Download B120: An Introduction to Business Studies

Book 4
An Introduction to Marketing in Business
Session 1
What is marketing?
1.1 The marketing concept:
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Marketing is a business philosophy of doing business which start with a focus on customer needs and
expectations.
The UK Chartered Institute of Marketing (CIM) defined marketing as: "Marketing is the management
process which identifies, anticipates, and supplies customer requirements efficiently and profitably".
In 2004, the American Marketing Association (AMA) defined the “Marketing” as: “Marketing is an
organizational function and a set of processes for creating, communicating and delivering value to
customers and for managing customer relationships in ways that benefit the organization and its
stakeholders.”
In 2007, the AMA revised the official definition of “Marketing” as: “Marketing is the activity,
conducted by organizations and individuals, that operates through a set of institutions and processes
for creating, communicating, delivering, and exchanging market offerings that have value for
customers, clients, marketers, and society at large.”
Marketing is the sum of all the activities involved in planning, pricing, promoting, distributing, and
selling of goods and services to satisfy consumers’ needs and wants.
Marketing seeks to: discover the needs and wants of prospective customers; and satisfy them.
Marketing Orientation:
Orientation
Product
Production
Key ideas
- “An approach to business that centres its activities on continually improving and
refining its products, assuming that customers simply want the best possible quality
for their money.”
- Assumes consumers will favor those products that offer the most quality,
performance, and features (Focus: Superior product).
- Low price, convenient distribution or convincing selling or advertising becomes
secondary considerations.
- People also want value for money.
- E.g. Luxury sports cars (such as Lamborghini).
- “An approach to business that centres its activities on producing goods more
efficiently and cost effectively, assuming that price is the only factor important to
customers.”
- Assumption: buyers will buy it if it’s cheap (Lower prices). In other words, buyers
are very price conscious and are prepared to accept merely adequate quality.
- Assumes consumers favor those products that are widely available and highly
affordable. (Focus: wide distribution ‘mass production’; high volume).
- Improve production, distribution, and focus on efficiency of internal operations
(How can we make it cheaper?).
- E.g. Ford’s Model T, Henry Ford offering the Model T car to the public “in any
color they wanted as long as it was black” is at the basis of mass marketing. The
early car industry, exemplified by Henry Ford’s Model T, provides the classic
example of production orientation. At this time production orientation, an industrywide philosophy, applied in many industries.
- One might argue that some elements of the production orientation appear in the
electronics industry where firms manufacture large quantities of low-cost.
Selling
- Modern e.g. such as McDonalds.
- “An approach to business that centres its activities on selling whatever it can
produce, assuming that customers are inherently reluctant to purchase.”
- Consumers will not buy enough of the firm’s products unless it undertakes a
Marketing
significant selling and promotion effort. Personal selling can overcome
consumers’ resistance and convince them to buy.
- Assumes that consumers will either buy or not enough of the organisations’
products unless the organization makes a substantial effort to stimulate the
customer’s interest in the product (Focus: needs of the seller).
- Creative advertising and selling will overcome consumers’ resistance and convince
them to buy (Company relies on sales talent).
- Makes more sense when new product’s benefits are hard to understood.
- Can be fall-back position of marketers without enough product development
- E.g. A popular example of a selling orientation is in life insurance where overt
selling is a common tactic, and encyclopedias.
- “An approach to business that centres its activities on satisfying the needs and
wants of its customers.”
- The three previous orientations take an 'inside-out' approach, starting with what the
business is good at doing (such as high-quality products, efficient production,
convincing selling) and what they think customers wants. But, in the marketing
orientation approach, takes an 'outside-in' approach. According to this approach,
business philosophy incorporating the marketing concept that emphasises first
determining the needs and wants of target markets and then trying to fulfill those
needs and expectations, and delivering the desired satisfactions more effectively and
efficiently than competitors. (Focus: different needs of buyers).
- Shift from seller’s to buyer’s market (consumer orientation).
- The consumer is king! Find a need and fill it.
- Marketing orientation thus shows an emphasis on market research.
- Amazon.com are an excellent example of a company with a marketing orientation.
What is the difference between marketing and selling?
“The difference between marketing and selling is more than semantic. Selling focuses on the needs
of the seller, marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert
the product into cash; marketing with the idea of satisfying the need of the customer”
OLD view of marketing:
Making a sale - “telling
and selling”
NEW view of marketing:
Satisfying
customer needs
Marketing myopia:
- Is focusing only on existing wants and losing sight of underlying consumer needs.
- Term coined by Theodore Levitt “Marketing Myopia” 1960, in his argument that executives in many
industries fail to recognise the broad scope of their businesses (According to Levitt, future growth is
endangered when executives lack a marketing orientation).
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- Theodore Levitt argues that "the history of every dead and dying 'growth' industry shows a selfdeceiving cycle of bountiful expansion and undetected decay." But, as he illustrates, memories are
short. The railroads serve as an example of an industry whose failure to grow is due to a limited
market view. Those behind the railroads are in trouble not because the need for passenger
transportation has declined or even because cars, airplanes, and other modes of transport have filled
that need. Rather, the industry is failing because those behind it assumed they were in the railroad
business rather than the transportation business. They were railroad oriented instead of
transportation oriented, product oriented instead of customer oriented. For companies to ensure
continued evolution, they must define their industries broadly to take advantage of growth
opportunities.
Table 1: Avoiding Marketing Myopia
Company
Xerox
Standard Oil
MCI
American Airlines
Merrill Lynch
Nintendo
Myopic Description (Product Definition)
Marketing-Oriented Description (Market Definition)
We make copying equipment.
We help improve office productivity.
We sell gasoline
“We are a telephone company.”
“We are in the airline business.”
“We are in the stock brokerage business.”
“We are in the video game business.”
We supply energy.
“We are a communications company.”
“We are in the transportation business.”
“We are in the financial services business.”
“We are in the entertainment business.”
Some marketing terms:
The term
Need
Want
Product
Customer
Consumer
Market
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The description
- State of deprivation of some satisfaction.
- A specific satisfier for a need, one may be hungry: that is, in need for food, and
therefore want a roast dinner.
- Desire for specific satisfier of need.
- The end result of the manufacturing process, to be offered to the marketplace to
satisfy a need or want.
- A person or business buying a product; also called a buyer.
- A person who actually uses the product or could potentially do so.
- A market consists of all the actual and potential buyers of the business's products.
- Markets are the set of actual and potential buyers of a product.
Need = Necessity, Requirement, Essential, Pre-requisite.
- A state of felt deprivation.
Want = Aspiration, Desire, Wish.
- The form shaped by a human need by culture and personality.
1.2: Market segmentation, targeting and positioning:
1- Market segmentation:
- Is grouping the customers according to the differences in their needs and behaviour. In other words,
market segmentation is the process of dividing a market into distinct groups of buyers with different
needs, characteristics, or behaviour who might require separate products of marketing programs. Divide
the overall market into homogeneous groups (segments), in which consumers have similar
characteristics.
Assumptions underline the logic behind segmentation (Why Segment?):
- All buyers in a market rarely have exactly the same needs and expectations (Meet consumer needs
more precisely).
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- It is possible to identify smaller subgroups of buyers which are more homogenous in terms of their
needs and expectations.
- It easier to satisfy the needs and expectations of these smaller, more homogenous subgroups of buyers
than those of the entire, heterogeneous market.
- Increase profits.
- Segment leadership.
- Retain customers.
- Focus marketing communications.
Criteria for effective segmentation:
The following conditions typically need to be satisfied:
1- Measurable: It must be possible to define who the members of the segment are and how many of them
there are.
2- Accessible: Marketers must have some way of communicating with the chosen segment. Targeted market
segment itself must be accessible through existing channels and media.
3- Substantial: A segmentation exercise must be cost effective to be justifiable. Therefore, the segment(s)
have to be large enough to be worth aiming for (provide the required return on investment). Each
segment should be large enough to be profitable; it should have good buying potential.
4- Congruent: Consumers within the segment have to react in a clearly different way from other groups of
consumers, so that they are distinguishable. What is important is different across segments.
5- Stable: The nature and membership of the segment must be reasonably constant. Stability is also required
for long-term customer satisfaction and loyalty.
Marketing segmentations:
Segmentation
Geographic
Demographic
Psychographic
Behavioural
Key ideas
- This type groups potential customers according to where they live (where they are located)
because different geographical locations vary with regard to climate (e.g. cold weather closing).
- Dividing a market into different geographical units, such as national, regional, local, city size,
density of population, and climate.
- This type groups people according to factors (demographic variables) such as age, gender, family
size/lifestyle, education and economy on the bases that people's needs often vary with their
demographic characteristics (what their characteristics are).
- Demographic segmentation, aport from its usefulness in predicting many types of buying
behaviour, is popular with marketers because it is relatively easy to do.
- Most popular because our needs, wants and usage rates depend on the demographics.
- Age and life cycle groups: kids (corn flakes), adults, magazines (teen stuff).
- This type groups potential customers according to their beliefs, attitudes and opinions, as well as
their psychological characteristics.
- Dividing a market into different groups based on social class, lifestyle, or personality
characteristics.
- This type groups people according to the way in which they use, and benefit from, the product
(why/how they use the product or service) (e.g. car drivers might be segmented into business and
private users).
- Dividing a market into groups based on purchase occasion, benefits sought, user status, usage
rate, loyalty status, readiness state, and attitude towards the product.
Limitations of market segmentation:
1- Segmentation findings only provide a composite profile of a group.
2- The great diversity of consumer lifestyles has made segmentation more difficult and costly in many
markets.
3- Segmentation research is not a remedy for other marketing or organizational deficiencies.
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4- Segmentation’s effectiveness is limited by management’s ability to implement strategic implications.
5- Too many market segments - over-segmentation.
2- Targeting segment:
- The process of evaluating each market segment’s attractiveness, and selecting one or more segments to
enter.
- Consists of a set of buyers who share common needs or characteristics that the company decides to
serve.
- Involves evaluating each market segment’s attractiveness and selecting one or more segments to enter.
Evaluate the segments identified in the segmentation process; select a market focus - target market(s).
At a generic level, there are three principles targeting strategies that marketers can pursue:
1- Niche (Concentrated) marketing: One product/plan to one group of consumers. The firm concentrates on
one group of consumers with a distinct set of needs and uses a tailor-made marketing plan to attract this
single group. One product to one market niche. Useful for smaller firms that do not have the
resources to serve all markets.
2- Segment (Differentiated) marketing: Appeals to two or more market segments with a different plan for
each. A market-coverage strategy in which a firm decides to target several market segments and designs
separate offers for each. Multiple segmentation the firm aims at two or more different market segments,
each of which has a distinct set of needs, and offers a tailor-made marketing plan for each segment (e.g.
Lexus versus Toyota). Two or more products to two or more groups.
3- Undifferentiated (Mass) marketing: One product, one plan to one basic market. A market-coverage
strategy in which a firm decides to ignore market segment differences and go after the whole market with
one offer (e.g. the market for petrol remains largely Undifferentiated). Mass marketing, the firm tries to
reach a wide range of consumers with one basic marketing plan. These consumers are assumed to have a
desire for similar goods and service attributes. One product for everybody.
Undifferentiated marketing
Company
Marketing Mix
Market
Differentiated marketing
Company Marketing Mix 1
Segment 1
Company Marketing Mix 2
Segment 2
Segment 3
Company Marketing Mix 3
(Niche) Concentrated marketing
Segment 1
Segment 2
Segment 3
Company
Marketing Mix
Figure 2: Targeting segment strategies
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3- Positioning the business's offerings:
- Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing
products in the minds of target consumers. How the target market perceives the product offering in
comparison to competitors’ brands.
- In the minds of target consumers,
- Formulating competitive positioning for a product, and creating a detailed marketing mix.
Steps in market segmentation, targeting and positioning:
Market Segmentation:
 Identify bases for segmenting the market.
 Develop segment profiles.
Target Marketing:
 Develop measure of segment attractiveness.
 Select target segments.
Market Positioning:
 Develop positioning for target segments.
 Develop a marketing mix for each segment.
Market segmentation
- Identify bases for segmenting the market.
- Develop segment profiles
Target marketing
- Develop measure of segment attractiveness
- Select target segments.
Market positioning
- Develop positioning (differentiation) for target segments.
- Develop a marketing mix for each segment.
Figure 1: Market segmentation, targeting and positioning
De-marketing:
Marketing to reduce demand temporarily or permanently; the aim is not to destroy demand but to
reduce or shift it.
Efforts aimed at discouraging (not destroying) the demand for a product which (1) a firm cannot
supply in large-enough quantities, or (2) does not want to supply in a certain region where the high costs of
distribution or promotion allow only a too little profit margin. Common de-marketing strategies include
higher prices, scaled-down advertising, and product redesign.
Ethical issues in market segmentation:
Marketing ethics: principles and standards that define acceptable marketing conduct as determined
by various stakeholders. Certain segmentation and targeting practices can result in ethical problems,
particularly where vulnerable consumers are targeted. These include children, who are less able to evaluate
marketing claims, some older consumers who find it difficult to deal with the fast pace of modern economic
life. It is thought that producers have a particular duty of care toward these vulnerable consumers, who may
be less able to defend their own rights and interests.
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1.3: Marketing information:
Marketing Information System (MIS): An MIS consists of people, equipment, and procedures to
gather, sort, analyze, and distribute needed, timely, and accurate information to marketing decision makers.
Sources of Marketing Information:
 Internal records (databases): marketing information obtained from data sources within the business.
Such as sales records, complaints records, information from loyalty schemes.
- Internal data is gathered via customer databases, financial records, and operations reports.
- Advantages of internal data include quick/easy access to information.
- Disadvantages stem from the incompleteness or inappropriateness of data to a particular situation.
 Marketing intelligence: Systematic collection and analysis of publicly available information about
competitors and developments in the marketing environment. Everyday information from internal
and external sources about developments in the marketing environment that helps managers to
prepare and adjust marketing plans and short-run tactics (Internal such as: Gathered by company
executives, and other employees - External such as: annual reports, trade magazines, press releases,
and advertisements).
- Competitive intelligence gathering activities have grown dramatically.
- Many sources of competitive information exist.
 Marketing Research: Systematic design, collection, analysis, and reporting of data relevant to a
specific marketing situation facing an organisation.
Market Research:
The most formal and specific way of gathering marketing information is market research. It is a
process used to identify and define marketing opportunities and problems, to monitor and evaluate marketing
actions and performance, and to communicate research findings to management.
Example: When McDonalds decided to add salads to its menu, its planners needed to research customers’
preferences for types of vegetables and dressings.
The Best Marketing Research Website:
http://www.quirks.com
http://www.esomar.org/
http://www.knowthis.com/
http://www.harcourtcollege.com/marketing/students/research.htm
1.4: Factors driving relationship marketing:
Relationship marketing concerns attracting, developing, and retaining customer relationships. The increased
attention to relationship marketing since the 1990s has been driven by number of factors:
 More intense, often global competition has meant that businesses have needed methods of
differentiating themselves from their competitors in ways that go beyond the traditional marketing mix.
 Many markets have become fragmented into smaller and smaller segments and thus traditional market
segmentation has reached its limited.
 Product quality has become generally high and business have found increasingly difficult to compete on
superior quality alone as most competitors are able to offer similar quality. This is forcing businesses to
seek competitive advantage in other ways.
 Customers have become more demanding and are not as brand loyal.
Thanks
Prepared by
Dr. Helal Afify
17/4/2009
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