MARKETING

Chapter 4
OVERVIEW OF MARKETING

 Marketing is defined as “ The activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value for customers, clients, partners,
and society at large.” (American Marketing Association).

 People buy the product that provides them the highest value. Value is the customers’ estimate of the
product’s capacity to satisfy a set of goals.

 Customers usually determine value by considering the three factors that are called the customer
value triad: Quality, service and price
Marketing management is the process of planning and executing, the
conception, pricing, promoting and distributing of ideas, goods and services to
create an exchange that satisfy individual or group objectives (American
marketing Association, 2015)

 Marketing Functions involve: Exchange functions ( buying and selling ),

physical distribution functions ( transportation and storing), and facilitating
functions ( financing, standardizing, risk taking and gathering market
information).
 Marketing starts with human needs and wants.

NEED : A state of felt deprivation of some basic satisfaction ( e.g. food, clothing, shelter)
WANTS: are desires for specific satisfiers of the deeper needs. Needs are few and wants are many.
Example: Drink is a need wants can be Beer, coca cola, Ambo..
DEMANDS : are wants backed by the willing to buy and the ability to buy.

Customer purchases a product that is capable of satisfying want that economist refer as utility.
Thus, organizations perform production and marketing of goods and services to create utility.

There are four basic kinds of utility – form, time, place and possession ( ownership) utility.
Types of Utility
Form: Making a product ready for consumption.
Example: electronics, Furniture, wider selection of products

Time: Ensuring a product is available for a customer when they want it.
Example: Umbrella in the winter, fasting cuisines , availability - 24 hours

Place : Making goods or services readily and conveniently available to potential customers.
Example: Retail store location, Kiosks

Possession : Value consumers put on purchasing a product and having the freedom to use the
product as it was intended or finding a new use for the product
Example: Cups can be used for drinking or as a pen holder
 There are different philosophies or concepts in marketing where
organizations can choose to conduct their marketing activities.
 The Production Concept
 The Product concept
 The Selling/sales concept
 The Marketing concept
 The Societal Marketing concept
Marketing Management Philosophies
Production  Consumers favor products that are available and highly
affordable
 Improve production and distribution
 ‘Availability and affordability is what the customer
wants’
Product  Consumers favor products that offer the most quality,
performance and innovative features
 ‘A good product will sell itself’
Sales  Consumers will buy products only if the company
promotes/ sells these products
 ‘Creative advertising and selling will overcome
consumers’ resistance and convince them to buy’
Marketing  Focuses on needs/ wants of target markets and delivering
satisfaction better than competitors
 ‘The consumer is king! Find a need and fill it’
Societal  Focuses on needs/ wants of target markets and delivering
marketing superior value to maintain and improve both the
customers’ and society’s well-being better than the
competitors.
‘
Contrasts Between the Sales Concept and the Marketing Concept
THE MARKETING CONCEPT

 Marketing concept holds that achieving organizational goals depends on knowing the needs and wants
of target markets and delivering the desired satisfactions.

 Firm must communicate with potential customers to assess their product needs.
 Then, firm must develop a good or service to meet those needs.
 Engage the whole firm in efforts to satisfy customers and to achieve goals (make a profit).

 Customer satisfaction is the feeling that a product has met or exceeded the customer’s expectations.
While dissatisfaction results if performance (such as product performance or employee performance)
falls short of those expectations.

 Marketing must be understood not as a sense of making a sale - selling - but in the new sense of
satisfying customer needs.
 Marketing managers are responsible for most of the activities necessary to create the
customers the organization wants, These activities include:

 Identifying customer needs.

 Designing goods and services that meet those needs.

 Communication information about those goods and services to prospective buyers.
 Making the goods and services available at times and places that meet customers’ needs.
 Pricing goods and services to reflect costs, competition and customers’ ability to buy.
 Providing for the necessary service and follow-up to ensure customer satisfaction after
the purchase.
 Obtaining marketing information regarding the effectiveness of its efforts and be ready
to modify any or all of its marketing activities based on information.
MARKETING INFORMATION AND RESEARCH

 Marketing information and research address the need for quicker, yet more accurate, decision
making by the marketer

 The most reliable source of fresh customer insights is timely and reliable marketing information
that may come from a variety of sources both inside and outside the organization.

 Marketing information is generated by a variety of different activities, including through a

marketing research and through information system .
A marketing information system (MIS)is a combination of people, technologies,
and processes for managing marketing information. It is a system for managing
marketing information that is gathered continually from internal and external sources.

 Due to amount of data from a variety of sources are fed into the system ,
stored, sorted and retrieved , most of these systems are computer-based.

 The data stored and processed include orders, products, inventory, scheduling,
shipping, customers, activities of sales force.
 A MIS consists of four interrelated and interdependent components – Internal Records, Marketing
Research, Marketing Intelligence, and Marketing Decision Support System, where the needed
information is developed.
Internal Records is a major and easily accessible source of information that consists of all records of
marketing operations available within organization. Main sources include various records on sales and
purchase, ordering system, sales force reporting system, inventory level, the past research works, and other
reports available within organization.

Marketing Intelligence provides the data about the happenings in the market, i.e. data related to the
marketing environment which is external to the organization. It includes the information about the changing
market trends, competitor’s pricing strategy, change in the customer’s tastes and preferences, new products
launched in the market, promotion strategy of the competitor, etc.

Marketing Decision Support system are the tools which help the marketing managers to analyze data
and to take better marketing decisions. Computer helps the marketing manager to analyze the marketing
information to take better decisions.
Marketing research is a systematic process for identifying marketing opportunities and solving
marketing problems, using customer insights that come out of collecting and analyzing marketing
information.
MARKETING MIX
 The marketing mix is the set of controllable variables that must be managed to satisfy the
target market and achieve organizational objectives.
 These controllable variables are usually classified according to four major decision areas referred
as the 4 Ps of marketing:
1. Product: the goods and services offered
2. Promotion: communication and information
3. Place: distribution or delivery
4. Price: ensuring fair value in the transaction
1. Product
 Product refers to the goods and services offered by the organization. It is important
to note that people generally want to acquire the benefits of the product, rather than its
features.

 Product differentiation is the most essential factor to marketing promoters. You

must differentiate your product from your competitors’ products in the following ways:
 Quality: the product requires reliability and lifetime.
 Quantity: You need to produce the product as much as the market desires
 Intellectual property (IP) protection: You need your product to be protected from
imitation manufacturing by other firms. IP is protected by law such as, patents,
copyright and trademarks.
 Classification of Products: Products can be grouped into two general categories: consumer and
business or industries.

 Consumer Product: A product purchased to satisfy personal and family. Classified as

convenience product, and shopping product.

 Business Product : A product bought for resale, for making other products, or for use in a
firm’s operations. Business products are classified as raw material, major equipment,
accessory equipment, component part, process material, and business service
Brand, package, and label of a product are the three important features of a product
(particularly a consumer product).

 Brand is a name, term, symbol, design, or any

combination of these that differentiate a product
from similar products on the market.

 Package is providing a container that holds

a product and can influence a consumer’s decision to buy or pass it up.
for a product

 Label of a product is the information on a product or its package that identifies

the product and provides details of the package contents.
 Product life cycle: every product has a life cycle. The product life cycle is
segmented into introduction, growth, maturity and decline.

 Introduction: Launching a new product. The size of the market for the
product is small, which means sales and profit are usually very low.
 Growth: This stage is characterized by increased sales and initial profits.
Heavy promotional costs are often incurred, which hinder gross profit.
 Maturity – sales are near their highest, but the rate of growth is slowing
down, e.g. new competitors in market or saturation.
 Decline – final stage of the cycle, when sales begin to fall.
 Implement extension strategies - which are intended to extend the life of the product before it goes
into decline.

Example: Advertising, price reduction, new market, new packaging, adding values
2. Price
 Price is what the customer pays for the product.

 Pricing strategy is the policy a firm adopts to determine what it will charge for its products and
services . Management set a pricing objectives that are in line with both organizational and
marketing objectives such as,
 Maximize profit
 Survival in the market
 Return on investment (ROI)
 Market –share
 Status-quo pricing
 A company sets no single price, but rather a pricing structure that changes through time as
products pass through their life cycles. Examples of pricing strategies mostly applicable are as
follows:

 Demand-Based Pricing: Pricing method based on the level of demand for the product.
Effectiveness depends on the firm’s ability to forecast demand accurately.
 Price differentiation: depending on time of the purchase, type of customer, or type
of distribution channel.

 Competition-Based Pricing: Pricing based on competitor's prices that can help to attain a
pricing objective to increase sales or market share.

 Skimming pricing : Charging a high price relative to other brands within the product class.
The success depends on the high product quality and differentiated performance.
Example: Apple’s products sell well when the price is higher than other brand products.

 Penetration pricing charging a low price on a new product to discourage competition and
gain market share with the assumption of selling the brand in enormous quantities.
 Cost-Based Pricing: Setting a price that factors into a given profit margin (e.g., cost
plus 25% profit). Can be based on break-even analysis

 Break-Even Analysis is a tool for product screening to evaluate the quantity

of good to be produced and sold to cover costs, known as ‘break even’
quantity. It predicts when will business start to make a profit.

 Costs are classified as fixed costs and variable costs. Total cost is the sum
of the fixed cost and the total variable cost

 Fixed costs are those costs which remain constant over a period of time
regardless of the levels of output
Example: rent, insurance, property tax, depreciation etc.

 Variable costs are costs per unit that change in total amount () as output
changed.
Example: direct labor, raw materials, sales commissions, etc.
 If each product or item is sold at a price of SP then total revenue is the total
amount received from the sales of a product.

 The level of output at which profit is zero or revenue equals cost is referred to as
the break-even quantity ( QBE ) given by

QBE = Fixed cost

Selling Price –Variable Cost
Example: Engineering estimates indicate the variable cost of manufacturing a new
product will be Birr 80 per unit. Based on Market research, the selling price of the
product is to be Birr 120 per unit. The fixed costs applicable to the new product are
estimated to be Birr 2400. How many items must the company produce and sell to
break even?
3. Place
 Products must be made available to the consumers at a place where they can conveniently
make purchase.

This involves a chain of individuals and institutions like distributors, wholesalers and retailers
who constitute firm’s distribution network (also called a channel of distribution)

The more the intermediate channels are involved, the higher the percentage of selling price
it can command.
 The following factors should be considered to select the best channel under
the condition of using best distribution strategy.
 Company Factors: financial, human and technological capabilities
of a company to do its business activities.
 Market Characteristics: Geography, market density, market size,
target market
 Product Attributes: perishability, value and sophistication of the
product
 Environmental Forces : those forces that affect the business like
competition, technology and culture
4. Promotion

 Promotion is done mainly with a view to provide information

to prospective consumers about the availability, characteristics
and uses of a product. The major forms of promotion are
advertising, sales promotion, public relation and personal selling..

 Promotion involves communication of the product

attributes and the firms image in the most favorable light
possible to intermediary sellers (i.e., trade advertising and trade
promotion) and to end users (i.e., consumer advertising and consumer
promotion).
 Advertising is any paid form of non-personal presentation ( no communication between the firm
and customers) promotion of product through mass media such as Newspapers, Magazines,
Television, radio , posters or banners
 Personal Selling: This is the two-way flow of communication between a buyer and seller, often
in a face to face encounter, designed to influence a person’s or group’s purchase decision. It
involves the use of a sale force to encouraging customers to buy the product.
 Public Relations is a promotional technique that uses any form of communication that seeks to
change the perceptions of customers, shareholders, suppliers, employees and other publics to
create a positive image for the company and its products. Techniques used to gain publicity
include news releases, press conferences, feature articles, photographs, films and videotapes.
 Sales Promotion refers to the short term incentives such as discounts, free samples, and prizes
to be offered in order to encourage the buyers to make immediate purchase of a product .
DEVELOPING MARKETING STRATEGIES

 Marketing strategy refers to a plan of action for identifying and analyzing a target

market and developing a marketing mix to meet the needs of that market.

 A marketing strategy can allow an organization to concentrate its limited

resources on the greatest opportunities to increase sales and achieve a
sustainable competitive advantage.
 A target market-A target market is a group of customers who should be interested in your product,
have access to it, and have the means to buy it.

 Identifying target markets involves understanding the individuals or organizations that need a
product and are able to buy it. This market can include either or both of two groups

 Consumer markets : Purchases are for personal consumption, not profit (B2C)

 Business markets: purchase products for resale, direct use to produce other products, or use in
daily business operations (B2B)

 A well-defined target market is the first element to a marketing strategy. The next step is to divide
the entire market into smaller groups, or market segments.
 Customer segmentation is the process of dividing customers into groups based on common
characteristics such as age, gender, climate, religion, income groups, that influence their
buying decisions.

 Once these distinct groups of customers have been defined, a marketing mix strategy can be
built by the business to satisfy the target market. There are two types of market-segmentation
approaches: concentrated and differentiated.

 Concentrated : A single marketing mix is directed at a single market segment.

 Differentiated: Multiple marketing mixes are focused on multiple market segments.

Approaches for Selecting Target Market Segments

 Undifferentiated (mass) marketing : Ignores segmentation approaches and targets

broadly.

 Differentiated (segmented) marketing: Targets several segments and design separate

offers for each.

 Concentrated (niche) marketing: Targets one or a couple small number of segments.

 Micromarketing (local or individual): Narrowly focused than concentrated

marketing. involves targeting potential customers at a very basic level.
 Positioning : The place the product occupies in consumers’ minds relative to competing
products. Typically defined by consumers on the basis of important attributes.

 Involves identifying attributes which are more important when customers are
making a purchase.

 Sources of differentiation can be : product design, quality, additional service,

image, price etc.
Elements of a marketing strategy and its environmental framework