The Nature of Marketing(17)

17.1 Role of Marketing

• Marketing Objectives: Goals set for the marketing department to aid in achieving business objectives.

• Many view marketing as simply advertising and selling, but it's more comprehensive.

• Chartered Institute of Marketing Definition: Marketing is the management process responsible for identifying, anticipating, and satisfying customer requirements profitably.

• Marketing: Task of identifying and meeting customer needs profitably by providing the right product at the right price, place, and time.

• Contemporary Marketing Wired (Boone and Kurtz): Marketing involves the conception, pricing, promotion, and distribution of goods and services to create and maintain relationships that satisfy individual and organizational objectives.

• Marketing Functions:

  • Market research.

  • Product design and packaging.

  • Pricing, advertising, and distribution.

  • Customer service.

• Marketing links the business to the customer, identifying customer wants and needs in a target market.

• Marketing managers aim to satisfy customer needs more effectively than competitors through:

  • Market research to analyze customer needs.

  • Strategic decisions on product design, pricing, promotion, and distribution.

Marketing Objectives and Corporate Objectives

• Marketing objectives should include measurable increases in:

  • Market share to gain market leadership.

  • Total sales (value or volume).

  • Average items purchased per visit.

  • Shopping frequency by loyal customers.

  • Customer return percentage (loyalty).

  • New customers.

  • Customer satisfaction.

  • Brand identity.

• Effective marketing objectives:

  • Link to corporate objectives.

  • Are determined by senior management.

  • Are realistic, motivating, achievable, measurable, and clearly communicated.

• Importance of Marketing Objectives:

  • Provide focused direction for the marketing department.

  • Help achieve overall corporate objectives.

  • Enable measurement of business success.

  • Can be broken down into regional and product sales targets.

  • Form the basis of marketing strategy.

• Marketing Strategies Examples:

  • Penetrating existing markets more fully.

  • Entering new markets in other countries.

  • Developing new or updating existing products.

• Corporate Objectives: Well-defined and realistic goals for the whole company.

• Marketing Strategy: A plan detailing how a business intends to achieve its marketing objectives and create a competitive advantage.

Coordination of Marketing with Other Departments

• Marketing objectives and decisions must align with other departments.

• Finance:

  • Uses sales forecasts to construct cash flow forecasts and operational budgets.

  • Ensures capital is available for the marketing budget and promotional expenditure.

• Human Resources:

  • Uses sales forecasts for workforce planning, including additional sales and production workers.

  • Ensures recruitment and selection of qualified workers.

  • Provides sufficient workers to meet planned production increases.

• Operations:

  • Uses market research data for new product development.

  • Uses sales forecasts to plan capacity, machine purchases, and raw material inventories for higher output levels.

17.2 Demand and Supply

• Marketing managers need to understand how markets operate to determine prices profitably.

• Profitability occurs when production cost is below market price.

• In free markets, the equilibrium price is determined when demand equals supply.

• Demand and supply analysis explains this relationship.

• Equilibrium Price: The price level at which demand equals supply.

• Demand: The quantity of a product consumers are willing and able to buy at a given price in a specific time period.

• Supply: The quantity of a product firms are prepared to supply at a given price in a specific time period.

Demand

• Demand varies with price; quantity bought increases with a price fall and decreases with a price increase for normal goods.

  • This relationship is shown by a typical demand curve.

• Factors other than price that affect demand:

  • Consumer incomes.

  • Prices of substitute and complementary goods.

  • Population size and structure.

  • Fashion and taste.

  • Advertising and promotion spending.

• These factors, called determinants of demand, can shift the demand curve.

Supply

• Supply varies with price; businesses supply more at higher prices and less at lower prices.

• This relationship is shown by a typical supply curve.

• Factors other than price that affect supply:

  • Costs of production (e.g., labor costs).

  • Government taxes.

  • Government subsidies.

  • Weather conditions and natural factors.

  • Advances in technology.

• These factors, called determinants of supply, can shift the supply curve.

Determining the Equilibrium Price

• Equilibrium price is where demand equals supply, shown graphically by the intersection of demand and supply curves.

• If the price is above equilibrium, there's excess supply, leading suppliers to lower prices.

• If the price is below equilibrium, there's excess demand, leading suppliers to raise prices.

17.3 Markets

• Markets are where buyers and sellers meet to engage in exchange.

• The term 'market' also refers to the group of customers interested in a product and who have the resources to purchase it.

• This understanding can be broken down into:

  • The potential market: total population interested in the product.

  • The target market: the market segment a business directs its product towards.

• Market Segment: Subgroup of a whole market where consumers have similar characteristics.

Local, National, and International Markets

• Businesses can sell in local, national, or international markets.

• Local markets are confined to local areas (e.g., laundries, florists).

• National markets involve selling to customers throughout the country (e.g., banks, supermarket chains).

• International markets offer the greatest sales potential (multinationals operating in many countries).

• Expanding into foreign markets requires adapting to different tastes, cultures, and laws.

Industrial and Consumer Markets

• Industrial markets (B2B) involve products bought by businesses (e.g., machines, trucks, office supplies).

• Consumer markets (B2C) involve products bought by final users (e.g., mobile phones, holidays, clothing).

• Industrial Market: Selling products by businesses to other businesses, also known as B2B.

• Consumer Market: Selling products by businesses to the final end-user, also known as B2C.

Customer (or Market) Orientation and Product Orientation

• Customer orientation bases product decisions on consumer demand established by market research.

• Product orientation focuses on making products that can be made and then trying to sell them.

• Customer (or Market) Orientation: Outward-looking approach basing product decisions on consumer demand.

• Product Orientation: Inward-looking approach focusing on making products that can be made and then trying to sell them.

• Customer orientation requires market research and analysis.

• Benefits of Customer Orientation:

  • Reduced risk of new product failures.

  • Longer product lifespan and more profitability.

  • Continuous feedback allows adaptation to changing tastes.

• Traditional product-oriented businesses are disappearing, but product-led marketing still exists.

• Product-oriented businesses invent and develop products, believing they will find consumers.

• They focus on efficiently producing high-quality goods, valuing quality above market fashion.

• Such firms exist in areas where quality or safety is crucial (e.g., medical equipment, crash helmets).

Evaluating the Difference Between Customer and Product Orientation

• The trend is towards customer orientation, but it has limitations (e.g., expensive market research).

• Product orientation, with innovative products, can lead to high sales and profit without market research (e.g., Facebook).

• Market research is not a guarantee of business success; products may be late to market or fail to match competitors.

• Success depends on the whole marketing process.

Market Share and Market Growth

• Market Size: The total value (or quantity) of sales of all producers within a market in a given time period.

• Market size can be measured by:

  • Quantity of sales (units sold).

  • Value of products sold (revenue).

• Importance of Market Size:

  • Allows assessment of market worth.

  • Enables calculation of market share.

  • Identifies market growth or decline.

Market Growth

• Market Growth: The percentage change in the total size of a market (volume or value) over a period of time.

• The rate of market growth depends on:

  • A country's rate of economic growth.

  • Changes in consumer incomes.

  • Development of new markets and products.

  • Changes in consumer tastes.

  • Technological change.

  • Market saturation.

Implications of a Change in Market Growth

• Increased market growth means sales rise faster than competitors, potentially leading to higher profits.

• Reduced market growth may lead to price reductions and lower profit per unit.

Market Share

• Market Share:

\text{market share} = \frac{\text{sales of the business in time period}}{\text{total market sales in time period}} \cdot 100

• Market share measures a business's marketing success against competitors.

  • The product with the highest market share is the brand leader.

• Brand Leader: The brand with the highest share of the market.

Implications of an Increase in Market Share

• Sales rising faster than competitors can lead to higher profits.

• Retailers will stock and promote best-selling brands.

• The business may reduce discount rates to retailers.

• Market leadership can be used in advertising.

Implications of a Fall in Market Share

• Sales are likely to fall unless there is rapid market growth.
  Retailers will be less keen to stock and promote the product.
  Larger discounts to retailers might need to be offered.
  Promotions can no longer claim brand leadership.

• Measuring market growth or share can be ambiguous; results vary by volume or value terms.

17.4 Consumer Marketing (B2C) and Industrial Marketing (B2B)

• Differences between B2C and B2B start with product types.

Classification of Products

• Consumer products are for individuals and households.

• Industrial products are for business use.

• Consumer Products: Goods or services sold to end-users.

• Industrial Products: Goods or services sold to businesses.

Industrial Products are often classified into:

• Materials and components (e.g., steel and electric motors).

• Capital items (e.g., equipment, machinery, industrial buildings).

• Services and supplies (e.g., power supplies, IT support).

• Key Differences between B2B and B2C:

  • Industrial products are more complex, requiring specialist sales employees.

  • Industrial buyers have more market power and information.

  • Industrial purchases involve long consideration and detailed analysis.

  • Traditional mass media advertising is not typically used in B2B markets; selling occurs via trade fairs or direct contact.

  • Products may need adaptation for specific business buyers.

Consumer products are often classified into:

• Convenience products (e.g., sweets, soft drinks).

• Shopping products (e.g., washing machines).

• Specialty products (e.g., cars, designer clothing).

17.5 Mass Marketing and Niche Marketing

• Two different marketing strategy approaches: mass marketing and niche marketing.

• Mass Marketing: Selling standardized products or ranges of products in the same way to the whole market.

• Niche Marketing: Identifying and exploiting a small segment of a larger market by developing differentiated products to suit that segment.

Mass Market

• Large market of customers willing to purchase a standardized product.

• High sales levels allow for high levels of production.

• Low price is often a key element in selling the product.

Advantages of Mass Marketing

• High sales of a standard product lead to lower average costs.

• Cost advantages lead to lower prices for consumers.

• Extensive publicity can lead to clear brand identity.

Disadvantages of Mass Marketing

• Lack of differentiated products does not appeal to many consumers.

• Focus on low prices does not help establish a premium brand image.

• Technological changes could lead to a fall in demand for the standardized product.

Niche Market

• Customers want to buy differentiated products.

• Size of a niche market is often small.

• Market research is often necessary to establish customers' special needs.

• Niche marketing focuses on a very small section of the total market.

Advantages of Niche Marketing

• Small firms survive and thrive in markets not served by larger firms.

• Unexploited niche has no competitors, offering the chance to sell at high prices and profit margins.

• Consumers will often pay more for an exclusive product.

• Niche market products and exclusive marketing create status and image.

Disadvantages of Niche Marketing

• Small market niches do not allow economies of scale.

• Limited scope for business growth.

• It can be a risky strategy.

• If selling is profitable then it will attract competitors.

17.6 Market Segmentation

• Market segmentation is customer-focused and consistent with customer orientation.

• Also known as differentiated marketing.

• Market Segmentation: The identification of different groups of customers with common needs within a market and the marketing of different products or services to those customer groups.

Examples of market segmentation include

• Manufacturers producing PCs for office and home use but laptop models for business people.

  • A cola company makes the standard cola drink for the mass market but Diet Coke for weight-conscious consumers.

• A car company producing a range of cars for different segments.

Methods of Market Segmentation

• Successful segmentation requires a clear analysis of the customer in its target market.

• The main characteristics of consumers in a consumer profile are income levels, age, gender, social class and region.

• Consumer Profile: A quantified picture of a business's consumers, showing data about their age groups, income levels, location, gender, and social class.

• Total markets may be segmented by geographic, demographic and psychographic.

Geographic differences

• Consumer tastes often vary between different geographic areas

Demographic differences

• Demography is the study of population data and trends, and demographic factors, such as age, gender, income, family size, social class and ethnic background, can all be used to segment the market.

• Income and social class are important demographic factors that socioeconomic groups and can be used to segment the market.

Psychographic factors

• These factors are to do with differences between people's lifestyles, personalities, values and attitudes.

Advantages of Market Segmentation

• Businesses can define their target market precisely.

• It enables identification of gaps in the market groups of consumer that are not currently being targeted.

• Differentiated marketing strategies can be focused on different target market.

Disadvantages of Market Segmentation

• Research and development and production costs might be high as a result of needing to make and market different product variations.

• Promotional costs might be high as different advertisements and promotions might be needed for different segments.

• Production and inventory holding costs will be higher than for producing and selling just one undifferentiated product

17.7 Customer Relationship Marketing

• Customer relationship marketing (CRM) is using marketing activities to build and establish good customer relationships so that the loyalty of existing customers can be maintained.

• Studies have shown that it can cost between four and ten times as much to gain new customers as it does to keep existing ones, CRM also makes sense for another reason.

• Developing effective long-term relationships can be achieved by:

  • Targeted marketing-giving each customer the products and services they have indicated, from records of past purchases, that they most need

  • Customer service and support-after-sales service and effective call centres are good examples of the support essential to building customer loyalty.

  • Communicate regularly with customers-to give frequent updates on new products/special offers/new features/new promotions and support services

  • Using social media social media sites to track and communicate with customers

Costs of CRM

• IT systems and software are needed and employees need to be trained to respond to customer feedback.

• Effective CRM campaigns may require the use of an external marketing consultancy at high cost.

• CRM needs an existing customer base to be established first before investing in CRM.

• It may be costly to respond to each customer's feedback, especially if it contains special requests or requirements

Benefits of CRM

• For businesses with an existing customer base, CRM has proved to be cost-effective.

• Higher sales from effective CRM nearly always exceed its cost.

• Loyal customers often recommend the business to friends and family, providing additional marketing benefit at no cost.

• It costs less per customer than trying to attract new customers.