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 products 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.
Afiya Sultana, Lecturer, FBA, USTC
Marketing Management
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. Value creation for customers Understand the market place and customer needs and wants Design a customer-driven marketing strategy Construct a marketing program that delivers superior value Build profitable relationships and create customer delight
Capture Value from customers in return
Figure 1: Marketing Process
MARKETING TASKS
According to market experts John Evans & Berry Bergmen- there are nine functions of marketing. These are: 1. 2. 3. 4. 5. 6. 7. 8. 9. Customer analysis Buying supplies Selling products and services Product and service planning Pricing Distribution Marketing research Opportunity analysis Social responsibility.
Afiya Sultana, Lecturer, FBA, USTC
Marketing Management
Core Concepts of marketing:
1. Needs, Wants and Demands: The successful marketer will try to understand the target markets 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 Stated need (Minimum price) Real need (Psychological price) Unstated need (Service for post purchase) Delighted need (Supplementary-Gift) 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 persons 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 customers 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 =
Afiya Sultana, Lecturer, FBA, USTC Marketing Management
Monetary costs +Time costs + Energy costs +Psychic costs Customer satisfaction is the extent to which a products perceived performance matches a buyers expectation. If performance matches expectation level, the customer becomes satisfied but if the products 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: There are at least two parties Each party has something that might be of value to the other party Each party is capable of communication and delivery Each party is free to accept or reject the exchange offer 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 marketings 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, distributorsin 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 doesnt 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 organizations offerings. The size of a market depends of the number of people who exhibit the
Afiya Sultana, Lecturer, FBA, USTC Marketing Management
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.
Figure 2: Modern Market System 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 commercebusiness transactions conducted on-linehas 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:
Afiya Sultana, Lecturer, FBA, USTC Marketing Management
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 womens 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. [Link] Environment
Afiya Sultana, Lecturer, FBA, USTC
Marketing Management
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, politicallegal 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 Ps of marketing: product, price, place and promotion. a. Product: Product means the combination of goods and services that the company offers to the target market. b. Price: Price is the amount of money customers have to pay to obtain the product. c. Place: Place includes company activities that make the product available to target consumers. d. Promotion: Promotion means the activities that communicate the merits of the product and persuade target customers to buy it. Product Variety Quality Design Brand name Packaging Target Market Place Channels Coverage Locations Inventory Transportation Promotion Advertising Sales Promotion Personal Selling Direct marketing Public Relation Price List Price Discounts Allowances Credit terms
Marketing Mix: 4 Ps
Afiya Sultana, Lecturer, FBA, USTC
Marketing Management
Figure 3 The Four P Components of the Marketing Mix
Four Ps represent the sellers view of the marketing tools available for influencing buyers. From a buyers point of view, each marketing tool is designed to deliver a customer benefit. Robert Lauterbom suggested that the sellers four Ps corresponded to the customers four Cs. Four Ps Four Cs Product -------------- Customer solution Price -------------- Customer cost Place -------------- Convenience Promotion ---------- Communication The latest way to view four Ps 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.
Afiya Sultana, Lecturer, FBA, USTC
Marketing Management
