. Relationship marketing attempts
to do this by looking at marketing from a long-term relationship perspective rather than
individual transactions.
For a marketing plan to be successful, the mix of the four "p's" must reflect the wants and
desires of the consumers in the target market. Trying to convince a market segment to
buy something they don't want is extremely expensive and seldom successful. Marketers
depend on marketing research, both formal and informal, to determine what consumers
want and what they are willing to pay for. Marketers hope that this process will give them
a sustainable competitive advantage. Marketing management is the practical application
of this process.
Most companies today have a customer orientation (also called customer focus). This
implies that the company focuses its activities and products on customer needs. Generally
there are two ways of doing this: the customer-driven approach and the product
innovation approach.
In the consumer-driven approach, consumer wants are the drivers of all strategic
marketing decisions. No strategy is pursued until it passes the test of consumer research.
Every aspect of a market offering, including the nature of the product itself, is driven by
the needs of potential consumers. The starting point is always the consumer. The rationale
for this approach is that there is no point spending R&D funds developing products that
people will not buy. History attests to many products that were commercial failures
inspite of being technological breakthroughs.
The next big thing is a concept in marketing that refers to a product or idea that will allow
for a high amount of sales for that product and related products. Marketers believe that by
finding or creating the next big thing they will spark a cultural revolution that results in
this sales increase.
In a product innovation approach, the company pursues product innovation, then tries to
develop a market for the product. Product innovation drives the process and marketing
research is conducted primarily to ensure that a profitable market segment(s) exists for
the innovation. The rationale is that customers may not know what options will be
available to them in the future so we should not expect them to tell us what they will buy
in the future. It is claimed that if Thomas Edison depended on marketing research he
would have produced larger candles rather than inventing light bulbs. Many firms, such
as research and development focused companies, successfully focus on product
innovation. Many purists doubt whether this is really a form of marketing orientation at
all, because of the ex post status of consumer research. Some even question whether it is
marketing.
Diffusion of innovations research explores how and why people adopt new products,
services and ideas.
A relatively new form of marketing uses the Internet and is called internet marketing or
more generally e-marketing, affiliate marketing or online marketing. It typically tries to
perfect the segmentation strategy used in traditional marketing. It targets its audience
more precisely, and is sometimes called personalized marketing or one-to-one marketing.
Core concepts create foundations for marketing management and holistic marketing
orientation.
A. A marketer can rarely satisfy everyone in a market therefore the marketers must
divide the market into segments.
B. The marketer then decides which segment presents the greatest opportunity – which
are its target markets.
C. For each chosen target market, the firm develops a market offering.
D. The offering is positioned in the minds of the target buyers as delivering some
central benefit(s).
A. Companies put forth a value proposition, a set of benefits they offer to customers to
satisfy their needs.
A. The offering will be successful if it delivers value and satisfaction to the target
buyer.
D. Value can be a combination of quality, service and prices called the customer value
triad.
Supply Chain
Competition
A. Includes all the actual and potential rival offering and substitutes that a buyer might
consider.
Marketing Environment
1. Demographic
2. Economic
3. Natural
4. Technological
5. Political-legal
6. Social-cultural
Marketing Planning
A. A number of important trends and forces are eliciting a new set of beliefs and
practices on the part of business firms. These fourteen major shifts are:
3. From making everything to buying more goods and services from outside.
9. From selling to everyone to trying to be the best firm serving a well-defined target
market.