Mekelle University, College of Business and Economics, Department of Marketing management

Mekelle University, College of Business and Economics, Department of Marketing management

CHAPTER – ONE
1. Nature and Scope of Marketing
CHAPTER OBJECTIVES
After reading this chapter, you should be able to:
Define marketing and discuss its core concepts.
Define marketing management and examine how marketers manage demand and build
profitable customer relationships.
Compare the five marketing management philosophies, and express the basic ideas of
demand management and the creation of customer value and satisfaction,
1.1 meaning of marketing

What is Marketing?
What does the term marketing mean? Marketing must be understood not in the old sense of
making a sale - 'selling' - but in the new sense of satisfying customer needs. Many people think
of marketing only as selling and advertising. And no wonder, for every day we are bombarded
with television commercials, newspaper ads, direct mail and sales calls. Someone is always
trying to sell us something. Therefore, you may be surprised to learn that selling and advertising
are only the tip of the marketing iceberg. Although they are important, they are only two of many
marketing functions, and often not most important ones. This does not mean that selling and
advertising are unimportant. Rather, it means that they are part of a larger marketing mix - a set
of marketing tools that work together to affect the marketplace. If marketer does a good job of
identifying customer needs, develops products that provide superior value, distributes and
promotes them effectively, these goods will sell very easily.
The two most widely used definitions of marketing are these:

Marketing is the management process which identifies, anticipates, and supplies customer
requirements efficiently and profitably. (UK Chartered Institute of Marketing)
Marketing is the process of planning and executing the conception, pricing, promotion and
distribution of ideas, goods and services to create exchange and satisfy individual and
organizational objectives. (American Marketing Association)
Both of these definitions have been criticized. The Chartered Institute of Marketing (CIM)
definition has been criticized because it takes profit as being the only outcome of marketing,
whereas marketing approaches and techniques are widely used by organizations such as charities
and government departments which do not have profit as their goal.
The American Marketing Association (AMA) definition has also been criticized for failing to
take account of the increasing role of marketing in a broader social context, and for appearing to
Mr.Yonas Berhanu (MBA)

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regard consumers as being passive in the process. The same criticism could equally be applied to
the CIM definition. To the non-marketer, marketing often carries negative connotations; there is
a popular view that marketing is about persuading people to buy things they do not want, or
about cheating people. In fact, marketing practitioners have the responsibility for ensuring that
the customer has to come first in the firm’s thinking, whereas other professionals might be more
concerned with getting the balance sheet to look right or getting the production line running
smoothly.
Marketing has been defined in various ways. The definition that serves our purpose best is the
one which is given by Kotler as follows.
“Marketing is a social and managerial process by which individuals

and groups obtain what they need and want through creating and
exchanging products and value with others.”
To explain this definition, we examine the following important terms: needs, -wants and
demands, products; value and satisfaction; exchange, transactions and relationships; and markets.
1.2 The core concepts of marketing
Needs, Wants and Demands
Needs: The most basic concept underlying marketing is that of human needs. A human need is a
state of felt deprivation. Humans have many complex needs. These include basic physical needs
for food, clothing, warmth and safety; social needs for belonging and affection; and individual
needs for knowledge and self-expression. These needs are not invented by marketers; they are a
basic part of the human make-up. When a need is not satisfied, a person will do one of two
things:
1. Look for an object that will satisfy it; or
2. Try to reduce the need.
Wants: Human wants are the form taken by human needs as they are shaped by culture and
individual personality. Wants are described in terms of objects that will satisfy needs.
Demand: People have narrow, basic needs (e.g. for food or shelter), but almost unlimited wants.
However, they also have limited resources. Thus they want to choose products that provide the
most satisfaction for their money. When backed by an ability to pay - that is, buying power -
wants become demands. Consumers view products as bundles of benefits and choose products
that give them the best bundle for their money.
Understanding customer needs, wants and demands in detail provides important input for
designing marketing strategies.
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Products and Services

People satisfy their needs and wants with products. A product is anything that can be offered to a
market to satisfy a need or want. Usually, the word product suggests a physical object, such as a
car, a television set or a bar of soap. However, the concept of product is not limited to physical
objects - anything capable of satisfying a need can be called a product. In addition to tangible
goods, products include services, which are activities or benefits offered for sale that are
essentially intangible and do not result in the ownership of anything. Examples are banking,
airline, hotel and household appliance repair services.
Broadly defined, products also include other entities such as persons, places, organizations,
activities and ideas. Consumers decide which entertainers to watch on television, which political
party to vote for, which places to visit on holiday, which organizations to support through
contributions and which ideas to adopt.
Thus the term product covers physical goods, services and a variety of other vehicles that can
satisfy consumers' needs and wants.
Many sellers make the mistake of paying more attention to the physical products they offer than
to the benefits produced by these products. They see themselves as selling a product rather than
providing a solution to a need. The importance of physical goods lies not so much in owning
them as in the benefits they provide. We don't buy food to look at, but because it satisfies our
hunger.
These sellers may suffer from 'marketing myopia'. They are so taken with their products that they
focus only on existing wants and lose sight of underlying customer needs. They forget that a
physical product is only a tool to solve a consumer problem.
Value, Satisfaction and Quality
Consumers usually face a broad array of products and services that might satisfy a given need.
How do they choose among these many products? Consumers make buying choices based on
their perceptions of the value that various products and services deliver.
The guiding concept is customer value. Customer value is the difference between the values the
customer gains from owning and using a product and the costs of obtaining the product.
Customer satisfaction depends on -A product's perceived performance in delivering value
relative to a buyer's expectations.
 If the product's performance falls short of the customer's expectations, the buyer is
dissatisfied.
 If performance matches expectations, the buyer is satisfied.
 If performance exceeds expectations, the buyer is delighted.

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Outstanding marketing companies go out of their way to keep their customers satisfied. Satisfied
customers make repeat purchases, and they tell others about their good experiences with the
product. The key is to match customer expectations with company performance.
Smart companies aim to delight customers by promising only what they can deliver, then
delivering more than they promise.
Customer satisfaction is closely linked to quality. In recent years, many companies have adopted
total quality management (TQM) programs, designed constantly to improve the quality of their
products, services and marketing processes. Quality has a direct impact on product performance,
and hence on customer satisfaction.
In the narrowest sense, quality can be defined as 'freedom from defects'. But most customer-
centered companies go beyond this narrow definition of quality. Instead, they define quality in
terms of customer satisfaction.
Customer-focused definitions of quality suggest that a company has achieved total quality only
when its products or services meet or exceed customer expectations. Thus, the fundamental aim
of today's total quality movement has become total customer satisfaction. Quality begins with
customer needs and ends with customer satisfaction.
Exchange, Transactions and Relationships
Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is
the act of obtaining a desired object from someone by offering something in return. Exchange is
only one of many ways people can obtain a desired object. For example, hungry people can find
food by hunting, fishing or gathering fruit. They could beg for food or take food from someone
else.
Finally, they could offer money, another good or a service in return for food. As a means of
satisfying needs, exchange has much in its favor. People do not have to prey on others or depend
on donations. Nor must they possess the skills to produce every necessity for them. They can
concentrate on making things they are good at making and trade them for needed items made by
others.
Thus, exchange allows a society to produce much more than it would with any alternative
system.
Exchange is the core concept of marketing. For an exchange to take place, several conditions
must be satisfied.
1) At least two parties must participate.
2) Each must have something of value to offer the other.
3) Each party must also want to deal with the other party
4) Each must be free to accept or reject the other's offer.
5) Finally, each party must be able to communicate and deliver.
These conditions simply make exchange possible. Whether exchange actually takes place
depends on the parties coming to an agreement. If they agree, we must conclude that the act of
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exchange has left both of them better off or, at least, not worse off. After all, each was free to
reject or accept the offer. In this sense, exchange creates value just as production creates value. It
gives people more consumption choices or possibilities.
Whereas exchange is the core concept of marketing, a transaction is marketing's unit of
measurement. A transaction consists of a trading of values between two parties. In a transaction,
we must be able to say that one party gives X to another party and gets F in return. For example,
you pay a retailer Birr 4000 for a television set or the hotel Birr 350 a night for a room. This is a
classic monetary transaction, but not all transactions involve money. In a barter transaction, you
might trade your old refrigerator in return for a neighbor’s second-hand television set.
Transaction marketing is part of the larger idea of relationship marketing. Smart marketers work
at building long-term relationships with valued customers, distributors, dealers and suppliers.
They build strong economic and social ties by promising and consistently delivering high-quality
products, good service and fair prices. Increasingly, marketing is shifting from trying to
maximize the profit on each individual transaction to maximizing mutually beneficial
relationships with consumers and other parties. In fact, ultimately, a company wants to build a
unique company asset called marketing network, a marketing network consists of the company
and all of its supporting stakeholders: customers, employees, suppliers, distributors, retailers, ad
agencies, and others with whom it has built mutually profitable business relationships.
Markets
The concept of exchange leads to the concept of a market. A market is the set of actual and
potential buyers of a product. These buyers share a particular need or want that can be satisfied
through exchange. Thus, the size of a market depends on 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.
Originally the term market stood for the place where buyers and sellers gathered to exchange
their goods, such as a village square.
Economists use the term to refer to a collection of buyers and sellers who transact in a particular
product class, as in the housing market or the grain market.
Marketers, however, see the sellers as constituting an industry and the buyers as constituting a
market. The relationship between the industry and the market is shown in Figure 1.1.

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Figure 1.1 a simple marketing system
The sellers and the buyers are connected by four flows. The sellers send products, services and
communications to the market; in return, they receive money and information. The inner loop
shows an exchange of money for goods; the outer loop shows an exchange of information.
Producers go to resource markets (raw material markets, labor markets, money markets), buy
resources, turn them into goods and services, and sell them to intermediaries, who sell them to
consumers. The consumers sell their labor, for which they receive income to pay for the goods
and services they buy. The government is another market that plays several roles. It buys goods
from resource, producer and intermediary markets; it pays them; it taxes these markets (including
consumer markets); and it returns needed public services. Thus each nation's economy and the
whole world economy consist of complex interacting sets of markets that are linked through
exchange processes.
Marketing
The concept of markets finally brings us full circle to the concept of marketing. Marketing means
managing markets to bring about exchanges for the purpose of satisfying human needs and
wants. Thus, we return to our definition of marketing as a process by which individuals and
groups obtain what they need and want by creating and exchanging products and value with
others.
Exchange processes involve work. Sellers must search for buyers, identify their needs, design
good products and services, promote them, and store and deliver them. Activities such as product
development, research, communication, distribution, pricing and service are core marketing
activities. Although we normally think of marketing as being carried on by sellers, buyers also
carry out marketing activities. Consumers do 'marketing' when they search for the goods they
need at prices they can afford.
1.3 Importance of Marketing
1.3.1 Importance of Marketing to the society
1. It is a connecting link between the consumer and the producer. Marketing process brings
new and new items to retail shops, from where the consumers can have them.

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2. It helps in increasing the living standard of people. Because of mass production, costs of
manufacturing marketing have come down. These facilitate the fixing of cheaper rates and
are a boon to the society.
3. It helps to increase the nation’s income. Efficient system of marketing reduces the cost to
the minimum; this in turn lowers the prices and the consumer’s purchasing power increases.
This will increase the national income.
4. Marketing process increases employment opportunities. For continuous production,
continuous marketing is needed. Continuous invites numerous activities and thus job
opportunities are provided to many people.
5. Marketing create modern cultivators. The poor farmer gets the new and developed
methods of cultivation – useful implements, tools, fertilizers etc. at his door and thus
embraces the advantage of developed cultivation methods.
6. Marketing removes the imbalances of supply by transferring the surplus to deficit areas
through better transport facilities.
7. Marketing helps to maintain economic stability and rapid development in
underdeveloped or developing countries. If production is more than demand, the excess
goods cannot be sold at acceptable price. Thus, there would be glut in the market, resulting in
fall in price, and the depression creeps in. similarly, if production is less than demand, price
shoots up, resulting in inflation. In such situations, marketing maintains the economic
stability by balancing the two aspects – production and consumption.
8. Marketing adds value of goods by changing their ownership and by changing their time
and place of consumption.
9. Marketing helps to create awareness for non-business items for society’s benefit like,
family planning, population control, child- abuse, anti- smoking campaign , polio
immunization programs and AIDS awareness campaign etc.
1.3.2 Importance of Marketing to the individual firms

a) Marketing generates revenue to firms. A firm fulfils its motive only through marketing.
Development of market is possible – local to world market. When markets are widened, sales
increase, and thus profit to the firm increases.
b) Marketing section of a firm is the source of information to the top management for
taking overall decisions on production. The information is the basis on which decisions
will be taken by the management.
c) Marketing & innovations are the two basic functions of all businesses. The world is
dynamic. Change is permanent. Change is the essence of life. Changing a business, on the
basis of requirements of customers – new products, new methods etc. is more important than
running a business more efficiently. The behavior and demand of customers keep changing.
In order to run a business successfully one should adopt the changing preferences, changing

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styles, changing fashion etc. the marketer informs retailers; retailers inform wholesalers and
they in turn inform manufacturers.
d) Marketing facilitates the development of business HHHH
1.4 Marketing Management Philosophies/Orientations
Marketing management is the conscious effort to achieve desired exchange outcomes with target
markets. But what philosophy should guide a company’s marketing efforts? What relative
weights should be given to the often conflicting interests of the organization, customers, and
society? Very often these interests conflict. Invariably, the organization's marketing management
philosophy influences the way it approaches its buyers.
There are five alternative concepts under which organizations conduct their marketing activities:
the production, product, selling, marketing and societal marketing concepts.
1. The Production Concept
The production concept, one of the oldest in business, holds that consumers prefer products that
are widely available and inexpensive. Managers of production-oriented businesses concentrate
on achieving high production efficiency, low costs, and mass distribution.
This concept can be used when two situations are occurred. The first occurs when the demand
for a product exceeds the supply. Here, management should look for ways to increase
production. The second situation occurs when the product's cost is too high and improved
productivity is needed to bring it down.
However, companies operating under a production philosophy run a big risk of focusing too
narrowly on their own operations.
2. The Product Concept
Other businesses are guided by the product concept, which holds that consumers favor those
products that offer the most quality, performance, or innovative features. Managers in these
organizations focus on making superior products and improving them over time, assuming that
buyers can appraise quality and performance.
Product-oriented companies often design their products with little or no customer input, trusting
that their engineers can design exceptional products.
A General Motors executive said years ago: “How can the public know what kind of car they
want until they see what is available?” GM today asks customers what they value in a car and
includes marketing people in the very beginning stages of design.
However, the product concept can lead to marketing myopia. Railroad management thought
that travelers wanted trains rather than transportation and overlooked the growing competition
from airlines, buses, trucks, and automobiles. Colleges, department stores, and the post office all
assume that they are offering the public the right product and wonder why their sales slip. These
organizations too often are looking into a mirror when they should be looking out of the window.
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3. The Selling concept

The selling concept, another common business orientation, holds that consumers and businesses,
if left alone, will ordinarily not buy enough of the organization’s products. The organization
must, therefore, undertake an aggressive selling and promotion effort. This concept assumes that
consumers must be coaxed into buying, so the company has a battery of selling and promotion
tools to stimulate buying.
The selling concept is practiced most aggressively with unsought goods; goods that buyers
normally do not think of buying, such as insurance and funeral plots. The selling concept is also
practiced in the nonprofit area by fund-raisers, college admissions offices, and political parties.
Most firms practice the selling concept when they have overcapacity. Their aim is to sell what
they make rather than make what the market wants. In modern industrial economies, productive
capacity has been built up to a point where most markets are buyer markets (the buyers are
dominant) and sellers have to scramble for customers.
Prospects are bombarded with sales messages. As a result, the public often identifies marketing
with hard selling and advertising. But marketing based on hard selling carries high risks. It
assumes that customers who are coaxed into buying a product will like it; and if they don’t, that
they won’t bad-mouth it or complain to consumer organizations and will forget their
disappointment and buy it again. These are indefensible assumptions. In fact, one study showed
that dissatisfied customers may bad-mouth the product to 10 or more acquaintances; bad news
travels fast, something marketers that use hard selling should bear in mind.
4. The Marketing Concept

The marketing concept holds that achieving organizational goals depends on determining the
needs and wants of target markets and delivering the desired satisfactions more effectively and
efficiently than competitors do. Surprisingly, this concept is a relatively recent business
philosophy.

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Figure 1.2.The selling and marketing concepts contrasted
The selling concept and the marketing concept are frequently confused. Figure 1.2 compares the
two concepts. 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 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. It
starts with a well-defined market, focuses on customer needs, co-ordinates all the marketing
activities affecting customers and makes profits by creating long-term customer relationships
based on customer value and satisfaction.
5. The Societal Marketing Concept
The societal marketing concept holds that the organization should determine the needs, wants
and interests of target markets. It should then deliver the desired satisfactions more effectively
and efficiently than competitors in a way that maintains or improves the consumer's and the
society's well-being. The societal marketing concept is the newest of the five marketing
management philosophies.
The societal marketing concept questions whether the pure marketing concept is adequate in an
age of environmental problems, resource shortages, worldwide economic problems and
neglected social services. It asks if the firm that senses, serves and satisfies individual wants is
always doing what's best for consumers and society in the long run. According to the societal
marketing concept, the pure marketing concept overlooks possible conflicts between short-run
consumer wants and long-run consumer welfare.
1.5 Marketing Management
Kottler, defined marketing management as the analysis, planning, implementation and control of
programs designed to create, build and maintain beneficial exchanges with target buyers for the
purpose of achieving organizational objectives.
Thus, marketing management involves managing demand, which in turn involves managing
customer relationships.
Most people think of marketing management as finding enough customers for the company's
current output, but this is too limited a view. The organization has a desired level of demand for
its products. At any point in time, there may be no demand, adequate demand, irregular demand
or too much demand, and marketing management must find ways to deal with these different
demand states. Marketing management is concerned not only with finding and increasing
demand, but also with changing or even reducing it.
1.5.1. Demand States and Marketing tasks

Marketing managers in different organizations might face any of the following states of demand.
The marketing task is to manage demand effectively. The various states of demand and the
corresponding marketing management task are the following:

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1. Negative demand: this is a state in which all or the major parts of the society, dislikes the
product and may even pay a price to avoid it. Examples are vaccination, alcoholic
employees, dental work, and seat belts. The corresponding marketing task is to analyze why
the market dislikes the product and whether product redesign, lower price, or more positive
promotion can change the consumer attitudes. This marketing task or activity is known as
conversional marketing which tries to change people’s want rather than serve their wants.
2. No demand: this is a case where target customers may be uninterested in or indifferent to a
particular product. For example, farmers may not know about a new farming method;
college students may not be interested in taking foreign language courses. Marketing
managers are concerned with finding ways to connect the product’s benefits with the user’s
needs and interests. this marketing task is known as stimulational marketing; it tries to
stimulate a want for an object in people who initially have no knowledge or interest in the
product
3. Latent demand: consumers have a want that is not satisfied by any existing product or
service. This state of demand where many customers share a strong need for something that
does not exist in the form of actual product is called latent demand. Examples include the
need for harmless cigarettes, more fuel-efficient cars, etc. in this case marketing managers
respond by trying and developing effective goods and services that will satisfy the demand
through analysis and measurement of the potential market. The marketing task is called
developmental marketing and its task is to measure the size of the potential market and
trying to develop a new product or service that would satisfy the demand.
4. Falling demand: sooner or later, every organization faces falling demand for one or more of
its products. For example, churches have seen their membership decline, and private
colleges have seen fewer applications. The marketer must find the causes of market decline
and re-stimulate demand by finding new markets, changing product features, or creating
more effective communication and the marketing task is called remarketing.
5. Irregular demand: it is a state in which the timing pattern of demand is marked by seasonal
and volatile fluctuations causing problems of idle capacity and overworked. For example
museums are under-visited during weekdays and overworked during weekends. the
corresponding marketing task is synchrony marketing, i.e., to find ways to alter the time
pattern of demand through flexible pricing, promotion and other incentives so that it will
better match the time pattern of supply.
6. Full demand: the organization has just the amount of demand it wants and can handle. It is
a state where the current level and timing of demand is equal to the desired level and timing
of demand. The marketing task is maintenance marketing and is designed to maintain the
current level of demand against changing consumer preferences. The organization maintains
quality, and continually measures satisfaction to make sure it is doing a good job.

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7. Overfull demand: it is a state in which demand is higher than the company can or wants to
handle. The marketing task is called demarketing and its task is finding ways to reduce the
demand temporarily, or permanently. Demarketing involves such actions as raising prices
and reducing promotion and service. It does not aim to destroy demand, but only to reduce
it. It calls for using normal marketing tools in reverse.
8. Unwholesome demand: unwholesome products such as cigarettes, alcohol, and hard drugs
will attract organized effort to destroy the demand or interest in particular product or service.
the corresponding marketing task is known as counter-marketing it is a difficult task in that
the aim is to get people who like something to give it up. Marketing manager cope with these
tasks by carrying out marketing research, planning, implementation and control.

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Mekelle University, College of Business and Economics, Department of Marketing management

1.1 meaning of marketing

The two most widely used definitions of marketing are these:

Mr.Yonas Berhanu (MBA)

“Marketing is a social and managerial process by which individuals

Products and Services

Mr.Yonas Berhanu (MBA)

Mr.Yonas Berhanu (MBA)

Figure 1.1 a simple marketing system

Mr.Yonas Berhanu (MBA)

1.3.2 Importance of Marketing to the individual firms

Mr.Yonas Berhanu (MBA)

1.4 Marketing Management Philosophies/Orientations

3. The Selling concept

4. The Marketing Concept

Mr.Yonas Berhanu (MBA)

Figure 1.2.The selling and marketing concepts contrasted

1.5.1. Demand States and Marketing tasks

Mr.Yonas Berhanu (MBA)

Mr.Yonas Berhanu (MBA)

Mr.Yonas Berhanu (MBA)

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