Chapter 16: What is marketing?

Distribution Wants are things we do not need for our

Customer service survival as biological creatures, but they do
Marketing is the management process Packaging satisfy certain requirements or individual
responsible for identifying, anticipating, and needs of most human beings.
satisfying consumers’ requirements Related concepts
profitability.
Value and satisfaction
Markets
Marketing: the management task that links Value is not the same as cheapness. A
One of the meaning of markets is “‘a place or consumer will consider a product to be of
the businesses to the customer by identifying
mechanism where buyers and sellers meet to good value if it provides satisfaction at what is
and meeting the needs of customers
engage in exchange”. thought to be a reasonable price. Customer
profitability- it does this by getting the right
product at the right price to the right place at The term market also refers to the group of satisfaction is not always obtained with very
the right time. consumers that is interested in a product, has expensive products – a good might be so
the resources to purchase the product and is expensive that, although it performs its
permitted by law to purchase it. function well, the consumer believes that
‘good value’ has not been received.
Definition by contemporary marketing
It can be broken down into different
Wired: Marketing is the process of planning Marketing objectives and corporate
definitions. For example, the potential market
and undertaking the conception, pricing, objectives
for a product is the total population interested
promotion and distribution of goods and
in the product. The target market is the
services to create and maintain relationships The long-term objectives of the company will
segment of the available market that the
that will satisfy individual and organizational have a significant impact on both the
business has decided to serve by directing its
objectives. marketing objectives and marketing strategy
product towards this group of people.
adopted. A business with clear short-term
Human needs and wants. profit targets will focus on maximising sales at
Marketing involves the following management the highest prices possible. In contrast, a
A human need is a basic requirement that an business with longer-term objectives, which
functions:
individual wishes to satisfy. Physical needs may include profitability as well as the
Market research include food, clothing, and shelter. Individual achievement of goals of social responsibility,
Product design needs include desires for knowledge, may adopt a ‘societal marketing’ approach.
Pricing recognition, affection, self-esteem, and self-
Advertising expression.
Marketing objectives: the goals set for the business trades in for years to come - Penetrating existing markets more
marketing department to help the business and these issues must be dealt with by fully – selling more to existing and
achieve its overall objectives. managers at a very senior level in the new customers.
company. - Entering new markets
Marketing strategy: long-term plan
o Be realistic, motivating, achievable, - Developing new, or updating
established for achieving marketing
measurable, and clearly existing, products.
objectives.
communicated to all departments in
Coordination of marketing with other
Examples of marketing objectives include an the organisation.
departments
increase in:
The links between the marketing department
market share – perhaps to gain market Why are marketing objectives important?
and other functional departments – such as
leadership.
total sales (value or volume – or both). They provide a sense of direction for finance, operations (production) and human
average number of items purchased per the marketing department. resources are an essential component of a
customer visit. Progress can be monitored against successful marketing strategy. As most
frequency that a loyal customer shop. these targets. business decisions will be focused around
percentage of customers who are They can be broken down into achieving the central marketing objectives,
returning customers. regional and product sales targets to such as increasing sales and profits, it is
number of new customers. allow for management by objectives. inevitable that the marketing department will
customer satisfaction.
They form the basis of marketing have a central role in coordinating the work of
brand identity.
strategy. These marketing objectives other departments to help achieve these
To be effective, marketing objectives should: will have a crucial impact on the marketing objectives.
marketing strategies adopted, as
o fit in with the overall aims and mission Examples of these links:
without a clear vision of what the
of the business − the marketing business hopes to achieve for its Marketing → finance
objectives should reflect the aims of products, it will be pointless discussing
the whole organisation and they - The finance department will use the sales
how it should market them.
should attempt to aid the forecasts of the marketing department to help
achievement of these. construct cash-flow forecasts and operational
Examples of marketing strategies
o be determined by senior management budgets.
include:
− the key marketing objectives will
determine the markets and products a
- The finance department will have to ensure Market orientation and product Product orientation: an inward-looking
that the necessary capital is available to pay orientation approach that focuses on making products
for the agreed marketing budget, for example that can be made – or have been made for
for promotion expenditure. Market orientation: an outward-looking a long time – and then trying to sell them.
approach basing product decisions on
Marketing → human resources consumer demand, as established by market Product-oriented businesses invent and
research. develop products in the belief that they will
 The sales forecasts will be used by human find consumers to purchase them.
resources to help devise a workforce plan Market orientation gives a business customer
Product-oriented businesses concentrate their
for all of the departments likely to be focus. efforts on efficiently producing high-quality
affected by a new marketing strategy, for
This approach requires market research and goods. They believe quality will be valued
example additional staff may be needed above market fashion.
in sales and production. market analysis to indicate present and future
 Human resources will also have to ensure consumer demand. Evaluation of these two approaches
that the recruitment and selection of The benefits of market orientation are: The trend is towards market orientation,
appropriately qualified and experienced
 The chances of newly developed products but there are limitations. If a business
staff are undertaken to make sure there
failing in the market are much reduced – attempts to respond to every passing
are sufficient workers to produce and sell
if effective market research has been consumer trend or market fashion, then it
the increase in sales planned for by the
undertaken first. may well over-stretch its resources and
marketing department.
 If consumer needs are being met with end up not doing anything particularly
Marketing → operations appropriate products, then they are likely well. Trying to offer choice and range so
to survive longer and make higher profits that every consumer need is met can be
 Market research data will play a key role
than those that are being sold following a expensive. In contrast, researching and
in new product development – as
product-led approach. developing an innovative product can be
explained above.
 Constant feedback from consumers – successful, even if there has been no
 The sales forecasts will be used by the
market research never actually ends – will formal market research. A third way –
operations department to plan for the
allow the product and how it is marketed between market and product orientation
capacity needed, the purchase of the
to be adapted to changing tastes before it – is called asset-led marketing.
machines that will be used and the stocks
of raw materials required for the new is too late and before competitors ‘get Asset-led marketing: an approach to
output level. there first’. marketing that bases strategy on the
firm’s existing strengths and assets concept of marketing is the correct one to  Businesses should still aim to identify
instead of purely on what the customer adopt. consumer needs and wants and to satisfy
wants. these more efficiently than competitors
Societal marketing: this approach
do – but in a way that enhances
This is based on market research too but considers not only the demands of
consumers’ and society’s welfare.
does not attempt to satisfy all consumers consumers but also the effects on all
 Using this concept could give a business
in all markets. Instead, the firm will members of the public (society) involved
a significant competitive advantage.
consider its own strengths (or in some way when firms meet these
Many consumers prefer to purchase
‘competencies’) in terms of people, assets demands.
products from businesses that are seen
and brand image and will make only those
These other members of the public or to be socially responsible.
products that use and take advantage of
stakeholders include employees,  A societal-marketing strategy, if
those strengths.
shareholders, suppliers, competitors, successful, could lead to the firm being
Societal marketing government, the community, and the able to charge higher prices for its
natural environment. products as benefiting society becomes a
This approach to marketing adopts a ‘unique selling point’.
wider perspective than the previous forms These products are not the cheapest – but
of orientation. It focuses on other they do meet society’s long-term
stakeholders as well as the business and interests.
its consumers. Social responsibility is The societal-marketing concept has the
becoming increasingly popular among following implications: Demand, supply, and price
organisations and can be regarded as an
important strategic marketing tool. This  It is an attempt to balance three relationship.
raises the question of what the central concerns: company profits, customer
If the business can produce the product at
purpose of marketing should be. Is it ‘a wants and society’s interests.
the market price, it should be profitable.
management tool to help maximise  There may be a difference between
profits’ or should it be ‘a means of short-term consumer wants (low prices)
satisfying consumer needs profitably, but and long-term consumer and social
with minimum damage and costs to welfare (protecting the environment or
society’? Managers who believe in paying workers reasonable wages).
‘societal marketing’ claim the latter Societal marketing considers long-term
welfare.
 1. This varies with price – for all normal
goods, the quantity bought rises with a
price fall and the quantity bought falls
with a price increase. This is shown by a
demand curve (see Figure 16.1).
2. Apart from price changes – which cause
a new position on the demand curve as
shown in Figure 16.1 – the level of
demand for a product can vary due to a
change in any of these determinants of
demand:
 changes in consumers’ incomes
 changes in the prices of substitute
goods and complementary goods.
 changes in population size and
structure.
 fashion and taste changes.
 advertising and promotion
spending.
3. 3 All of these changes above lead to a
new demand curve (see Figure 16.2). So,
Demand: the quantity of a product that for example, the demand for holidays
consumers are willing and able to buy at a will increase to D1 after an increase in
given price in a time period. consumer incomes.

Supply: the quantity of a product that firms Supply

are prepared to supply at a given price in a
time period. 1. This varies with price – firms will be more
willing to supply a product if the price
Demand rises and will supply less as the price falls.
This is shown in Figure 16.3.
2. Apart from changes in price – which cause If the price were higher than this, there would Market location:
a new position on the supply curve as be unsold stocks – excess supply. Suppliers do
shown above – the level of supply of a not want this, so will lower the price. If the Some businesses just operate locally – they
product can vary due to a change in any of price is lower than the equilibrium, then sell products to consumers in the area where
these determinants of supply: stocks will run out – leaving excess demand. the business is located. Firms that usually just
 costs of production, e.g., change in Suppliers could make a higher prof t by raising sell in these local markets include laundries,
labour or raw material costs. the price – to the equilibrium level. hairdressers, and bicycle-repair shops.
 taxes imposed on the suppliers by Regional markets cover a larger geographical
government, which raise their costs. area and businesses that have been successful
 subsidies paid by government to locally often expand into the region or county
suppliers, which reduce their costs. so that they can increase sales.
 weather conditions and other
natural factors. Local markets have limited sales potential.
 advances in technology to make Relatively few firms will expand to try to sell
cost of production lower. to the whole national market. Common
3. All of these changes above lead to a new examples include: banking firms, supermarket
supply curve (see Figure 16.4). So, for chains and large clothing retailers.
example, the supply of rice will be
International markets offer the greatest sales
reduced after very poor weather in the
potential. The rapid rise of multinationals that
major growing areas. This leads to S2.
operate and sell in many different national
Determining the equilibrium price markets illustrates the sales potential from
exploiting international markets.
When demand and supply are combined, the Features of markets: location, size,
equilibrium price will be determined. This will growth, share and competitors Expanding into foreign markets is a very big
be at the point where demand = supply. This is strategic step as many aspects of marketing
shown in Figure 16.5. Successful marketing requires firms to will have to change in order to respond to
understand which market they are operating differences in tastes, cultures, and laws
Equilibrium price: the market price that in, who their consumers are and where they between different countries.
equates supply and demand for a product. are located, whether the market is growing or
shrinking, what the business’s share of that Market size:
market is and the major competitors.
This can be measured in two ways: volume of  development of new markets and more successful than most of its competitors.
sales (units sold) or value of goods sold products that take sales away from The product with the highest market share is
(revenue). existing ones called the ‘brand leader’.
 changes in consumer tastes
The size of a market is important for three The benefits of a high market share –
 factors, such as technological change,
reasons: especially of being the brand leader – are:
which can boost market sales when
1. A marketing manager can assess an innovation becomes available.  Sales are higher than those of any
whether a market is worth entering or competing business in the same
The rate of growth will also depend on
not. market and this could lead to higher
whether the market is ‘saturated’ or not. In
2. Firms can calculate their own market profits too.
most Western countries, sales of washing
share.  Retailers will be keen to stock and
machines do not rise each year as most
3. Growth or decline of the market can promote the best-selling brands. They
households already have one – most
be identified. may be given the most prominent
purchases are, therefore, replacement
position in shops.
Market size: the total level of sales of all models. Sales of laptop computers are still
 As shops are keen to stock the
producers within a market. rising in India and China as most potential
product, it might be sold to them with
consumers have yet to purchase one.
Market growth: a lower discount rate – say 10%
instead of 15%, which has to be
Some markets are growing faster than others; offered by the smaller, competing
some, such as desk top personal computers, Market share: brands. The combination of this factor
are declining rapidly. Is it always better to be and the higher sales level should lead
operating in a rapidly growing market? In ‘Firm’s sales’ and ‘total market sales’ can be to higher profitability for the producer
many cases, yes, but not always – there might measured in either units (volume) or sales of the leading brand.
be many competitors entering the market at value in this market. Market share, and  The fact that an item or brand is the
the same time so profits might not be high. increases in it, is often the most effective way ‘market leader’ can be used in
to measure the relative success of one advertising and other promotional
The pace of growth will depend on several
business’s marketing strategy against that of material. Consumers are often keen to
factors, such as:
its competitors. buy ‘the most popular’ brands.
 general economic growth
If a firm’s market share is increasing, then the A word of warning: it is not always easy to
 changes in consumer incomes
marketing of its products has been relatively measure market growth or market share in an
unambiguous way. Different results may be Competitors: For example, although soap powders may look
obtained depending on whether the growth highly similar each will of er some form of
and share rates are measured in volume or Businesses operate in a competitive special ingredient that sets them apart from
value terms. environment. their competitors. In recent years
For example, mobile (cell) phone differentiation in this market has increased by
For example, if total sales in the market for
providers are in fierce competition with the development of dissolvable sachets of
jeans rose from 24 million pairs at an average
each other to provide the best possible liquid, solid tablets, and other forms of
price of $32 to 26 million pairs at an average
value for money phones, and to offer the detergent.
price of $36, then market growth can be
measured in two ways: most suitable range of phone services for In addition to direct competition, businesses
their customers. also face indirect competition. For example, in
 By volume – the market has risen
One of the most obvious ways in which the bus transport industry, a bus operator
from 24 to 26 million units, an
businesses compete is over price. experiences indirect competition from other
increase of 8.33%.
providers of public transport such as taxi firms
 By value – the revenue has risen from Businesses can compete in many other and rail companies, although they might be in
$768 million to $936 million, an ways; however, these are called forms of different sectors of the same market, or in
increase of 21.88%. non-price competition, e.g.: apparently different markets.
Which of these two methods – value or  customer service – giving the best Direct competitor: businesses that provide
volume – should be used to calculate the personal attention to the needs of the same or very similar goods or services.
changing market share for any one jeans customers.
manufacturer? The manufacturer will use  location – being at the most Important marketing concepts:
the measure that reflects best on their convenient place for customers to
own position. It may, therefore, be 1. Creating/adding value:
buy the product.
difficult to compare firms’ changing
‘Added value’ means the difference between
market shares. Most businesses are faced by direct
the selling price of a product and the cost of
competitors. Stall holders in a large open
A cosmetic company that specialises in the materials and components bought in to
market selling materials or tourist gifts will
selling low volumes of expensive products make it.
face competition from many similar stalls.
is likely to have a higher market share in However, most products are differentiated in This is not the same as profit. If the business is
value terms than when measured by some way. able to increase this added value, then the
volume.
potential for greater profits is clear. Effective little different from those used for 2. Mass marketing and niche
marketing makes this possible. other brands. Coca-Cola and Levi jeans marketing:
are two classic examples of this.
What will encourage consumers to pay a price This market segment in niche marketing can
 Create a ‘unique selling point’ (USP)
that far exceeds the cost of the basic materials be a very small section of the whole market
that clearly differentiates a product
needed to produce the good or service? and may be one that has not yet been
from that of other manufacturers.
Here are some examples of marketing Product differentiation can lend to identified and filled by competitors.
strategies that are likely to add value: sales success. Apple’s iPad mini is a Examples of firms employing niche marketing
good example. USP − unique selling include Versace designs and Clinique
 Create an exclusive and luxurious point (or proposition): the special
retail environment to make perfumes. Both these businesses sell only
feature of a product that expensive, high-status products.
consumers feel that they are being differentiates it from competitors’
treated as important. This will make products. Other niche markets exist for non-luxury
them feel more prepared to pay products too such as ‘extreme sports’ clothing
higher prices and may have the Product differentiation: making a product and ‘$-stretcher’ retail shops that sell only
psychological effect of convincing distinctive so that it stands out from very cheap items, attracting a low-income
them that the product is of higher competitors’ products in consumers’ segment of the market.
quality too. This approach is used by perception.
perfume and cosmetic retailers, Niche marketing: identifying and exploiting a
Developing a USP can be an expensive small segment of a larger market by
expensive hairdressers, and Mercedes
strategy, but very rewarding if successful. It is developing products to suit it.
car showrooms.
most likely to be achieved either by heavy or
 Use high-quality packaging to Mass marketing: selling the same products to
effective promotion.
differentiate the product from other the whole market with no attempt to target
brands – again, widely used in The key point about adding value is that, as groups within it.
cosmetics and confectionery (luxury consumers generally become wealthier and
boxes of chocolates). more selective in their purchasing habits, the Mass marketing is the exact opposite. ‘One
 Promote and brand the product so producer or retailer who is able to develop product for the whole market’ is now
that it becomes a ‘must-have’ brand something different from other firms is most becoming quite an unusual concept for firms
name that consumers will pay a likely to both capture consumers’ attention to adopt – yet is still seen in, for example, the
premium price for, even if they may and gain higher profits. toothpaste and fizzy drinks markets.
realise that the actual ingredients are
Hoover, the vacuum-cleaner manufacturer, but also make laptop models for ‘picture’ of the typical consumer needs to be
used to sell a very limited range of products as businesspeople who travel. built up to help with market research
most consumers wanted just a simple and  Coca-Cola not only makes the sampling, designing the product, pricing, and
effective cleaner. Now, with increased standard cola drink but also Diet Coke promoting the product.
consumer choice and more competitors for weight-conscious consumers, and
This is called the consumer profile. The main
operating the market, Hoover of er a much flavoured drinks for consumers with
characteristics of consumers contained in a
wider range of models of different sizes, particular tastes.
consumer profile are income levels, age,
power output and prices to appeal to different
Market segment: a sub-group of a whole gender, social class, and region.
segments of the mass market.
market in which consumers have similar
Consumer profile: a quantified picture of
characteristics.
consumers of a firm’s products, showing
3. Market segmentation: Market segmentation: identifying different proportions of age groups, income levels,
segments within a market and targeting location, gender, and social class
This is a very widely practised marketing different products or services to them.
strategy. It is customer-focused, so it is Total markets may be segmented in a number
consistent with the concept of market Sometimes firms only market their goods or of different ways. The three commonly used
orientation. Segmentation is referred to as services to one segment and deliberately do bases for segmentation are:
‘differentiated marketing’ because, instead of not aim to satisfy other segments.
1. Geographic differences:
trying to sell just one product to the whole Nike shoes are only for sports and leisure use
market, different products are targeted at and Coutts & Co. only offers banking services Consumer tastes may vary between different
different segments. to the very wealthy. These businesses make a geographic areas and so it may be appropriate
virtue out of concentrating on one segment to offer different products and market them in
To be effective, firms must research and
and developing an image and brand that suit ‘location-specific’ ways.
analyse the total market carefully to identify
the specific consumer groups that exist within that segment. This approach would be the opposite of
it. adopting one marketing strategy for the whole
Market segmentation – identifying area or region. This is sometimes referred to
Examples of market segmentation are: different consumer groups: as ‘pan-Asian’ or ‘pan-European’ marketing.
 Computer manufacturers, such as Successful segmentation requires a business This will not be effective if the geographical
Hewlett-Packard, produce PCs for of to have a very clear picture of the consumers differences are so considerable that
ice and home use, including games, in the target market it is aiming to sell in. A
consumers demand products geared towards A house-construction firm will use information C2 – skilled manual workers D – working class
their specific needs. on these factors to help determine which − semi- and unskilled manual workers
segment of the market a new block of
These geographical differences might result E – casual, part-time workers and unemployed
apartments should be aimed at. Should they
from cultural differences – for example
be retirement f ats with a resident caretaker? An individual’s social class may have a great
alcohol cannot be promoted in Arab Muslim
It is unlikely that the construction firm will impact on their expenditure patterns. This will
countries. A heating and refrigeration business
attempt to attract all market segments – but be largely due to income differences between
will need to market different products to
having decided on the most appropriate one, different classes of employment. The wealthy
Malaysia compared with Finland.
it will be essential to gear the price and will have very different consumption patterns
This issue is not just about products. The way promotion strategies towards this segment. from the working class.
in which products are promoted may have to
Income and social class are two very The jobs people do is one of the main factors
be adjusted too. Competitions or lottery-type
important factors leading to market influencing people’s income levels. Other
promotions are illegal in some countries.
segmentation. forces apart from income levels could operate,
Clearly, as in so many other aspects of however, for instance, top professional groups
An individual’s occupation tends to determine
marketing, accurate and detailed market would be expected to spend more money on,
their social class and will also have a great
research information would be essential say, power boating and golfing, as these tend
impact on their income level.
before expanding the geographical spread of to be class-related activities.
the markets in which goods are sold. The main socio-economic groups used in the
3. Psychographic factors
UK are

A – upper middle class – higher managerial, These are to do with differences between
2. Demographic differences: people’s lifestyles, personalities, values,
administrative, and professional, for example
directors of big companies and successful and attitudes.
These are the most commonly used basis for
segmentation. lawyers. Many of these can be influenced by an
B – middle class − managerial staff, including individual’s social class too – so the
Demography is the study of population data
professions such as teachers middle class tend to have a very different
and trends, and demographic factors – such as
attitude towards private education than
age, gender, family size and ethnic C1 – lower middle class − supervisory, clerical, most of the working class, which is why
background – can all be used to separate or junior managerial some are prepared to spend large
markets.
amounts of money on it for their Lifestyle is a very broad term that often One would expect an aggressive person to
children. relates to activities undertaken, interests have different purchasing patterns from a
and opinions rather than personality. The timid person.
Attitudes towards ethical business
huge increase in TV channels and TV
practices are very strong among some Many firms, particularly in their advertising,
viewing in many countries has
consumers – hence the growth of societal attempt to appeal to consumers who share
contributed to the growth of ‘TV meals’,
marketing towards these groups. certain personality characteristics. We see,
which are pre-prepared meals ready to
Similarly, the increasing interest in therefore, products such as activity holidays
eat without missing any of your favourite
organic foods shows how common values aimed at outgoing people who wish to pursue
programmes. Personality characteristics
and opinions held by consumers can also relatively dangerous sports, for example
are difficult to measure or define, but
be used to group them in a useful way. bungee jumping or white-water rafting.
they do influence consumption decisions.