hapter 1: Introduction to Marketing (Defining Marketing for the Twenty-First Century)

Chapter 1: Introduction to Marketing (Defining Marketing for the Twenty-First Century)

This chapter focuses on following issues of marketing:

1. The definition of marketing, marketing process, marketing task and scope of marketing
2. Core marketing concept
3. Demand Management in marketing
4. Company orientation toward the marketplace: Marketing Management philosophies

Defining Marketing

Marketing, more than any other business activities deals with customers. Although there are a number of detailed definitions of marketing perhaps the simplest definition of marketing is managing profitable customer relationship.

We can distinguish between a social and a managerial definition for marketing. According to a social definition, marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products and services of value freely with others. As a managerial definition, marketing has often been described as “the art of selling products.” But Peter Drucker, a leading management theorist, says that “the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself.

Marketing is the management process that identifies, anticipates and satisfies customer requirements profitably - The Chartered Institute of Marketing (CIM).

The American Marketing Association (offers this managerial definition):

Marketing (management) is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals.

Marketing Management:

Marketing Management is the process of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer value and satisfaction.

Difference between Selling and Marketing

The old sense of making a sale is telling and selling, but in new sense it is satisfying customer needs. Selling occurs only after a product is produced. By contrast, marketing starts long before a company has a product. Marketing is the homework that managers undertake to assess needs, measure their extent and intensity, and determine whether a profitable opportunity exists. Marketing continues throughout the product’s life, trying to find new customers and keep current customers by improving product appeal and performance, learning from product sales results, and managing repeat performance. Thus selling and advertising are only part of a larger marketing mix-a set of marketing tools that work together to affect the marketplace.

Process of Marketing:

The marketing process involves five steps: The first four steps create value for customers and build strong customer relationships in order to capture value from customers in return. At the primary stage, marketers must assess and understand the marketplace and customers needs and demands. Next, marketers design a customer driven marketing strategy with the goal of getting, keeping and growing target customers. This stage includes market segmentation, targeting and position. The third step involves designing a marketing program that actually delivers the superior value. This step includes designing products and services, pricing the product, distribution and finally promoting the product. . The first three steps provide the basis for the fourth step that is building profitable customer relationships and creating customer satisfaction. And finally, the company reaps the reward of strong customer relationship and satisfaction by capturing value from customers.

MARKETING TASKS

According to market experts John Evans & Berry Bergmen- there are nine functions of marketing. These are:

1. Customer analysis
2. Buying supplies
3. Selling products and services
4. Product and service planning
5. Pricing
6. Distribution
7. Marketing research
8. Opportunity analysis
9. Social responsibility.

 Scope of marketing:

Now a day, marketing offers are not confined into products and services. The scope of marketing is now becoming larger. Marketing people are involved in marketing several types of entities:

Goods:  Physical goods constitute the bulk of most countries’ production and marketing effort. Most of the country produces and markets various types of physical goods, from eggs to steel to hair dryers. In developing nations, goods— particularly food, commodities, clothing, and housing—are the mainstay of the economy.

Services: As economies advance, a growing proportion of their activities are focused on the production of services. The U.S. economy today consists of a 70–30 services-to-goods mix. Services include airlines, hotels, and maintenance and repair people, as well as professionals such as accountants, lawyers, engineers, and doctors. Many market offerings consist of a variable mix of goods and services.

Experiences: By orchestrate several services and goods, one can create, stage, and market experiences. Walt Disney World’s Magic Kingdom is an experience.

Event: Marketers promote time-based events, such as the Olympics, trade shows, sports events, and artistic performances.

Persons: Celebrity marketing has become a major business. Artists, musicians, CEOs, physicians, high profile lawyers and financiers, and other professionals draw help from celebrity marketers.

Place: Cities, states, regions, and nations compete to attract tourists, factories, company headquarters, and new residents. Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public relations agencies.

Properties: Properties are intangible rights of ownership of either real property (real estate) or financial property (stocks and bonds). Properties are bought and sold, and this occasions a marketing effort by real estate agents (for real estate) and investment companies and banks (for securities).

Organizations: Organizations actively work to build a strong, favorable image in the mind of their publics. Philips, the Dutch electronics company, advertises with the tag line, “Let’s Make Things Better.” The Body Shop and Ben & Jerry’s also gain attention by promoting social causes. Universities, museums, and performing arts organizations boost their public images to compete more successfully for audiences and funds.

Information: The production, packaging, and distribution of information is one of society’s major industries. Among the marketers of information are schools and universities; publishers of encyclopedias, nonfiction books, and specialized magazines; makers of CDs; and Internet Web sites.

Ideas: Every market offering has a basic idea at its core. In essence, products and services are platforms for delivering some idea or benefit to satisfy a core need.

Core Concepts of marketing:

1. Needs, Wants and Demands: The successful marketer will try to understand the target market’s needs, wants, and demands.

Needs: The most basic concept of marketing is the human needs. Human needs are states of felt deprivation. Human needs can be physical needs (Hunger, thirst, shelter etc) social needs (belongingness and affection) and individual needs (knowledge and self-expression).

There are five types of needs. These are-

ü  Stated need (Minimum price)

ü  Real need (Psychological price)

ü  Unstated need (Service for post purchase)

ü  Delighted need (Supplementary-Gift)

ü  Secret need (Show up, gesture).

Wants: It is the form of human needs shaped by culture and individual personality. Needs become wants when they are directed to specific objects that might satisfy the need. For example, An American needs food but wants hamburger, French fries and soft drink but a British wants fish, chicken, chips and soft drinks. So, it differs.

Demands: Wants become demand when backed by purchasing power. Consumers view products as bundles of benefits and choose product that add up to the most satisfaction. Demand comprises of three steps first, desire to acquire something, second, willingness to pay for it, and third, ability to pay for it. Many people want a Mercedes; only a few are able and willing to buy one. Companies must measure not only how many people want their product, but also how many would actually be willing and able to buy it. However, marketers do not create needs; Needs preexist marketers. Marketers, along with other societal influences, influence wants. Marketers might promote the idea that a Mercedes would satisfy a person’s need for social status. They do not, however, create the need for social status.

2. Product or Offering and Value Proposition

People satisfy their needs and wants with products. A product is any offering that can satisfy a need or want, such as one of the 10 basic offerings of goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.

By an offering customer get the value proposition to use or consume the deliver product or services. So Value proposition is the set of benefits or values it promises to deliver to customers to satisfy their needs. It is actually the answer of customer’s question: ‘Why should I buy your product?’

3. Value and satisfaction:

Value can be defined as a ratio between what the customers get and what they give in return. The customers gets benefit and assumes costs. Value = Benefits / Costs. Marketers’ concern should be to raise the value in the minds of the customers. When value of the products or services is high, customers are willing to pay more for the products. Thus;

                        Functional Benefit+ Emotional Benefit

Value =

                        Monetary costs +Time costs + Energy costs +Psychic costs

Customer satisfaction is the extent to which a product’s perceived performance matches a buyer’s expectation. If performance matches expectation level, the customer becomes satisfied but if the product’s performance falls short of expectations, the customer will be dissatisfied. If performance exceeds expectation, the customer will be highly satisfied or delighted.

4. Exchanges and Transactions:

Exchange: Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is defined as the act of obtaining a desired object from someone by offering something in return. For exchange potential to exist, five conditions must be satisfied:

ü  There are at least two parties

ü  Each party has something that might be of value to the other party

ü  Each party is capable of communication and delivery

ü  Each party is free to accept or reject the exchange offer

ü  Each party believes it is appropriate or desirable to deal with the other party.

Transaction: If exchange is the core concept of marketing, transaction is the marketing’s unit of measurement. Two parties are engaged in exchange if they are negotiating- trying to arrive at mutually agreeable terms. When an agreement is reached, we say the transaction takes place. Thus, a transaction is a trade of values between two or more parties. When the exchange is made, it results into transaction. A transaction involves several dimensions:

·         at least two things of value

·         agreed-upon conditions

·         a time of agreement and

·         a place of agreement.

5. Relationships and Networks

Transaction marketing is part of a larger idea called relationship marketing. Relationship marketing aims to build long-term mutually satisfying relations with key parties —customers, suppliers, distributors—in order to earn and retain their long-term preference and business. Effective marketers accomplish this by promising and delivering high-quality products and services at fair prices to the other parties over time.

Relationship marketing builds strong economic, technical, and social ties among the parties. It cuts down on transaction costs and time. 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, employees, suppliers, distributors, university scientists, and others) with whom it has built mutually profitable business relationships.

6. Market:

From the view point of modern marketing, market doesn’t stand for a place where buyers and sellers gathered to buy or sell goods. A market is the set of actual and potential buyers. More specifically, a market is an arrangement of all customers who have needs that may be fulfilled by an organization’s offerings. The size of a market depends of the number of people who exhibit the need, have resources to engage in exchange and are willing to offer these resources in exchange for what they want. The key customer markets can be: Consumer market, Business Market, Global Market and Non-profit and Government market.

Now marketers view the sellers as the industry and the buyers as the market. The sellers send goods and services and communications (ads, direct mail, e-mail messages) to the market; in return they receive money and information (attitudes, sales data). The inner loop in the diagram in Figure 1-1 shows an exchange of money for goods and services; the outer loop shows an exchange of information.

Today we can distinguish between a marketplace, a marketspace and metamarket. The marketplace is physical, as when one goes shopping in a store; marketspace is digital, as when one goes shopping on the Internet. E commerce—business transactions conducted on-line—has many advantages for both consumers and businesses, including convenience, savings, selection, personalization, and information. For example, on-line shopping is so convenient that 30 percent of the orders generated by the Web site of REI, a recreational equipment retailer, is logged from 10 P.M. to 7 A.M., sparing REI the expense of keeping its stores open late or hiring customer service representatives. However, the e-commerce marketspace is also bringing pressure from consumers for lower prices and is threatening intermediaries such as travel agents, stockbrokers, insurance agents, and traditional retailers. The metamarket concept describes a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries. The automobile metamarket consists of automobile manufacturers, new and used car dealers, financing companies, insurance companies, mechanics, spare parts dealers, service shops, auto magazines, classified auto ads in newspapers, and auto sites on the Internet. Car buyers can get involved in many parts of this metamarket. This has created an opportunity for metamediaries to assist buyers to move seamlessly through these groups.

7. Marketing Channels:

Marketing channels means the parties that help the company to promote, sell and distribute its goods to final buyers. To reach a target market, the marketer uses three kinds of marketing channels:

1. Communication channels: deliver and receive messages form target buyers and include newspapers, magazines, radio, television, mail, telephone and the internet.

2. Distribution channels: The marketers use this channel to display, sell or deliver the physical products or services to the buyer or user. They include distributors, wholesalers, retailers and agents.

3. Service channels: The marketer also uses service channels to carry out transaction with potential buyers. Service channels include warehouses, transportation companies, banks and insurance companies that facilitate transaction.

8. Segmentation, Target market and Positioning:

Market Segmentation means dividing a market into smaller groups of buyers on the basis of different needs, characteristics or behavior. Market segments can be identified by examining geographic, demographic, psychographic and behavioral differences. The marketer then decides which segments present the greatest opportunity which is its target market. For each chosen target market, the firm develops a market offering. The offering is positioned in the minds of the target buyers as delivering some central benefits. Thus, product positioning is the way a product occupies a place in the minds of the customers relative to competing products. Like, Volvo, positions its car as the safest a customer can buy, where Ford positioned on economy and Mercedes and Cadillac positioned on Luxury.

9. Supply Chain

It is the channel stretching from raw materials to components to final products that are carried to final buyers. The supply chain of women’s’ purse starts with hides and moves through tanning, cutting, manufacturing, and the marketing channels to bring to bring products to final customers. This supply chain represents a value delivery system. Each company captures only a certain percentage of the total value generated by the supply chain. When a company acquires competitors or moves upstream or downstream, its aim is to capture a higher percentage of supply chain value.

 

10. Competition: Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. There are several possible level of competition:

Brand competition: A company sees its competitors as other companies that offer similar products and services to the same customers at similar prices. Volkswagen might see its major competitor as Toyota, Honda and other manufacturers of medium period automobiles. It would not see itself to compete with Mercedes or Hyundai. 

Industry competition: A company sees its competitors as all companies that make the same product or class of products. Volkswagen would see itself competing against all other automobile manufacturers.

Form competition: A company sees its competitors as all companies that manufacture

products that supply the same service. Volkswagen might see itself as competing against not only other auto mobile but also against manufacturers of motor cycle, bicycles and trucks.

Generic competition: A company sees its competitors as all companies that compete for the same consumer dollars. Volkswagen might see itself competing with companies that sell major consumer durables, foreign vacations and new homes as substitutes of spending on a Volkswagen.

11.Marketing Environment

Competition represents only one force in the environment in which all marketers operate. The overall marketing environment consists of the task environment and the broad environment.

The task environment includes the immediate actors involved in producing, distributing, and promoting the offering, including the company, suppliers, distributors, dealers, and the target customers. Material suppliers and service suppliers such as marketing research agencies, advertising agencies, Web site designers, banking and insurance companies, and transportation and telecommunications companies are included in the supplier group. Agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers are included with distributors and dealers. The broad environment consists of six components: demographic environment, economic environment, natural environment, technological environment, political-legal environment, and social-cultural environment. These environments contain forces that can have a major impact on the actors in the task environment, which is why smart marketers track environmental trends and changes closely.

12. The marketing program and marketing mix

A marketing program consists of numerous decisions on the mix of marketing tools to use for their target market.

The marketing mix is the set of marketing tools the firm uses to pursue its marketing objectives in the target market. McCarthy classified these tools into four broad groups that he called the four P’s of marketing: product, price, place and promotion.

1. Product: Product means the combination of goods and services that the company offers to the target market.
2. Price: Price is the amount of money customers have to pay to obtain the product.
3. Place: Place includes company activities that make the product available to target consumers.
4. Promotion: Promotion means the activities that communicate the merits of the product and persuade target customers to buy it.

Four P’s represent the sellers view of the marketing tools available for influencing buyers. From a buyer’s point of view, each marketing tool is designed to deliver a customer benefit. Robert Lauterbom suggested that the seller’s four P’s corresponded to the customer’s four C’s.

Four P’s                      Four C’s

Product --------------  Customer solution

Price     --------------  Customer cost

Place    --------------  Convenience

Promotion ----------  Communication

The latest way to view four P’s from buyers’ perspective is SIVA which stands for

Solution: How can I get a solution of my problem?  (Represents the product)

Information: Where can I learn more about it? (Represents promotion)

Value: What is m total sacrifice to get this solution? (Represents Price)

Access: Where can I find it? (Represents place).

Extended Marketing Mix (3 Ps)

Now a days three more Ps have been added to the marketing mix namely People, Process and Physical Evidence. This marketing mix is known as extended marketing mix.

People:- All people involved with consumption of a service are important. For example workers, management, consumers etc Process:- Procedure, mechanism and flow of activities by which services are used. Physical Evidence:- The environment in which the service or product is delivered, tangible are the one which helps to communicate and intangible is the knowledge of the people around us.

Demand Management in Marketing

 Marketers face different market conditions which are related to different states of demand. Especially the pricing strategy largely depends on the variability of demand. According to Kotler, the eight major states of demand are:

1. Negative Demand: A market is in a state of negative demand if a major part of the market dislikes the product and may even pay a price to avoid it. The marketing task is to analyze why the market dislikes the product and whether a marketing program consisting of product redesign, lower prices and more positive promotion can change the market beliefs and attitudes. For example: vegetarians have a negative demand for meat, people in general have negative demands for vaccinations, dental work or surgery.

2. No Demand: Target customers may be unaware of or uninterested in the product. The marketing task is to find ways to connect the benefits of the product with the person’s natural needs and interests. For example: the products that have usually no value to people, like a newspaper published in last week. Or, any products that have value but not in a particular market, like snowmobiles in areas of warm climate.

3. Latent Demand: Many consumers may share a strong need that cannot be satisfied by any existing product. The marketing task is to measure the size of the potential market and develop effective goods and services that would satisfy the demand. Like vaccinations of HIV or harmless cigarettes.

4. Decline Demand: Every organization, sooner or later, faces declining demand for one or more of its products. The marketing task is to reverse the declining demand through creative remarketing of the product. Like: the demands for compact disks (CD) are declining now a day.

5. Irregular Demand: Many organizations face demand that varies on a seasonal, daily or even hourly basis, causing problems of idle or overworked capacity. The marketing task, called synchro-marketing, is to find ways to alter the same pattern of demand through flexible pricing, promotion and other incentives.

6. Full Demand: Organizations face full demand when they are pleased with their volume of business. The marketing task is to maintain the current level of demand in the face of changing customer preferences and increasing competition. The organization must maintain or improve its quality and continually measure consumer satisfaction to make sure it is doing a good job.

7. Overfull Demand: Some organizations face a demand level that is higher than they can or want to handle. The marketing task, called demarketing, requires finding ways to reduce the demand temporarily or permanently. General demarketing seeks to discourage overall demand and consists of such steps as raising prices and reducing promotion and service. Selective demarketing consists of trying to reduce the demand coming form those parts of the market that are less profitable or less in need of the product. Demarketing aims not to destroy demand but only to reduce its level temporarily or permanently. For example : The campaign in our country that insist people to take potatoes as replacement of rice.

8. Unwholesome Demand: Unwholesome products will attract organized efforts to discourage their consumption. The marketing task is to get people who like something to give it up, using such tools as fear messages, price hikes, and reduced availability. Like books and film piracy, inhaling drugs and so on.

Marketing Management Philosophies:

Marketing management is the carrying out the task to achieve desired exchanges with target markets. Marketing activities should be carried out under a well thought out philosophy of efficiency, effectiveness and social responsibility. The philosophies are the guidance for marketing efforts. It emphasizes on the weight that should be given to the interests of the organizations, customers and society. There are some concepts under which organizations conduct their marketing activities. These are:

1. Production Concept

2. Product Concept

3. Selling Concept

4. Marketing Concept

5. Societal Marketing Concept

6. Holistic Concept

1. Production Concept: It holds that consumers will favor products that are available and highly affordable. Therefore, management should focus on improving production and distribution efficiency that means high production efficiency, low costs and mass distribution. This concept is still useful in two types of situations, when the demand exceeds the supply and when the product’s cost is too high and improved productivity is needed to bring it down. It is used when a company wants to expand the market.

ü  Managers assume that consumers are primarily interested in product availability and low cost.

2. Product Concept: It holds the idea that consumers will favor products that offer the most quality, performance, and features and that the organization should therefore devote its energy to making continuous product improvements.

ü  Focuses on making superior product and improving them.

ü  buyers admire well-made products and can evaluate quality and performance.

ü  Product concept can lead to marketing myopia (that means lack of foresight or long-term view regarding the product decision).

3. Selling Concept: It holds the idea that consumers will not buy enough of the organization’s products unless the organization undertakes a large-scale selling and promotion effort. This concept is typically practiced with unsought goods, those that buyers do not normally think of buying, such as encyclopedias or insurance. Most firms practice the selling concept when they have over capacity. This concept takes an inside-out perspective. It starts with the factory, focuses on the company’s existing products and calls for heavy selling and promotion to obtain profitable sales.

ü  Consumer typically show buying inertia/resistance & must be coaxed into buying.

ü  To sell what they make rather than make what market wants.

4. Marketing Concept: It holds the idea that achieving organizational goals depend on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do. The main task for marketers not to find the right customers for the product, but the right products for the customers.

Figure 4: Contrast between selling concept and marketing concept

It can be expressed in many ways:

ü  Marketer balance creating more value for customers against making more profits.

ü  Marketing concept rest on four pillars: a) Target market b) Customer needs c) Integrated marketing d) Profitability.

ü  Love the customer not the product

ü  Putting people first.

5.      Societal Marketing Concept:

It holds the idea that the organization should determine the needs, wants and interests of target markets and deliver the desired satisfactions more effectively and efficiently than do competitors in a way that maintains or improves the consumer’s and society’s well being. This concept calls on marketers to balance three considerations in setting their marketing policies: company profits, consumer wants and society’s interests. It emphasizes on both the short run wants and long run welfare of consumers.

6. Holistic Concept: this is the most recent concept of marketing which is based on the development, design and implementation of marketing programs processes and activities from a broad integrated perspective. It is the integration of internal marketing, integrated marketing, relationship marketing and performance marketing concept.

(a) Internal Marketing Concept: This concept holds the idea to satisfy the internal people or employees within the organization, so that they work for the satisfaction of the customers. The first step to satisfy the customers is to satisfy the internal people first or to motivate them first.

(b) Integrated Marketing Concept: It refers to an approach where all the departments of the organization work in a coordinated manner to support and serve the customers. Any single section cannot serve the customers without the help of other sections. The customer’s satisfaction is achieved when all the departments have the common goals and intention to serve the customers.

(c) Relationship Marketing Concept: It refers the long-term relationship with the customers. It emphasizes on creating, maintaining and developing a long term value laden or value based relationship with the target customers benefits and costs.

(d) Performance marketing: Holistic marketing incorporates performance marketing and understanding the returns to the business from marketing activities and programs as well as their legal, ethical, social, and environmental effects. Performance marketing thus includes: Financial accountability and Social responsible marketing.