Marketing

• What is marketing?
Many people think of marketing as only selling and advertising. We are bombarded
every day with TV commercials, catalogues, spiels from salespeople, and online
pitches. However, selling and advertising are only the tip of the marketing iceberg.
Today, marketing must be understood not in the old sense of making a sale —
“telling and selling”—but in the new sense of satisfying customer needs. If the
marketer engages consumers effectively, understands their needs, develops
products that provide superior customer value, and prices, distributes, and promotes
them well, these products will sell easily.
• In fact, according to management guru Peter Drucker, “The aim of marketing is to
make selling unnecessary.”
• Selling and advertising are only part of a larger marketing mix—a set of marketing
tools that work together to satisfy customer needs and build customer relationships.
• Broadly defined, marketing is a social and managerial process by which individuals
and organizations obtain what they need and want through creating and
exchanging value with others. In a narrower business context, marketing involves
building profitable, value-laden exchange relationships with customers.
• Hence, we define marketing as the process by which companies create value for
customers and build strong customer relationships in order to capture value from
customers in return.
Marketing is the process of discovering and translating consumer needs and wants into
products and services, creating demand for these products and services and then in turn
expanding this demand. (H.L. Hansen.)
Marketing is the business process by which products are matched with markets and through
which transfer of ownership are affected. (Edward W. Cundiff)
Marketing consists of the performance of business activities that direct the flow of goods
and services from producers or suppliers to consumers or end-users. (American Marketing
Association)
Marketing Management Orientations

Marketing management wants to design strategies that will build profitable relationships
with target consumers. But what philosophy should guide these marketing strategies? What
weight should be given to the interests of customers, the organization, and society? Very
often, these interests’ conflict.
There are five alternative concepts under which organizations design and carry out their
marketing strategies: the production, product, selling, marketing, and societal marketing
concepts.

The Production Concept

• The production concept holds that consumers will favour products that are available
and highly affordable. Therefore, management should focus on improving
production and distribution efficiency.
• This concept is one of the oldest orientations that guide sellers.
• During the earlier days of industrial revolution, the demand for industrial goods
started picking up but the number of producers were limited. As a result, the
demand exceeded the supply.
• Selling was no problem. Anybody who could produce the goods was able to sell. The
focus of business activities was, therefore, on production of goods.
• It was believed that profits could be maximised by producing at large scale, thereby
reducing the average cost of production. It was also assumed that consumers would
favour those products which were widely available at an affordable price.
• Thus, availability and affordability of the product were considered to be the key to
the success of a firm. Therefore, greater emphasis was placed on improving the
production and distribution efficiency of the firms.

The Product Concept

• As a result of emphasis on production capacity during the earlier days, the position
of supply increased over period of time. Mere availability and low price of the
product could not ensure increased sale and as such the survival and growth of the
firm.
• Thus, with the increase in the supply of the products, customers started looking for
products which were superior in quality, performance and features. Therefore, the
emphasis of the firms shifted from quantity of production to quality of products.
• The focus of business activity changed to bringing continuous improvement in the
quality, incorporating new features etc.
• Thus, product improvement became the key to profit maximisation of a firm, under
the concept of product orientation
• The product concept holds that consumers will favour products that offer the most
in quality, performance, and innovative features.
• Under this concept, marketing strategy focuses on making continual product
improvements.
• Product quality and improvement are important parts of most marketing strategies.
The Selling Concept
• With the passage of time, the marketing environment underwent further change.
The increase in the scale of business further improved the position with respect to
supply of goods, resulting in increased competition among sellers.
• The product quality and availability did not ensure the survival and growth of firms
because of the large number of sellers selling quality products. This led to greater
importance to attracting and persuading customers to buy the product.
• The business philosophy changed. It was assumed that the customers would not buy,
or not buy enough, unless they are adequately convinced and motivated to do so.
Therefore, firms must undertake aggressive selling and promotional efforts to make
customers buy their products. The use of promotional techniques such as
advertising, personal selling and sales promotion were considered essential for
selling of products.
• Thus, the focus of business firms shifted to pushing the sale of products through
aggressive selling techniques with a view to persuade, lure or coax the buyers to buy
the products.
• Making sale through any means became important. It was assumed that buyers can
be manipulated but what was forgotten was that in the long run what matters most
is the customer satisfaction, rather than anything else.
• Many companies follow the selling concept, which holds that consumers will not buy
enough of the firm’s products unless it undertakes a large-scale selling and
promotion effort.
• The selling concept is typically practised with unsought goods—those that buyers do
not normally think of buying, such as insurance. These industries must be good at
tracking down prospects and selling them on a product’s benefits. Such aggressive
selling, however, carries high risks. It focuses on creating sales transactions rather
than on building long-term, profitable customer relationships.
• The aim is often to sell what the company makes rather than making what the
market wants. It assumes that customers who are coaxed into buying the product
will like it. Or, if they don’t like it, they will possibly forget their disappointment and
buy it again later. These are usually poor assumptions.

The Marketing Concept

• The marketing concept holds that achieving organizational goals depends on
knowing the needs and wants of target markets and delivering the desired
satisfactions better than competitors do.
• Under the marketing concept, customer focus and value are the paths to sales and
profits. Instead of a product-centred make-and sell philosophy, the marketing
concept is a customer-centred sense-and-respond philosophy.
• The job is not to find the right customers for your product but to find the right
products for your customers.
• Marketing concept is based on the following pillars: (i) Identification of market or
customer who are chosen as the target of marketing effort. (ii) Understanding needs
and wants of customers in the target market. (iii) Development of products or
services for satisfying needs of the target market. (iv) Satisfying needs of target
market better than the competitors. (v) Doing all this at a profit.
• The below figure contrasts the selling concept and the marketing concept.
The selling 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. It focuses primarily on customer conquest—getting short-
term sales with little concern about who buys or why. In contrast, the marketing
concept takes an outside-in perspective. As Herb Kelleher, the colourful founder of
Southwest Airlines, once put it, “We don’t have a marketing department; we have a
customer department.”
• The marketing concept starts with a well defined market, focuses on customer
needs, and integrates all the marketing activities that affect customers. In turn, it
yields profits by creating relationships with the right customers based on customer
value and satisfaction.
• Implementing the marketing concept often means more than simply responding to
customers’ stated desires and obvious needs.
• Customer-driven companies research customers deeply to learn about their desires,
gather new product ideas, and test product improvements. Such customer-driven
marketing usually works well when a clear need exists and when customers know
what they want.

The Societal Marketing Concept

• The marketing concept, as described in the preceeding section cannot be considered
as adequate if we look at the challenges posed by social problems like environmental
pollution, deforestation, shortage of resources, population explosion and inflation. It
is so because any activity which satisfies human needs but is detrimental to the
interests of the society at large cannot be justified. The business orientation should,
therefore, not be short-sighted to serve only consumers’ needs. It should also
consider large issues of long-term social welfare,
• The societal marketing concept questions whether the pure marketing concept
overlooks possible conflicts between consumer short-run wants and consumer long-
run welfare. Is a firm that satisfies the immediate needs and wants of target markets
always doing what’s best for its consumers in the long run?
• The societal marketing concept holds that marketing strategy should deliver value to
customers in a way that maintains or improves both the consumer’s and society’s
wellbeing.
• It calls for sustainable marketing—socially and environmentally responsible
marketing that meets the present needs of consumers and businesses while also
preserving or enhancing the ability of future generations to meet their needs.
• Even more broadly, many leading business and marketing thinkers are now
preaching the concept of shared value, which recognizes that societal needs, not just
economic needs, define markets.
• The concept of shared value focuses on creating economic value in a way that also
creates value for society.
• A growing number of companies known for their hard-nosed approaches to
business—such as GE, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and
Walmart—are rethinking the interactions between society and corporate
performance.
• They are concerned not just with short-term economic gains, but with the well-being
of their customers, the depletion of natural resources vital to their businesses, the
viability of key suppliers, and the economic well-being of the communities in which
they produce and sell.
• Thus, the societal marketing concept holds that the task of any organisation is to
identify the needs and wants of the target market and deliver the desired
satisfaction in an effective and efficient manner so that the long-term well-being of
the consumers and the society is taken care of.
• The societal marketing concept is the extension of the marketing concept as
supplemented by the concern for the long-term welfare of the society. Apart from
the customer satisfaction, it pays attention to the social, ethical and ecological
aspects of marketing. There are large number of such issues that need to be
attended.
Companies should balance three considerations in setting their marketing strategies:
company profits, the consumer wants, and society’s interests.

1. Society (Human Welfare)

Companies must make sure the products, services, actions, investment innovations servers
society first.
2. Consumers (Satisfaction)
Products and services should be satisfying the consumer’s needs.
3. Company (Profits)
Building long-term customer relationships, being socially responsible, and providing
satisfactory products are important for profit-making and wealth maximization.

Objectives of Societal Marketing Concept

• To maintain a long-term relationship with customers.

• To create a better image in the society for the company than it’s competitors.
• To carry out its social responsibilities.
• Developing community awareness towards its brands.
• To carry out its social responsibilities.
• To increase the consumer base and market share.
FUNCTIONS OF MARKETING

A role that helps a company to identify and source potentially successful products for the
marketplace and then promote them by differentiating them from similar products. Typical
marketing function types within a larger business might include performing market research,
producing a marketing plan, and product development, as well as strategically overseeing
advertising, promotion, distribution for sale, customer service and public relations.

Marketing is important to every small business, helping companies increase revenue and profit
by meeting customers’ needs effectively. Although one person or one department is generally
responsible for managing the seven functions of marketing, it’s important for all employees to
understand customer needs so they can develop the right products and provide the highest
standards of customer service.

1. Marketing Information Management - Managing marketing information helps you

understand your customers’ needs. You can gather information by reviewing published
market research reports, asking your sales team for feedback or carrying out a survey using
a market research firm. You should also monitor product review sites and social media,
such as Facebook and Twitter, where you can find information on consumers’ needs and
attitudes toward products.
2. Distribution - Your distribution strategy determines how and where customers can obtain
your products. If you market products to a small number of business customers, you may
deal with them directly through a sales team. If your business expands to other regions or
countries, it may be more cost effective to deal with customers through local distributors.
Companies marketing consumer products distribute them through retail outlets or,
increasingly, via the Internet.
3. Product/Service Management - Marketing provides valuable input to product and service
development. Information on customers’ needs helps to identify the features to incorporate
in new products and product upgrades. Marketing also identifies opportunities to extend a
product range or launch existing products into new sectors.
4. Pricing - Pricing plays an important role in determining market success and profitability.
If you market products that have many competitors, you may face strong price competition.
In that situation, you must aim to be the lowest-cost supplier so you can set low prices and
still remain profitable. You can overcome low price competition by differentiating your
product and offering customers benefits and value that competitors cannot match.
5. Promotion - Promotion makes customers and prospects aware of your products and your
company. Using promotional techniques, such as advertising, direct marketing,
telemarketing or public relations, you can communicate product benefits and build
preference for your company’s products.
6. Selling - Marketing and selling are complementary functions. Marketing creates awareness
and builds preference for a product, helping company sales representatives or retail sales
staff sell more of a product. Marketing also supports sales by generating leads for the sales
team to follow up.
7. Financing - Successful marketing provides a regular flow of revenue to pay for business
operations. Marketing programs that strengthen customer loyalty help to secure long-term
revenue, while product development programs open new revenue streams. Financing also
plays a role in marketing success by offering customers alternative methods of payment,
such as loans, extended credit terms or leasing.

Functions of marketing
MARKETING MIX

The Marketing mix is a set of four decisions which needs to be taken before launching any
new product. These variables are also known as the 4 P’s of marketing. These four variables
help the firm in making strategic decisions necessary for the smooth running of any product /
organization.

If you ask What is the marketing mix? Then in summary these 4 variables comprise the
Marketing mix.

1. Product – What the company is manufacturing?

2. Price – What is the pricing strategy used by the company?
3. Place – Where is the company selling?
4. Promotions – How is the company promoting the product?
What are the two types of Marketing mix?

1) Product marketing mix – Comprised of Product, price, place and promotions. This
marketing mix is mainly used in case of Tangible goods.

2) Service marketing mix – The service marketing mix has three further variables included
which ar e people, physical evidence and process. They are discussed in detail in the article
on service marketing mix.

The term marketing mix was first coined by Neil H Borden back in 1964 in his article “The
concept of marketing mix”. Several strategic analysts over the years believe that the marketing
mix can make or break the firm. Having the right marketing mix at the start of the marketing
plan is absolutely essential. Over time the concept of marketing mix has provided a steady
platform for the launch of a new product or business.

As mentioned before, the marketing mix is characterized by four different but equally
important variables. These variables are never constant and may be changed over time.
However, a change in one of the variables may cause a change in all the other variables as well.

The Variables of Marketing mix are as follows

1) Product in the Marketing mix – The first thing you need, if you want to start a business,
is a product. Therefore Product is also the first variable in the marketing mix. Product decisions
are the first decisions you need to take before making any marketing plan. A product can be
divided into three levels. The three product levels includes Core Benefit, Actual Product and
Augmented Product.
Before deciding on the product component there are some questions which you need to ask
yourself.

1. What product are you selling?

2. What would be the quality of your product?
3. Which features are different from the market?
4. What is the USP of the product?
5. Whether the product will be branded as sub brand or completely new?
6. What are the secondary products which can be sold along with primary (Warranty,
services)

Based on these questions, several product decisions have to be made. These product decisions
will in turn affect the other variables of the mix. For example – You launch a car with is to
have the highest quality. Thus the pricing, promotions and placing would have to be altered
accordingly. Thus as long as you dont know your product, you cannot decide any other variable
of the marketing mix. However, if the product features are not fitting in the mix, you can alter
the product such that it finds a place for itself in the marketing mix.

2) Pricing in the Marketing mix – Pricing of a product depends on a lot of different variables
and hence it is constantly updated. Major consideration in pricing is the costing of the product,
the advertising and marketing expenses, any price fluctuations in the market, distribution costs
etc. Many of these factors can change separately. Thus the pricing has to be such that it can
bear the brunt of changes for a certain period of time. However, if all these variables change,
then the pricing of a product has to be increased and decreased accordingly.

Along with the above factors, there are also other things which have to be taken in consideration
when deciding on a pricing strategy. Competition can be the best example. Similarly, pricing
also affects the targeting and positioning of a product. Pricing is used for sales promotions in
the form of trade discounts. Thus based on these factors there are several pricing strategies, one
of which is implemented for the marketing mix.

3) Place in the Marketing mix – Place refers to the distribution channel of a product. If a
product is a consumer product, it needs to be available as far and wide as possible. On the other
hand, if the product is a Premium consumer product, it will be available only in select stores.
Similarly, if the product is a business product, you need a team which interacts with businesses
and makes the product available to them. Thus the place where the product is distributed,
depends on the product and pricing decisions, as well as any STP decisions taken by a firm.

Distribution has a huge affect on the profitability of a product. Consider a FMCG company
which has national distribution for its product. An increase in petrol rates by 10 rs will in fact
bring about drastic changes in the profitability of the company. Thus supply chain and logistics
decisions are considered as very important costing decisions of the firm. The firm needs to
have a full proof logistics and supply chain plan for its distribution.

4) Promotions in the Marketing mix – Promotions in the marketing mix includes the
complete integrated marketing communications which in turn includes ATL (Above
the Line) - meaning that advertising is for wider audience , TV commercials, Radio, Billboards
and BTL (Below the line) - advertising targeted to a specific group- (Direct emailing, direct
demonstrations for a specific group of people) as well as sales promotions. Promotions are
dependent a lot on the product and pricing decision. What is the budget for marketing and
advertising? What stage is the product in? If the product is completely new in the market,
it needs brand / product awareness promotions, whereas if the product is already existing
then it will need brand recall promotions.

Promotions also decide the segmentation targeting and positioning of the product. The right
kind of promotions affect all the other three variables – the product, price and place. If the
promotions are effective, you might have to increase distribution points, you might get to
increase the price because of the rising brand equity of the product, and the profitability might
support you in launching even more products. However, the budget required for extensive
promotions is also high. Promotions is considered as marketing expenses and the same needs
to be taken in consideration while deciding the costing of the product.
Four Forms: Personal Selling, Advertisements, Sales Promotion, Publicity
Thus as we see from the above diagram, all the four variables of marketing mix are inter related
and affect each other. By increasing the pricing of the product, demand of the product might
lessen, and lesser distribution points might be needed. On the other hand, the product USP can
be such that maximum concentration is on creating brand awareness, thereby increasing need
of better pricing and more promotions. Finally, the overall marketing mix can result in your
customer base asking for some improvement in the product, and the same can be launched as
the upgraded product.

The role of Four P’s of marketing in Strategy – Marketing mix plays a crucial role while
deciding the strategy of an organization. It is the first step even when a marketing plan or a
business plan is being made. This is because, your marketing mix decision will also
affect segmentation, targeting and positioning decisions. Based on products, segmentation and
targeting will be done. Based on the price, positioning can be decided. And these decisions will
likely affect the place and promotion decisions. Thus, the marketing mix strategy goes hand in
hand with segmentation targeting and positioning.

Using the 4Ps of Marketing

The model can be used to help you decide how to take a new offer to market. It can also be
used to test your existing marketing strategy. Whether you are considering a new or existing
offer, follow the steps below help you define and improve your marketing mix.

1. Start by identifying the product or service that you want to analyze.

2. Now go through and answer the 4Ps questions – as defined in detail above.

3. Try asking "why" and "what if" questions too, to challenge your offer. For example,
ask why your target audience needs a particular feature. What if you drop your price by
5%? What if you offer more colors? Why sell through wholesalers rather than direct
channels? What if you improve PR rather than rely on online advertising?

4. Once you have a well-defined marketing mix, try "testing" the overall offer from the
customer's perspective, by asking customer focused questions:

a) Does it meet their needs? (product)

b) Will they find it where they shop? (place)
c) Will they consider it's priced favorably? (price)
d) And will the marketing communications reach them? (promotion)
5. Keep on asking questions and making changes to your mix until you are satisfied that
you have optimized your marketing mix, given the information and facts and figures
you have available.

6. Review your marketing mix regularly, as some elements will need to change as the
product or service, and its market grow, mature and adapt in an ever-changing
competitive environment.
DIFFERENCE BETWEEN SELLING AND MARKETING

In general we use ‘marketing’ and ‘selling’ as synonyms but there is a substantial difference
between both the concepts. It is necessary to understand the differences between marketing vs.
selling for a successful marketing manager. Selling has a product focus and mostly producer
driven. It is the action part of marketing only and has short – term goal of achieving market
share. The emphasis is on price variation for closing the sale where the objective can be stated,
as “I must somehow sell the product”. This short – term focus does not consider a prudential
planning for building up the brand in the market place and winning competitive advantage
through a high loyal set of customers. The end means of any sales activity is maximizing profits
through sales maximization.

When the focus is on selling, the businessman thinks that after production has been completed
the task of the sales force starts. It is also the task of the sales department to sell whatever the
production department has manufactured. Aggressive sales methods are justified to meet this
goal and customer’s actual needs and satisfaction are taken for granted. Selling converts the
product in to cash for the company in the short run.

Marketing as a concept and approach is much wider than selling and is also dynamic as the
focus is on the customer rather than the product. While selling revolves around the needs and
interest of the manufacturer or marketer, marketing revolves around that of consumer. It is the
whole process of meeting and satisfying the needs of the consumer.
Marketing vs selling

Marketing consists of all those activities that are associated with product planning, pricing,
promoting and distributing the product or service. The task commences with identifying
consumer needs and does not end till feedback on consumer sat-\isfaction from the
consumption of the product is received. It is a long chain of activity, which comprises
production, packing, promotion, pricing, distribution and then the selling. Consumer needs
become the guiding force behind all these activities. Profits are not ignored but they are built
up on a long run basis. Mind share is more important than market share in Marketing.

According to Prof. Theodore Levitt ‘The difference between selling and marketing is more
than semantic. A truly marketing minded firm tries to create value satisfying goods and services
which the consumers will want to buy. What is offers for sale is determined not by the seller
but by the buyers. The seller takes his cues from the buyer and the product becomes the
consequence of the marketing effort, not vice versa. Selling merely concerns itself with the
tricks and techniques of getting the customers to exchange their cash for the company’s
products, it does not bother about the value satisfaction that the exchange is all about. On the
contrary, marketing views the entire business as consisting of a tightly integrated effort to
discover, create, arouse ad satisfy customer needs’.

The typical goal of marketing is to generate interest in the product and create leads or
prospects. Marketing activities include:

1. Consumer research to identify the needs of the customers

2. Product development – designing innovative products to meet existing or latent needs
3. Advertising the products to raise awareness and build the brand.
4. Pricing products and services to maximize long-term revenue.
On the other hand, sales activities are focused on converting prospects to actual paying
customers. Sales involves directly interacting with the prospects to persuade them to purchase
the product.

Marketing thus tends to focus on the general population (or, in any case, a large set of people)
whereas sales tends to focus on individuals or a small group of prospects. Following are the
major differences between Selling and Marketing.

SELLING MARKETING
1 Emphasis is on the product 1 Emphasis on consumer needs wants.
2 Company Manufactures the product first. 2 Company first determines customers’
needs and wants and then decides out how to
deliver a product to satisfy these wants.
3 Management is sales volume oriented. 3 Management is profit oriented.
4 Planning is short-run-oriented in terms of 4 Planning is long-run-oriented in today’s
today’s products and markets. products and terms of new products,
tomorrow’s markets and future growth.
5 Stresses needs of seller. 5 Stresses needs and wants of buyers.
6 Views business as a good producing 6 Views business as consumer producing
process. process satisfying process.
7 Emphasis on staying with existing 7 Emphasis on innovation on every existing
technology and reducing costs. technology and reducing every sphere, on
providing better costs value to the customer
by adopting a superior technology.
8 Different departments work as in a highly 8 All departments of the business integrated
separate water tight compartments. manner, the sole purpose being generation of
consumer satisfaction.
9 Cost determines Price. 9. Consumer determine price, price
determines cost.
10 Selling views customer as a last link in 10. Marketing views the customer last link in
business. business as the very purpose of the business.
INTERFACE OF MARKETING WITH OTHER DEPARTMENTS

There are various types of organizations in existence. Functional organization, geographical

area organization, product based organization, customer segment based organization and some
form of hybrids can be observed.

Functional marketing organization: The important functional areas can be marketing research,
new product marketing, advertising and sales promotion, sales management, physical
distribution (marketing logistics), and marketing administration. As organizations become big
more specialized functions within marketing can be organized as independent sections.

Geographical Area Based Organization: Companies selling across the nation generally set up
branch sales offices and regional sales offices.

Product Based Organization (Brand Management): In product based organization each product
or brand has a manager who looks after its marketing activities. The sales staff can be common
staff and they report to a sales manager.

Coordination between marketing and other departments

Kotler highlighted the fact that each business function has a potential impact on customer
satisfaction. All departments need to think of customer satisfaction and work together to fulfil
customer needs and expectations. The chief marketing man in the organization has two tasks:
One is to manage the marketing department and other is to coordinate marketing specialist
activities with marketing related activities of operations, finance, and other functions in the
organization.

If we accept that marketing has a communicator role between the company and the outside
world and that it is focused on customers in order to give them what they want, we can see how
a systemic interaction with other department is fundamental to the attainment of the
organisational goals. The most important business functions which marketing can assist are:

1. Finance/Management: marketing plans should include financial information for both new
and existing products. In this sense, marketing can be a means supporting management
when taking investment decisions. Marketing can also give inputs on sales forecasts under
different marketing strategies scenario. Management can be supported by financial inputs
provided by marketing but also to other data such as market actual (or expected) response
to a product/service
2. Production/operational department: marketing can assist these departments in
estimating the number and the type of products and services to be produced/provided.
Marketing strategies can also try to stimulate a certain response of markets in order to
influence the demand of goods/services in terms of level and/or timing. This can be useful
to match the production/operational constraints of the organisation
3. R&D: marketing can assist R&D throughout from the idea of new product/services to its
implementation. Marketing researches can provide inputs to understand what kind of
products/services are likely to be the most marketable and/or understand what kind of
features customers would like to have
4. Sales: sales department cultivates relationships with clients and marketing can offer inputs
to make it more profitable

CUSTOMER LIFE TIME VALUE

● Customer lifetime value (CLV) is a business metric that measures how much a business can
plan to earn from the average customer over the course of the relationship. Differences in
products, costs, purchase frequencies and purchase volumes can make customer lifetime value
calculations complex.

● The lifetime value of a customer, or customer lifetime value (CLV), represents the total
amount of money a customer is expected to spend in your business, or on your products, during
their lifetime.

● In other words, Customer lifetime value (CLV) is a measure of the total income a business
can expect to bring in from a typical customer for as long as that person or account remains a
client.

● Why important? This is an important figure to know because it helps you make decisions
about how much money to invest in acquiring new customers and retaining existing ones.

In marketing, customer lifetime value (CLV) is a metric that represents the total net profit a
company makes from any given customer. CLV is a projection to estimate a customer's
monetary worth to a business after factoring in the value of the relationship with a customer
over time. CLV is an important metric for determining how much money a company wants to
spend on acquiring new customers and how much repeat business a company can expect from
certain consumers.
Customer data analytics can reap significant financial rewards for your organization’s sales,
marketing and customer service departments. With so much data to contend with, companies
often struggle with making sense of information from customers, public records and external
databases. Luckily, we evaluate the newest sales and marketing tools making the process easier
for IT managers and sales executives.

CLV is different from customer profitability (CP), which measures the customer's worth over
a specific period of time, in that the metric predicts the future whereas CP measures the past.

CLV is calculated by subtracting the cost of acquiring and serving a customer from the revenue
gained from the customer and takes into account statistics such as customer expenditures per
visit, the total number of visits and then can be broken down to figure out the average customer
value by week, year, etc.

But the process is more nuanced than that. By concentrating on what a customer has previously
spent, companies neglect how their marketing or advertising practices have changed over time,
resulting in new customers who behave differently than old ones. CLV should never be
determined by dividing the total revenue by the number of total customers, since this is too
simple a calculation and does not factor into how long some customers have had a relationship
with the company. Changes to any of these strategies, as well as any shifts in a company's
customer base as a whole, in the future will prevent companies from depending on past CLVs
to predict upcoming ones.
Common ways of calculating a company's CLV include the following:

1. Average revenue per user: Determine the average revenue per customer per month (total
revenue ÷ number of months since the customer joined) and multiply that value by 12 or
24 to get a one- or two-year CLV. This approach is simple to calculate but does not take
customer behavior into account or changes over time, either in customers' preferences or
company strategy.
2. Cohort analysis. A cohort is a group of customers that share a characteristic or set of
characteristics. By examining cohorts instead of individual users, companies can get a
picture of the variations that exist over the course of an entire relationship with groups of
customers. Factors such as market changes, seasonality and the introduction of new
products, competitors or promotions could skew cohort analysis.
3. Individualized CLV. Companies not interested in broadly calculating CLV often focus on
determining the total value of customers by source, channel, campaign or other mediums
such as coupons or landing pages on a company website. This could mean comparing CLVs
as obtained through social media advertising against those from other digital marketing
tactics, for example, with a focus on whether company resources are being efficiently spent.

The CLV can affect many different areas of the business since it is not focused on acquiring
many customers or how cheaply those customers can be obtained but, instead, emphasizing
efficient spending to maximize customer acquisition and retention practices. Customer
segmentation can affect CLV in that some groups of customers might be more highly valued
than others.

Customer lifetime value has intuitive appeal as a marketing concept, because in theory it
represents exactly how much each customer is worth in monetary terms, and therefore exactly
how much a marketing department should be willing to spend to acquire each customer,
especially in direct response marketing.

Uses and advantages

Lifetime value is typically used to judge the appropriateness of the costs of acquisition of a
customer. For example, if a new customer costs $50 to acquire (COCA, or cost of customer
acquisition), and their lifetime value is $60, then the customer is judged to be profitable, and
acquisition of additional similar customers is acceptable. Additionally, CLV is used to calculate
customer equity. Advantages of CLV:

1. Management of customer relationship as an asset.

2. Monitoring the impact of management strategies and marketing investments on the value
of customer assets, e.g.: Marketing Mix Modelling simulators can use a multi-year CLV
model to show the true value (versus acquisition cost) of an additional customer, reduced
churn rate, product up-sell.
3. Determination of the optimal level of investments in marketing and sales activities.
4. Encourages marketers to focus on the long-term value of customers instead of investing
resources in acquiring "cheap" customers with low total revenue value.
5. Implementation of sensitivity analysis in order to determinate getting impact by spending
extra money on each customer.
6. Optimal allocation of limited resources for ongoing marketing activities in order to achieve
a maximum return.
7. A good basis for selecting customers and for decision making regarding customer specific
communication strategies.
8. A natural decision criterion to use in automation of customer relationship management
systems.
9. Measurement of customer loyalty (proportion of purchase, probability of purchase and
repurchase, purchase frequency and sequence etc.).

The Disadvantages of CLV do not generally stem from CLV modelling per se, but from its
incorrect application.

NEW PRODUCT DEVELOPMENT

New product development is a task taken by the company to introduce newer products in the
market. Regularly there will arise a need in the business for new product development. Your
existing products may be technologically outdated, you have different segments to target or
you want to cannibalize an existing product. In such cases, New product development is
the answer for the company. There are 8 stages of new product development and they
are as follows.

1. Idea generation – in this you are basically involved in the systematic search for new
product Ideas. A company has to generate many ideas in order to find one that is worth
pursuing. The Major sources of new product ideas include internal sources, customers,
competitors, distributors and suppliers. Almost 55% of all new product ideas come from
internal sources according to one study. Companies like 3M and Toyota have put in special
incentive programs or their employees to come up with workable ideas. Almost 28% of
new product ideas come from watching and listening to customers. Customers even create
new products on their own, and companies can benefit by finding these products and putting
them on the market like Pillsbury gets promising new products from its annual Bake-off.
One of Pillsbury’s four cake mix lines and several variations of another came directly from
Bake-Off winners’ recipes. A relatively new approach to idea generation that some
companies are employing today is crowdsourcing—inviting broad communities of people
such as customers, employees, independent scientists and researchers, and even the public
at large into the new-product innovation process. For example, rather than relying only on
its own R&D labs to produce all the new-product innovations needed to support growth,
Procter & Gamble developed its Connect + Develop crowdsourcing process.
2. Idea Screening - The second step in new product development is Idea screening. The
purpose of idea generation is to create a large pool of ideas. The purpose of this stage is to
pare these down to those that are genuinely worth pursuing. Companies have different
methods for doing this from product review committees to formal market research. It, is
helpful at this stage to have a checklist that can be used to rate each idea based on the factors
required for successfully launching the product in the marketplace and their relative
importance. Against these, management can assess how well the idea fits with the
company’s marketing skills and experience and other capabilities. Finally, the management
can obtain an overall rating of the company’s ability to launch the product successfully.
3. Concept Development and Testing – The third step in New product development is
Concept Development and Testing. An attractive idea has to be developed into a Product
concept. As opposed to a product idea that is an idea for a product that the company can
see itself marketing to customers, a product concept is a detailed version of the idea stated
in meaningful consumer terms. This is different again from a product image, which is the
consumers’ perception of an actual or potential product. Once the concepts are developed,
these need to be tested with consumers either symbolically or physically. For some concept
tests, a word or a picture may be sufficient, however, a physical presentation will increase
the reliability of the concept test. After being exposed to the concept, consumers are asked
to respond to it by answering a set of questions designed to help the company decide which
concept has the strongest appeal. The company can then project these findings to the full
market to estimate sales volume.
Whereas a product idea is an idea for a possible product that the company can potentially
offer to the market, a product concept is a detailed description, drawing, or prototype of
that idea that can be shown to potential customers. That product concept must then be
developed and tested; that is, the new product idea is developed in various alternative
forms, and tested with a group of potential customers.
Every year automobile marketers promote their latest “concept cars” at auto shows.
Concept cars are real cars that can be driven; however, they are not yet in production, which
means they are not yet available to the public. Concept cars are displayed at auto shows so
that the automobile marketers can gauge the market’s response to their product concept.
Automobile marketers may also let journalists from magazines like Motor Trend and Car
and Driver drive and review their concept cars in hopes that a good review will result in
enough market interest to justify a fullscale development and release of the new car.
4. Marketing Strategy Development – This is the next step in new product development.
The strategy statement consists of three parts: the first part describes the target market, the
planned product positioning and the sales, market share and profit goals for the first few
years. The second part outlines the product’s planned price, distribution, and marketing
budget for the first year. The third part of the marketing strategy statement describes the
planned long-run sales, profit goals, and the marketing mix strategy.
5. Business Analysis – Once the management has decided on the marketing strategy, it can
evaluate the attractiveness of the business proposal. Business analysis involves the review
of projected sales, costs and profits to find out whether they satisfy a company’s objectives.
If they do, the product can move to the product development stage. It can then estimate
minimum and maximum sales to assess the range of risk. After preparing the sales forecast,
management can estimate the expected costs and profits for the product, including
marketing, R&D, operations, accounting, and finance costs. The company then uses the
sales and costs figures to analyze the new product’s financial attractiveness.
6. Product Development – So far, for many new-product concepts, the product may have
existed only as a word description, a drawing, or perhaps a crude mock-up. If the product
concept passes the business test, it moves into product development. Here, R&D or
engineering develops the product concept into a physical product. The product
development step, however, now calls for a large jump in investment. It will show whether
the product idea can be turned into a workable product.
Developing the new product—that is, turning the new product idea into a workable, mass-
produced market offering—takes months, even years. During the development
process the new product will undergo rigorous testing to make sure that it works the way it
is supposed to work, and that customers will be able to use it safely and
effectively.
Marketers often involve actual customers in product testing. For example, Patagonia selects
tried-and-true customers—called Patagonia Ambassadors—to work closely with its design
department to field-test and refine its products under harsh conditions. Patagonia even
created a website for the ambassadors to showcase their feats!
7. Test Marketing – If the product passes concept and product tests, the next step is test
marketing, the stage at which the product and marketing program are introduced into
realistic market settings. Test marketing gives the marketer experience with marketing the
product before going to the great expense of full introduction. It lets the company test the
product and its entire marketing program—targeting and positioning strategy, advertising,
distribution, pricing, branding and packaging, and budget levels.
8. Commercialization – The final step in new product development is Commercialization.
The final step in the new-product development process is commercialization, or the full-
scale introduction of the product into the market. If the company goes ahead with this stage,
it will invest heavily in advertising and promotion. Introducing the product to the market-
it will face high costs for manufacturing and advertising and promotion. The company will
have to decide on the timing of the launch (seasonality) and the location (whether regional,
national or international). This depends a lot on the ability of the company to bear risk and
the reach of its distribution network. Today, in order to increase speed to market, many
companies are dropping this sequential approach to development and are adopting the
faster, more flexible, simultaneous development approach. Under this approach, many
company departments work closely together, overlapping the steps in the product
development process to save time and increase effectiveness.

UNETHICAL ISSUES IN MARKETING

Whether you are playing the salesman role for your own business or you are hired to market
an employer’s products or services, you need to understand the thin line between ethical and
unethical marketing practices.

Ethical marketing entails making honest claims and satisfying the needs of potential and
existing customers. It boosts credibility and trust, develops brand loyalty, increases customer
retention, and prompts customers to spread word about the products or services you’re
marketing.

Unethical marketing, on the other hand, can send wrong signals about your products and
services, destroy your brand’s reputation, and possibly lead to legal problems. This explains
why you should avoid them like a plague.
Your first step towards ensuring that you avoid unethical marketing practices is to recognize
those practices. Of course, you can only avoid something when you can identify it. Many
business owners and sales personnel have erroneously engaged in unethical marketing practices
just because they never knew what these practices are in the first place. Here are ten common
examples of unethical marketing practices that you must always avoid when promoting your
products or services. Following are the examples of Unethical Marketing Practices

1. Making false, exaggerated, or unverified claims - In a desperate bid to compel potential

and existing customers to buy their products or services, some marketers use false statements,
exaggerated benefits, or make unverifiable claims about their offers. This is common in the
weight loss industry, where marketers convince potential buyers that a particular product can
help them shed so-and-so pounds within two weeks without exercise or dieting!

2. Distortion of facts to mislead or confuse potential buyers - This is another common

unethical marketing practice. A typical example is when a food processing company claims
that its products are sugar-free or calorie-free when indeed they contain sugar or calories. Such
a company is only trying to mislead potential buyers, since they are unlikely to buy the products
if it is made known that they contain sugar or calories.

3. Concealing dark sides or side effects of products or services - This unethical marketing
practice is rife in the natural remedies industry, where most manufacturers deceive potential
buyers that their products have no side effects because they are “made from natural products”.
But in reality, most of these products have been found to have side effects, especially when
used over a long period. In fact, there’s no product without side effects—it’s just that the side
effects might be unknown. It’s better to say, “There are no known side effects” than to say
“there are no side effects“.

4. Bad-mouthing rival products - Emphasizing the dark sides of your rival’s products in a
bid to turn potential customers towards your own products is another common but unethical
marketing practice. Rather than resort to this bad strategy, you should emphasize on those
aspects that make your offer stand out from the rest of the pack. That’s professional and ethical.

5. Using women as sex symbols for advertising - The rate at which even reputable brands are
resorting to this unethical marketing practice is quite alarming. If you observe TV, billboard,
and magazine adverts, there’s something common to most of them; a half-naked lady is used
to attract attention to the product or service being advertised. While it might be intuitive to use
models in adverts for beauty products and cosmetics, having half-naked models in adverts for
generators, heavy machinery, smartphones, and other products not strongly related to women
is both nonsensical and unethical.

5. Using fear tactics - This is another common unethical marketing practice among snake oil
salespersons. You will hear them saying something like: “This price is a limited-time offer. If
you don’t buy now, you might have to pay much more to buy it later because the offer will end
up in two days time, and the price will go up.” The only motive behind those statements is to
prompt the potential buyer to make a decision on the spot. And that’s wrong. Why subject
someone to undue pressure because you want to make money off him or her?

7. Plagiarism of marketing messages - Though uncommon, some business owners and

salespersons engage in using the exact marketing messages of their competitors to market their
own products or services. Creativity is a huge part of marketing, and using other businesses’
marketing messages just passes you off as being creatively bankrupt and fraudulent.

8. Exploitation - This is charging for much more than the actual value of a product or service.
For marketing efforts to remain with ethical limits; the prices of your offers must be equal to
or less than the value they give the buyer. If the value is less than the cost, it’s unethical.

9. Demeaning references to races, age, sex, or religion - Ethical marketing must be devoid
of all forms of discrimination. If your marketing messages contain lines that place people of
certain age range, sex, religion, nationality, or race at a higher level than others, then you are
crossing the bounds of ethical marketing.

10. Spamming - Spamming is when you send unsolicited emails to potential customers,
encouraging them to buy your products or services. This is the commonest unethical marketing
practice done online. The number of time you send such emails doesn’t matter. Whether you
send them once, or on occasions, or frequently, you remain a spammer.