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Marketing Management

Fifteenth Edition

Chapter 1

Defining Marketing for the New Realities

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Learning Objectives

1.1 Why is marketing important?

1.2 What is the scope of marketing?

1.3 What are some core marketing concepts?

1.4 What forces are defining the new marketing realities?

1.5 What new capabilities have these forces given consumers and companies?

1.6 What does a holistic marketing philosophy include?

1.7 What tasks are necessary for successful marketing management?

The Value of Marketing

Financial success often depends on marketing ability

Successful marketing builds demand for products and services, which, in turn, creates jobs

Marketing builds strong brands and a loyal customer base, intangible assets that contribute heavily to the value of a firm

There is little margin for error in marketing. Just a short time ago, MySpace, Yahoo!, Blockbuster, and Barnes & Noble were admired leaders in their industries. What a difference a few years can make! Each of these brands has been completely overtaken by an upstart challenger—Facebook, Google, Netflix, and Amazon—and they now struggle, sometimes unsuccessfully, for mere survival.

The Scope of Marketing

Marketing is about identifying and meeting human and social needs

AMA’s formal definition: Marketing is 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

One of the shortest good definitions of marketing is “meeting needs profitably.”

Marketing Management

The art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value

Marketing management takes place when at least one party to a potential exchange thinks about the means of achieving desired responses from other parties.

What is Marketed? (1 of 2)

Goods

Services

Events

Experiences

Persons

Marketers market 10 main types of entities: goods, services, events, experiences, persons, places, properties, organizations, information, and ideas.

What is Marketed? (2 of 2)

Places

Properties

Organizations

Information

Ideas

Marketers market 10 main types of entities: goods, services, events, experiences, persons, places, properties, organizations, information, and ideas.

Who Markets?

A marketer is someone who seeks a response—attention, a purchase, a vote, a donation—from another party, called the prospect

If two parties are seeking to sell something to each other, we call them both marketers.

8 Demand States

Negative

Nonexistent

Latent

Declining

Irregular

Unwholesome

Full

Overfull

Negative demand—Consumers dislike the product and may even pay to avoid it.

Nonexistent demand—Consumers may be unaware of or uninterested in the product.

Latent demand—Consumers may share a strong need that cannot be satisfied by an existing product.

Declining demand—Consumers begin to buy the product less frequently or not at all.

Irregular demand—Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis.

Full demand—Consumers are adequately buying all products put into the marketplace.

Overfull demand—More consumers would like to buy the product than can be satisfied.

Unwholesome demand—Consumers may be attracted to products that have undesirable social consequences.

Figure 1.1 Structure of Flows in a Modern Exchange Economy

Five basic markets and their connecting flows are shown in Figure 1.1. Manufacturers go to resource markets (raw material markets, labor markets, money markets), buy resources and turn them into goods and services, and sell finished products to intermediaries, who sell them to consumers. Consumers sell their labor and receive money with which they pay for goods and services. The government collects tax revenues to buy goods from resource, manufacturer, and intermediary markets and uses these goods and services to provide public services. Each nation’s economy, and the global economy, consists of interacting sets of markets linked through exchange processes.

Figure 1.2 A Simple Marketing System

Figure 1.2 shows how sellers and buyers are connected by four flows. Sellers send goods and services and communications such as ads and direct mail to the market; in return they receive money and information such as customer attitudes and sales data. The inner loop shows an exchange of money for goods and services; the outer loop shows an exchange of information.

Key Customer Markets

Consumer markets

Business markets

Global markets

Nonprofit & governmental markets

Consumer Markets Companies selling mass consumer goods and services such as juices, cosmetics, athletic shoes, and air travel establish a strong brand image by developing a superior product or service, ensuring its availability, and backing it with engaging communications and reliable performance.

Business Markets Companies selling business goods and services often face well-informed professional buyers skilled at evaluating competitive offerings. Advertising and Web sites can play a role, but the sales force, the price, and the seller’s reputation may play a greater one.

Global Markets Companies in the global marketplace navigate cultural, language, legal, and political differences while deciding which countries to enter, how to enter each (as exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer), how to adapt product and service features to each country, how to set prices, and how to communicate in different cultures.

Nonprofit and Governmental Markets Companies selling to nonprofit organizations with limited purchasing power such as churches, universities, charitable organizations, and government agencies need to price carefully. Much government purchasing requires bids; buyers often focus on practical solutions and favor the lowest bid, other things equal.

Core Marketing Concepts (1 of 10)

Needs: the basic human requirements such as for air, food, water, clothing, and shelter

Wants: specific objects that might satisfy the need

Demands: wants for specific products backed by an ability to pay

A U.S. consumer needs food but may want a Chicago-style “deep-dish” pizza and a craft beer. A person in Afghanistan needs food but may want rice, lamb, and carrots. Our wants are shaped by our society. Many people want a Mercedes; only a few can buy one. Companies must measure not only how many people want their product, but also how many are willing and able to buy it.

Types of Needs

Stated

Real

Unstated

Delight

Secret

Stated needs (The customer wants an inexpensive car.)

Real needs (The customer wants a car whose operating cost, not initial price, is low.)

Unstated needs (The customer expects good service from the dealer.)

Delight needs (The customer would like the dealer to include an onboard GPS system.)

Secret needs (The customer wants friends to see him or her as a savvy consumer.)

Core Marketing Concepts (2 of 10)

Target markets

Positioning

Segmentation

Not everyone likes the same cereal, restaurant, university, or movie. Marketers therefore identify distinct segments of buyers by identifying demographic, psychographic, and behavioral differences between them. They then decide which segment(s) present the greatest opportunities. For each of these target markets, the firm develops a market offering that it positions in target buyers’ minds as delivering some key benefit(s). Volvo develops its cars for the buyer to whom safety is a major concern, positioning them as the safest a customer can buy. Porsche targets buyers who seek pleasure and excitement in driving and want to make a statement about their wheels.

Core Marketing Concepts (3 of 10)

Value proposition: a set of benefits that satisfy those needs

Offerings: a combination of products, services, information, and experiences

Brands: an offering from a known source

A brand name such as Apple carries many different kinds of associations in people’s minds that make up its image: creative, innovative, easy-to-use, fun, cool, iPod, iPhone, and iPad to name just a few. All companies strive to build a brand image with as many strong, favorable, and unique brand associations as possible.

Core Marketing Concepts (4 of 10)

Marketing channels

Communication

Distribution

Service

To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages from target buyers and include newspapers, magazines, radio, television, mail, telephone, smart phone, billboards, posters, fliers, CDs, audiotapes, and the Internet. Distribution channels help display, sell, or deliver the physical product or service(s) to the buyer or user. To carry out transactions with potential buyers, the marketer also uses service channels that include warehouses, transportation companies, banks, and insurance companies.

Core Marketing Concepts (5 of 10)

Paid media: TV, magazine and display ads, paid search, and sponsorships

Owned media: a company or brand brochure, web site, blog, facebook page, or twitter account

Earned media: word of mouth, buzz, or viral marketing

Paid media allow marketers to show their ad or brand for a fee. Owned media are communication channels marketers actually own. Earned media are streams in which consumers, the press, or other outsiders voluntarily communicate something about the brand.

Core Marketing Concepts (6 of 10)

Impressions: occur when consumers view a communication

Engagement: the extent of a customer’s attention and active involvement with a communication

Marketers now think of three “screens” or means to reach consumers: TV, Internet, and mobile.

Core Marketing Concepts (7 of 10)

Value: a combination of quality, service, and price (qsp: the customer value triad)

Satisfaction: a person’s judgment of a product’s perceived performance in relationship to expectations

The buyer chooses the offerings he or she perceives to deliver the most value, the sum of the tangible and intangible benefits and costs. If performance falls short of expectations, the customer is disappointed. If it matches expectations, the customer is satisfied. If it exceeds them, the customer is delighted.

Core Marketing Concepts (8 of 10)

Supply chain: a channel stretching from raw materials to components to finished products carried to final buyers

Figure 1.3 The Supply Chain for Coffee

Each company in the chain captures only a certain percentage of the total value generated by the supply chain’s value delivery system. When a company acquires competitors or expands upstream or downstream, its aim is to capture a higher percentage of supply chain value.

Core Marketing Concepts (9 of 10)

Competition: all the actual and potential rival offerings and substitutes a buyer might consider

An automobile manufacturer can buy steel from U.S. Steel in the United States, from a foreign firm in Japan or Korea, or from a mini-mill such as Nucor at a cost savings, or it can buy aluminum parts from Alcoa to reduce the car’s weight or engineered plastics from Saudi Basic Industries Corporation (SABIC) instead of steel.

Core Marketing Concepts (10 of 10)

Marketing environment

Task environment

Broad environment

Marketers must pay close attention to the trends and developments in these and adjust their marketing strategies as needed. New opportunities are constantly emerging that await the right marketing savvy and ingenuity.

Task environment: the actors engaged in producing, distributing, and promoting the offering

Broad environment: demographic environment, economic environment, social-cultural environment, natural environment, technological environment, and political-legal environment

The New Marketing Realities

Technology

Globalization

Social responsibility

Technology: Massive amounts of information and data about almost everything are now available to consumers and marketers. The old credo “information is power” is giving way to the new idea that “sharing information is power.” Even traditional marketing activities are profoundly affected by technology.

Globalization: The world has become a smaller place. Globalization has made countries increasingly multicultural and changes innovation and product development as companies take ideas and lessons from one country and apply them to another.

Social responsibility: The private sector is taking some responsibility for improving living conditions, and firms all over the world have elevated the role of corporate social responsibility. Because marketing’s effects extend to society as a whole, marketers must consider the ethical, environmental, legal, and social context of their activities. Social responsibility is a way to differentiate from competitors, build consumer preference, and achieve notable sales and profit gains.

A Dramatically Changed Marketplace (1 of 6)

New consumer capabilities

Can use the internet as a powerful information and purchasing aid

Can search, communicate, and purchase on the move

Can tap into social media to share opinions and express loyalty

Social media is an explosive worldwide phenomenon. Empowerment is not just about technology, though. Consumers are willing to move to another brand if they think they are not being treated right or do not like what they are seeing. Expanded information, communication, and mobility enable customers to make better choices and share their preferences and opinions with others around the world.

A Dramatically Changed Marketplace (2 of 6)

New consumer capabilities

Can actively interact with companies

Can reject marketing they find inappropriate

A Dramatically Changed Marketplace (3 of 6)

New company capabilities

Can use the internet as a powerful information and sales channel, including for individually differentiated goods

Can collect fuller and richer information about markets, customers, prospects, and competitors

Can reach customers quickly and efficiently via social media and mobile marketing, sending targeted ads, coupons, and information

At the same time, globalization, social responsibility, and technology have also generated a new set of capabilities to help companies cope and respond.

A Dramatically Changed Marketplace (4 of 6)

New company capabilities

Can improve purchasing, recruiting, training, and internal and external communications

Can improve cost efficiency

At the same time, globalization, social responsibility, and technology have also generated a new set of capabilities to help companies cope and respond.

A Dramatically Changed Marketplace (5 of 6)

Changing channels

Retail transformation

Disintermediation

One of the reasons consumers have more choices is that channels of distribution have changed as a result of retail transformation and disintermediation. Entrepreneurial retailers are building entertainment into their stores with coffee bars, demonstrations, and performances, marketing an “experience” rather than a product assortment. Traditional companies engaged in reintermediation and became “brick-and-click” retailers, adding online services to their offerings. Some with plentiful resources and established brand names became stronger contenders than pure-click firms.

A Dramatically Changed Marketplace (6 of 6)

Heightened competition

Private brands

Mega-brands

Deregulation

Privatization

While globalization has created intense competition among domestic and foreign brands, the rise of private labels and mega-brands and a trend toward deregulation and privatization have also increased competition.

Marketing in Practice

Marketing balance

Marketing accountability

Marketing in the organization

Companies must always move forward, innovating products and services, staying in touch with customer needs, and seeking new advantages rather than relying on past strengths. Moving forward especially means incorporating the Internet and digital efforts into marketing plans.

Marketers are increasingly asked to justify their investments in financial and profitability terms, as well as in terms of building the brand and growing the customer base. They are thus applying more metrics—brand equity, customer lifetime value, return on marketing investment (ROMI)—to understand and measure their marketing and business performance and a broader variety of financial measures to assess the direct and indirect value their marketing efforts create.

Increasingly, marketing is not done only by the marketing department; every employee has an impact

on the customer. To create a strong marketing organization, marketers must think like executives in other departments, and executives in other departments must think more like marketers.

Company Orientation Toward the Marketplace

Production

Product

Selling

Marketing

The production concept is one of the oldest concepts in business. It 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.

The product concept proposes that consumers favor products offering the most quality, performance, or innovative features.

The selling concept holds that consumers and businesses, if left alone, won’t buy enough of the organization’s products. It is practiced most aggressively with unsought goods—goods buyers don’t normally think of buying such as insurance and cemetery plots—and when firms with overcapacity aim to sell what they make, rather than make what the market wants.

The marketing concept emerged in the mid-1950s as a customer-centered, sense-and respond philosophy. The job is to find not the right customers for your products, but the right products for your customers.

Figure 1.4 Holistic Marketing Dimensions

The holistic marketing concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies.

Holistic marketing acknowledges that everything matters in marketing—and that a broad, integrated perspective is often necessary. Figure 1.4 provides a schematic overview of four broad components characterizing holistic marketing: relationship marketing, integrated marketing, internal marketing, and performance marketing.

Relationship Marketing

Customers

Employees

Marketing partners

Financial community

Relationship marketing aims to build mutually satisfying long-term relationships with key constituents in order to earn and retain their business.

Four key constituents for relationship marketing are customers, employees, marketing partners (channels, suppliers, distributors, dealers, agencies), and members of the financial community (shareholders, investors, analysts).

Marketers must create prosperity among all these constituents and balance the returns to all key stakeholders. To develop strong relationships with them requires understanding their capabilities and resources, needs, goals, and desires.

The ultimate outcome of relationship marketing is a unique company asset called a marketing network, consisting of the company and its supporting stakeholders—customers, employees, suppliers, distributors, retailers, and others—with whom it has built mutually profitable business relationships. The operating principle is simple: build an effective network of relationships with key stakeholders, and profits will follow.

Integrated Marketing

Devise marketing activities and programs that create, communicate, and deliver value such that “the whole is greater than the sum of its parts.”

Two key themes of integrated marketing are that (1) many different marketing activities can create, communicate, and deliver value and (2) marketers should design and implement any one marketing activity with all other activities in mind.

Internal Marketing

The task of hiring, training, and motivating able employees who want to serve customers well

Marketing succeeds only when all departments work together to achieve customer goals (Table 1.4 – see slides 37-39): when engineering designs the right products, finance furnishes the right amount of funding, purchasing buys the right materials, production makes the right products in the right time horizon, and accounting measures profitability in the right ways. Internal marketing requires vertical alignment with senior management and horizontal alignment with other departments so everyone understands, appreciates, and supports the marketing effort.

Assessing Which Company Departments Are Customer-Minded (1 of 3)

Table 1.4 Assessing Which Company Departments Are Customer-Minded

R&D

They spend time meeting customers and listening to their problems. They welcome the involvement of marketing, manufacturing, and other departments to each new project. They benchmark competitors’ products and seek “best of class” solutions. They solicit customer reactions and suggestions as the project progresses. They continuously improve and refine the product on the basis of market feedback.

Purchasing

They proactively search for the best suppliers. They build long-term relationships with fewer but more reliable, high-quality suppliers. They don’t compromise quality for price savings.

Manufacturing

They invite customers to visit and tour their plants. They visit customer plants. They willingly work overtime to meet promised delivery schedules. They continuously search for ways to produce goods faster and/or at lower cost. They continuously improve product quality, aiming for zero defects. They meet customer requirements for “customization” where possible.

Assessing Which Company Departments Are Customer-Minded (2 of 3)

[Table 1.4 continued]

Marketing

They study customer needs and wants in well-defined market segments. They allocate marketing effort in relation to the long-run profit potential of the targeted segments. They develop winning offers for each target segment. They measure company image and customer satisfaction on a continuous basis. They continuously gather and evaluate ideas for new products, product improvements, and services. They urge all company departments and employees to be customer centered.

Sales

They have specialized knowledge of the customer’s industry. They strive to give the customer “the best solution.” They make only promises that they can keep. They feed back customers’ needs and ideas to those in charge of product development. They serve the same customers for a long period of time.

Logistics

They set a high standard for service delivery time and meet this standard consistently. They operate a knowledgeable and friendly customer service department that can answer questions, handle complaints, and resolve problems in a satisfactory and timely manner.

Assessing Which Company Departments Are Customer-Minded (3 of 3)

[Table 1.4 continued]

Accounting

They prepare periodic “profitability” reports by product, market segment, geographic areas (regions, sales territories), order sizes, channels, and individual customers. They prepare invoices tailored to customer needs and answer customer queries courteously and quickly.

Finance

They understand and support marketing expenditures (e.g., image advertising) that produce long-term customer preference and loyalty. They tailor the financial package to the customer’s financial requirements. They make quick decisions on customer creditworthiness.

Public Relations

They send out favorable news about the company and “damage control” unfavorable news. They act as an internal customer and public advocate for better company policies and practices.

Performance Marketing

Financial accountability

Environmental impact

Social impact

Performance marketing requires understanding the financial and nonfinancial returns to business and society from marketing activities and programs.

When they founded Ben & Jerry’s, Ben Cohen and Jerry Greenfield embraced the performance marketing concept by dividing the traditional financial bottom line into a “double bottom line” that also measured the environmental impact of their products and processes. That later expanded into a “triple bottom line” to represent the social impacts, negative and positive, of the firm’s entire range of business activities.

Figure 1.5 Marketing Mix Components (4 Ps)

Many years ago, McCarthy classified various marketing activities into marketing-mix tools of four broad kinds, which he called the four Ps of marketing: product, price, place, and promotion. The marketing variables under each P are shown in Figure 1.5.

Modern Marketing Management

People

Processes

Programs

Performance

The holistic marketing concept encompasses modern marketing realities: people, processes, programs, and performance, as in Fig. 1.6 – see slide 43.

People reflects, in part, internal marketing and the fact that employees are critical to marketing success. Marketing will only be as good as the people inside the organization. Processes reflects all the creativity, discipline, and structure brought to marketing management. Programs reflects all the firm’s consumer-directed activities. We define performance as in holistic marketing, to capture the range of possible outcome measures that have financial and nonfinancial implications (profitability as well as brand and customer equity) and implications beyond the company itself (social responsibility, legal, ethical, and the environment).

Figure 1.6 The Evolution of Marketing Management

Marketing Management Tasks (1 of 2)

Developing market strategies and plans

Capturing marketing insights

Connecting with customers

Building strong brands

With the holistic marketing philosophy as a backdrop, we can identify a specific set of tasks that make up successful marketing management and marketing leadership.

Marketing Management Tasks (2 of 2)

Creating value

Delivering value

Communicating value

Creating successful long-term growth

With the holistic marketing philosophy as a backdrop, we can identify a specific set of tasks that make up successful marketing management and marketing leadership.