Introduction to Marketing

Defining Marketing

Marketing is the creation, communication, and delivery of value, as well as the management of customer relationships for a lifetime.

Learning Objectives

Define marketing, its role within a firm, and the competitive advantages it offers.

Key Takeaways

Key Points

  • The set of engagements necessary for successful marketing management includes capturing marketing insights, connecting with customers, building strong brands, shaping market offerings, delivering and communicating value, creating long-term growth, and developing marketing strategies and plans.
  • Marketing is one of several functional areas in a business that must be guided by a core company philosophy, while focusing on the exchanges that take place in external markets to maximize performance.
  • The specific role of marketing is to provide assistance in identifying, satisfying, and retaining customers. If marketing consistently highlights a company’s competitive advantage over other alternatives, consumers may become loyal to the point of selecting the brand by default.

Key Terms

  • competitive advantage: Something that places a company or a person above the competition.

Defining Marketing

Marketing is the act of facilitating the exchange of a given commodity for goods, services, and/or money to deliver maximum value to the consumer. From a societal point of view, marketing is the link between a society’s material requirements and its economic patterns of response. Marketing satisfies these needs and wants through both the exchange processes and building long-term relationships.

Marketing can be viewed as an organizational function and a set of processes for creating, delivering, and communicating value to customers, and managing customer relationships in ways that benefit the organization and its shareholders. Marketing is the science of choosing target markets through market analysis and market segmentation, as well as understanding consumer buying behavior and providing superior customer value.

The set of engagements necessary for successful marketing management include capturing marketing insights, connecting with customers, building strong brands, shaping the market offerings, delivering and communicating value, creating long-term growth, and developing marketing strategies and plans.

The Role of Marketing within A Firm

The official American Marketing Association definition published in July 2013 defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. ”

While this definition can help us better comprehend the parameters of marketing, it does not provide a full picture. Definitions of marketing cannot flesh out specific transactions and other relationships among these elements. The following propositions are offered to supplement this definition:

  1. The overall directive for any organization is the mission statement or an equivalent expression of organizational goals. It reflects the inherent business philosophy of the organization.
  2. Every organization has a set of functional areas (e.g., accounting, production, finance, data processing, marketing) in which tasks pertinent to the success of the organization are performed. These functional areas must be managed if they are to achieve maximum performance.
  3. Every functional area is guided by a philosophy (derived from the mission statement or company goals) that governs its approach toward its ultimate set of tasks.
  4. Marketing differs from the other functional areas, because its primary concern is exchanges that take place in markets outside the organization.
  5. Marketing is most successful when the philosophy, tasks, and implementation of available technology are coordinated and complementary to the rest of the business.

Marketing is often a critical part of a firm’s success, but its importance must be kept in perspective. For many large manufacturers such as Proctor & Gamble, Microsoft, Toyota, and Sanyo, marketing represents a major expenditure, as these businesses depend on the effectiveness of their marketing effort. Conversely, for regulated industries (such as utilities, social services, medical care, or small businesses providing a one-of-a-kind product ) marketing may be little more than a few informative brochures.

A framework that shows how to categorize metrics - activity-based, operational, outcome-based, leading indicators, and predictive.

Marketing Metrics Continuum: The Marketing Metrics Continuum provides a framework to categorize metrics from the tactical to the strategic.

Marketing as a Source of Competitive Advantage

The specific role of marketing is to provide assistance in identifying, satisfying, and retaining customers. Noted Harvard Business Professor Theodore Levitt claimed the purpose of all business is to “find and keep customers. ”

The only way to achieve this objective is to create a competitive advantage. That is, you must convince buyers (potential customers) that what you have to offer satisfies their particular need or want. Hopefully, you will be able to provide this advantage consistently, so eventually the customer will purchase your product without considering alternatives. This loyal behavior is exhibited by people who drive only Fords, brush their teeth only with Crest, and buy only Dell computers.

Creating this blind commitment – without consideration of alternatives – to a particular brand, store, person, or idea is the dream of all businesses. It is unlikely to occur, however, without the support of an effective marketing program.

Customer Wants and Needs

Consumer wants and needs should drive marketing decisions, and no strategy should be pursued until it passes the test of consumer research.

Learning Objectives

Identify how customers fulfill their wants and needs from a marketing perspective

Key Takeaways

Key Points

  • A need is a consumer ‘s desire for a product ‘s or service ‘s specific benefit, whether that be functional or emotional. A want is the desire for products or services that are not necessary, but which consumers wish for.
  • The five step consumer decision process includes need identification, information search and processing, identification and evaluation of alternatives, the purchase decision, and post-purchase behavior.
  • Consumers process information through exposure to a stimulus, actively paying attention to it, assigning meaning to the stimulus, retaining that meaning, and retrieving and applying that information to solve a problem or need they have in the future.
  • Customer focus should be treated as a subset of the corporate strategy rather than the sole driving factor. This means looking beyond current-state customer focus to predict what customers will demand in the future, even if they themselves discount the prediction.

Key Terms

  • dissonance: A state of disagreement or conflict.
  • customer retention: An assessment of the product or service quality provided by a business that measures how loyal its customers are.
  • demand: The desire to purchase goods and services.

Demand is the economic principle that describes a consumer’s desire, willingness and ability to pay a price for a specific good or service. A firm in the market economy survives by producing goods that are in demand by consumers. Consequently, ascertaining consumer demand is vital for a firm’s future viability. Many companies today have a customer focus. In this approach, consumer wants and needs are the drivers of all strategic marketing decisions. No strategy is pursued until it passes the test of consumer research. Every aspect of a market offering, including the nature of the product itself, is driven by the needs and wants of potential consumers.

A need is a consumer’s desire for a product’s or service’s specific benefit, whether that be functional or emotional. The emotional benefit tends to be a stronger driver for consumers, as functional benefits can be easily copied by competitors. On the other hand, a consumer want is the desire for products or services that are not necessary, but which consumers wish for. For example, food is considered a consumer need. However, a steak dinner or dessert is considered a consumer want, as these things are not necessary in order to live.

Customer Decision Process

There is a five step process that consumers can go through in making a purchase decision. These steps include:

  1. Need recognition
  2. Information search
  3. Evaluation of Alternatives
  4. Purchase
  5. Post-purchase

The customer decision process begins with need identification. Whether we act to resolve a particular problem depends upon two factors: the magnitude of the discrepancy between what we have and what we need, and the importance of the problem. This involves the concept of consumer motivation, which is the internal drive consumers experience to fulfill conscious and unconscious wants and needs. Once the problem is recognized, it must be defined in such a way that the consumer can actually initiate the action that will bring about a relevant solution.

The next step is information search and processing. After a need is recognized, the prospective consumer may seek information from family, friends, personal observation, consumer reports, salespeople, or mass media. The promotional component of the marketer’s offering is aimed at providing information to assist the consumer in their problem-solving process. If the buyer can retrieve relevant information about a product, brand, or store, he or she will apply it to solve a problem or meet a need.

The criteria used in the evaluation of alternatives vary from consumer to consumer. One consumer may consider price the most important factor while another may put more weight upon quality or convenience. The search for alternatives is influenced by such factors as time and money costs, how much information the consumer already has, the amount of the perceived risk if a wrong selection is made, and the consumer’s disposition toward particular choices.

During the purchase phase of the decision-making process, the consumer may form an intention to buy the most preferred brand because he has evaluated all the alternatives and identified the value that it will bring him. Anything marketers can do to simplify purchasing will attract buyers. Providing basic product, price, and location information through labels, advertising, personal selling, and public relations is an obvious starting point. Product sampling, coupons, and rebates may also provide an extra incentive to buy.

A consumer’s feelings and evaluations after the sale come into play during the post-purchase phase. These feelings can influence customer retention and influence what the customer tells others about the product or brand. The marketer may take specific steps to reduce post-purchase dissonance. Advertising that stresses the many positive attributes or confirms the popularity of the product can be helpful.

A cell phone from 1997 next to a smartphone.

Focusing on Customers: What cellphone customers wanted in 1997 is likely very different than what smartphone users want today.

Caveats of a Customer Focus

Customer focus should be treated as a subset of the corporate strategy rather than the sole driving factor. This means looking beyond current-state customer focus to predict what customers will demand in the future, even if they themselves discount the prediction.

Companies should pay attention to the extent to which what customers say they want does not match their purchasing decisions. Surveys of customers might claim that 70% of a restaurant’s customers want healthier choices on the menu, but only 10% of them actually buy the new items once they are offered. Truly understanding customers sometimes means understanding them better than they understand themselves.

Customers can be currently ignorant of what a company might argue they should want. IT hardware and software capabilities and automobile features are examples. Customers who in 1997 said that they would not place any value on Internet browsing capability on a mobile phone, or 6% better fuel efficiency in their vehicle, might say something different today, because the value proposition of those opportunities has changed.

Product, Placement, Promotion, and Price

Product, placement, promotion, and price are four elements of the marketing mix crucial to determining a brand’s unique selling proposition.

Learning Objectives

Show the characteristics of each of the four elements, or “Four Ps” that make up the “marketing mix.

Key Takeaways

Key Points

  • The term ” product ” is defined as anything, either tangible or intangible (such as a service ), offered by the firm; a solution to the needs and wants of the consumer; profitable or potentially profitable; and as meeting the requirements of the various governing offices or society.
  • Placement, or product distribution, is the process of making a product or service accessible for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries.
  • The three basic objectives of promotion are to 1) present information to consumers and others, 2) to increase demand, and 3) to differentiate a branded product or service – through advertising, public relations, personal selling, direct marketing, and sales promotion.
  • The price is the amount a customer pays for the product. A well chosen price should (a) ensure survival (b) increase profit (c) generate sales (d) gain market share, and (e) establish an appropriate image.
  • Value is what a customer receives from a product.

Key Terms

  • Placement: The process of making a product or service accessible for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries.
  • product: Anything, either tangible or intangible, offered by the firm as a solution to the needs and wants of the consumer; something that is profitable or potentially profitable; goods or a service that meets the requirements of the various governing offices or society.
  • price: The cost required to gain possession of something.

Product, placement, promotion and price are the four elements of the marketing mix.

Product

The term “product” is defined as anything, either tangible or intangible, offered by the firm; as a solution to the needs and wants of the consumer; something that is profitable or potentially profitable; and a goods or service that meets the requirements of the various governing offices or society. The two most common ways that products can differentiated are:

  1. Consumer goods versus industrial goods, and
  2. Goods products (i.e. durables and non-durables) versus service products

Intangible products are service-based, such as the tourism industry, the hotel industry, and the financial industry. Tangible products are those that have an independent physical existence. Typical examples of mass-produced, tangible objects are automobiles and the disposable razor. A less obvious but ubiquitous mass produced service is a computer operating system.

An old-fashioned brown car

Tangible Luxury Good: A 1932 Horch 670 V12 is an example of a tangible product. Its price should reflect its image as a classic automotive collectible.

Every product is subject to a life-cycle that starts with its introduction and is followed by a growth phase, a maturity phase, and finally a period of decline as sales falls. Marketers must do careful research on the length of the product’s life-cycle and focus their attention on different challenges that arise as the product moves through each stage.

A Coca-Cola soda machine.

4Ps in Action: Coca Cola’s marketing strategy includes elements of all four Ps.

The marketer must also consider the product mix, which includes factors such as product depth and breadth. Product depth refers to the number of sub-categories of products a company offers under its broad spectrum category. For example, Ford Motor Company’s product category is automobiles. It’s product depth includes sub-categories such as passenger vehicles, commercial vehicles, transport vehicles, et cetera. This broad spectrum category is also known as a product line. Product breadth, on the other hand, refers to the number of product lines a company offers.

Marketers should consider how to position the product, how to exploit the brand, how to exploit the company’s resources, and how to configure the product mix so that each product complements the other. Failure to do so can result in brand dilution, which is a situation in which a product loses its branded identity, resulting in decreased sales and perceived quality. The marketer must also consider product development strategies.

Placement

Product distribution (or placement) is the process of making a product or service accessible for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries.

Distribution Types

  1. Intensive distribution means the producer’s products are stocked in the majority of outlets. This strategy is common for basic supplies, snack foods, magazines and soft drink beverages.
  2. Selective distribution means that the producer relies on a few intermediaries to carry their product. This strategy is commonly observed for more specialized goods that are carried through specialist dealers, for example, brands of craft tools, or large appliances.
  3. Exclusive distribution means that the producer selects only very few intermediaries. Exclusive distribution is often characterized by exclusive dealing where the re-seller carries only that producer’s products to the exclusion of all others. This strategy is typical of luxury goods retailers such as Gucci.

The decision regarding how to distribute a product has, as its foundation, basic economic concepts, such as utility. Utility represents the advantage or fulfillment a customer receives from consuming a good or service. Understanding the utility a consumer expects to receive from a product being offered can lead marketers to the correct distribution strategy.

Promotion

The three basic objectives of promotion are:

  1. To present product information to targeted consumers and business customers.
  2. To increase demand among the target market.
  3. To differentiate a product and create a brand identity.

A marketer may use advertising, public relations, personal selling, direct marketing, and sales promotion to achieve these objectives. A promotional mix specifies how much attention to give each of the five subcategories, and how much money to budget for each. A promotional plan can have a wide range of objectives, including: sales increases, new product acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate image.

Price

The price is the amount a customer pays for the product. The concept of price is in contrast to the concept of value, which is the perceived utility a customer will receive from a product. Adjusting the price has a profound impact on the marketing strategy, and depending on the price elasticity of the product, often it will affect the demand and sales as well. The marketer should set a price that complements the other elements of the marketing mix. A well chosen price should (a) ensure survival (b) increase profit (c) generate sales (d) gain market share, and (e) establish an appropriate image.

From the marketer’s point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. A good pricing strategy would be the one which could balance between the price floor and the price ceiling and take into account the customer’s perceived value. Common pricing strategies include cost-plus pricing, skimming, penetration pricing, value-based pricing, and many more. A more detailed discussion of these strategies can be found in chapter 8.

SIVA: Solution, Incentive/Information, Value, and Access

Customer-focused marketing is known as SIVA which provides a demand-centric alternative to the four P’s supply side of marketing management.

Learning Objectives

Reconstruct the “Four Ps” supply side model (product, price, placement and promotion ) to create “SIVA” (solution, information/incentives, value and access), a customer centric alternative

Key Takeaways

Key Points

  • The product is no longer a one-size fits all offering, but rather a solution created to solve a problem for the customer.
  • Information can include advertising, public relations, personal selling, viral advertising, and any form of communication between the firm and the consumer. The “I” also stands for “Incentives,” such as trade promotions.
  • Value can be defined as the extent to which goods or services are perceived by customers to to meet their needs or wants.
  • Access takes into account the ease of buying the product, finding the product, finding information about the product, and several other factors.

Key Terms

  • Opportunity cost: The cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative
  • viral advertising: a marketing technique that uses social networks and other technologies to produce increases in brand awareness or sales. It can be delivered by word of mouth or enhanced by the network effects of Internet and mobile networks. Viral marketing may take the form of video clips, interactive games, ebooks, images, text messages, email or web pages.

SIVA is a formal approach to customer-focused marketing. It stands for Solution, Information, Value, and Access. This system is basically the four Ps renamed and reworded to provide a customer focus. The SIVA Model provides a demand and customer-centric alternative to the well-known four Ps supply side model (product, price, placement, promotion) of marketing management.

guitars on the wall of a store

SIVA Customer-Focused Approach: Guitars are not a 1 size suits all product. Guitar companies must be aware of what their customers need and want.

Solution → Product The “Product” in the four Ps model is replaced by “Solution” in order to shift focus to satisfying the consumer needs. The product is no longer a one-size fits all offering, but rather a solution created to solve a problem for the customer. The customer-centric focus allows customers to feel cared for because they are offered a custom solution.

Information/Incentives → Promotion The “Promotion” in the four Ps model is replaced by “Information,” which represents a broader focus. Information can include advertising, public relations, personal selling, viral advertising, and any form of communication between the firm and the consumer. The “I” also stands for “Incentives,” such as trade promotions. A trade promotion is a marketing technique aimed at increasing demand for products based on special pricing, display fixtures, demonstrations, value-added bonuses, no-obligation gifts, et cetera.

Value → Price The “Price” in the four Ps model is replaced by “Value,” reflecting the total value gained through purchasing the product. Value can be defined as the extent to which goods or services are perceived by customers to to meet their needs or wants. It refers to the benefits a buyer receives when their needs are met. Value is measured in terms of a customer’s willingness to pay for a product, and often depends more upon the customer’s perception of a product’s worth rather than its intrinsic value. These perceptions can be in regard to tangible and intangible benefits that a product offers. Many factors affect value, including the customer’s cost to change or implement the new product or service and the customer’s cost for not selecting a competitor ‘s product or service. Cost in these cases can be defined in any terms applicable to the customer: it can be a monetary, time, effort, opportunity cost, or some combination of those.

Access → Place (Distribution) The “Place” in the four Ps model is replaced by “Access. ” With the rise of the Internet and hybrid models of purchasing, geography is becoming less relevant. Access takes into account the ease of buying the product, finding the product, finding information about the product, and several other factors. Access also refers to the channels of distribution associated with a product. Distribution channels move products and services from businesses to consumers and to other businesses. These channels typically are composed of a set of interdependent organizations, such as wholesalers, retailers, and sales agents.

The Marketing Exchange

The act of obtaining a desired object from someone by offering something of value in return is called the exchange process.

Learning Objectives

Examine the significant elements of the marketing exchange, when a  product or service is offered by a company to a customer in a sales transaction

Key Takeaways

Key Points

  • The exchange process allows the parties to assess the relative trade-offs they must make to satisfy their respective needs and wants.
  • Individuals on both sides attempt to maximize rewards and minimize costs in their transactions so as to obtain the most profitable outcomes. Ideally, all parties achieve a satisfactory level of reward.
  • Two of the key questions that a marketer needs to answer relative to buyer behavior are: How do potential buyers go about making purchase decisions ? What factors influence their decision process and in what way?

Key Terms

  • trade-off: A trade-off involves a sacrifice that must be made to obtain a certain product.
  • negotiation: the process of achieving agreement through discussion
  • marketing exchange: the transaction process, facilitated and expedited by marketing, in which a desired object is obtained by offering something of value in return

The Marketing Exchange

The exchange process is the act of obtaining a desired object from someone by offering something of value in return. The exchange between the person in need (i.e., someone who offers money or some other personal resource) and the organization selling the product, service, or idea results in a transaction. The top goal of any marketing organization is to facilitate and help increase sales transaction by convincing potential consumers and existing customers to buy their company’s product or service.

Amazon Shipping Company's Logo

Amazon : Online shopping and modern technology give consumers access to unlimited information and product choices.

With the emergence of the Internet and e-commerce during the 1990s, the nature of the marketing exchange for businesses and customers has changed drastically. Today’s consumers have access to far more and far better information. They also have many more choices. Businesses must provide personalized, relevant and high quality content that competes with a fast, ever-changing competitive landscape.

image

Simple Marketing Exchange: In marketing, there’s an exchange between the company and the consumer.

A chart that shows a simple marketing exchange – customer identifies a need, customer responds to marketing stimulus, currency is exchanged for the product, and mutual value is reached.

Trade-Off Analysis

The exchange process allows the parties to assess the relative trade-offs they must make to satisfy their respective needs and wants. For the marketer, analysis of these trade-offs is guided by company policies and objectives. For example, a company may engage in exchanges only when the profit margin is 10% or greater. Buyers also have personal policies and objectives that guide their responses in an exchange. Unfortunately, buyers seldom write down their personal policies and objectives. Even more likely, they often do not understand what prompts them to behave in a particular manner. This is the mystery, or the “black box,” of buyer behavior that makes the exchange process so unpredictable and difficult for marketers to understand.

Marketers can, however, attempt to understand the qualities of their products and how consumers view these qualities in relation to their perceived benefit. One such technique to understand this consumer behavior is known as perceptual mapping, which is a technique that uses diagrams in an attempt to visually display the perceptions of consumers. These ideas will be explored in greater detail in later chapters.

Negotiation

There tends to be some negotiation between the parties in the exchange process. Individuals on both sides attempt to maximize rewards and minimize costs in their transactions so as to obtain the most profitable outcomes. Ideally, all parties achieve a satisfactory level of reward.

In each transaction, there is an underlying philosophy in respect to how the parties perceive the exchange. Sometimes deception and lying permeate the exchange. Other exchanges may be characterized as equitable, where each party receives about the same as the other—the customer’s need is satisfied and the business makes a reasonable profit.

image

Complex Marketing Exchange: In a complex marketing exchange, there are more dynamics that must be understood and met by the company.

A chart that shows a complex marketing exchange – customer identifies a need, customers makes an offer, an agreement is reached, currency is exchanged for the product, and mutual value is reached.

Understanding Buyer Behavior Will Jumpstart the Exchange Process

When we use the term “buyer”, we are referring to an individual, group, or organization that engages in market exchange. In fact, there are differences in the characteristics of these three entities and how they behave in an exchange. Therefore, individuals and groups are traditionally placed in the consumer category, while organizations are placed in the second category.

When potential buyers are not satisfied, the exchange falters and the goals of the marketer cannot be met. As long as buyers have free choice and competitive offerings from which to choose, they are ultimately in control of the marketplace.

The potential buyers, in commercial situations, “vote” (with their dollars) for the market offering that they feel best meets their needs. An understanding of how they arrive at a decision allows the marketer to build an offering that will attract buyers. Two of the key questions that a marketer needs to answer relative to buyer behavior are:

  • How do potential buyers go about making purchase decisions?
  • What factors influence their decision process and in what way?

The answers to these two questions form the basis for target market selection, and, ultimately, the design of a market offering.

Purchase Decisions

In order to better understand the marketing exchange, it is important for marketers to grasp how consumers go about making purchase decisions. In general, the consumer decision process includes the following steps:

  1. Need recognition
  2. Information search
  3. Evaluation
    of alternatives
  4. Purchase
  5. Post-purchase behavior

As the consumer moves through these various phases, internal and external conditions are influencing the consumer’s actions throughout the purchasing process. Internal influences include beliefs, feelings, demographics, lifestyle, motivation, and personality. Psychological factors include an individual’s perception, attitude and belief, while personal factors include income level, personality, age, occupation and lifestyle. For example, a consumer may enter the purchase decision stage for a particular product, but decide to buy a different brand after receiving negative feedback from a trusted friend.

Marketing also plays a role in how consumers perceive brand messaging through lenses such as culture, lifestyle and personality. For instance, brands can ensure that content and other messaging align with the individual consumer’s personality profile and motives.

Marketers use a variety of promotional tools to “nudge” consumers who intend to buy but decide to purchase at a later time due to internal or external factors (e.g., loss of job, retail store closing, etc.). To successfully guide consumers through the buying process, marketers attempt to make products and services more appealing by offering credit or payment terms, sales promotions, rebates, and other premiums to convince consumers to buy now rather than later. Complimentary perks and services such as add-on features and lifetime warranties are other tactics used by brands to sell product and service benefits to consumers.

Relationship Building with Various Stakeholders

The key to building a strong stakeholder relationship is communicating effectively with all stakeholders.

Learning Objectives

Diagram the relationship of stakeholders, both internal and external, to a company including proper methods of communication

Key Takeaways

Key Points

  • Stakeholders are involved in and/or affected (negatively or positively) by the outcome and impact of an action, project or program.
  • Internal stakeholders include stockholders, customers, suppliers, creditors, employees, etc. External stakeholders include the general public, communities, activist groups, the media, etc.
  • Marketing communication can be divided into internal flows and external flows directed at different target audiences. This necessitates different yet compatible communication strategies.
  • Preparing a communication plan involves five key points: defining the audience, defining its requirements, building a communications schedule, defining a medium of communication, and preparing the content.
  • It is important to create a written report after any stakeholder discussion.

Key Terms

  • stakeholder: a person or organization with a legitimate interest in a given situation, action, or enterprise
  • direct mail: Alternative expression for junk mail. Direct mail practices are often refined into “targeted mailing,” where mail is sent to select recipients considered most likely to respond positively.

Defining Stakeholders

Stakeholders are involved in and/or affected (negatively or positively) by the outcome and impact of an action, project or program. Stakeholders can be divided into two main categories:

Internal Stakeholders are engaged in economic transactions with the business. (For example, stockholders, customers, suppliers, creditors, and employees)

External Stakeholders are affected by or can affect a business’s actions without being directly engaged in the business. (For example, the general public, communities, activist groups, business support groups, and the media)

Types of Stakeholders

  1. People who influence an endeavor but are not directly involved with doing the work. Examples include managers, suppliers, or the financial department of an organization.
  2. People who are affected by any action taken by an organization or group. Examples are parents, children, customers, owners, and employees.
  3. An individual or group with an interest in an organization’s success. These stakeholders influence programs, products and services. An example of such a stakeholder is one who owns stock in the organization.
  4. Any organization, governmental entity, or individual that has a stake in or may be impacted by a given approach to environmental regulation, pollution prevention, energy conservation, etc. The environmental organization Greenpeace would be an example of such a stakeholder.
  5. A participant in a community mobilization effort representing a particular segment of society. Examples include school board members, environmental organizations, elected officials and chamber of commerce representatives.

Communicating with Internal & External Stakeholders

Marketing communication can be divided into two flows directed at different target audiences. This necessitates different yet compatible communication strategies. A company cannot be telling a customer one story and stockholders another.

A chart that shows marketing communication based on external flow (customers, resellers, companies, and publics) and internal flow (employees, stockholders, and functions).

Marketing Communication: Marketing communication uses different yet compatible communication strategies based on the target audience.

Planning

Preparing a communication plan involves five key points:

Defining the audience: List the key stakeholders needing information about the course of events in the project.

Defining the requirements: Answer the question, “What do key stakeholders want to know?” This question should be answered according to the audience’s level of knowledge.

Building a communications schedule: A flexible yet consistent schedule should be prepared and verified by the audience.

Defining the medium of communication: Presenting the information smoothly is important, especially for stakeholders. While they are not involved in the project, they need to know what is going on. An appropriate medium should be selected to ensure the information is delivered successfully.

Preparing the content: The content should include the purpose company, the steps involved in meeting company goals, and the roles and responsibilities of team members.

Tools & Techniques

Communication can be in different forms including:

  • Direct mail or online informational output
  • To management in the form of e-mail or discussion forums
  • To stakeholders in form of advertisement or public relations

The key to building a strong stakeholder relationship is communicating with all members of the company. Stakeholders should have a clear idea of a company’s strategy. After any stakeholder discussions, it is important to create a written report of what was discussed. The report can have information on various projects, goals or new initiatives. The report should be detailed yet concise:

  1. It should show the structure and analysis of the budget.
  2. Profit/loss analysis and direction of the company should be summarized.
  3. The knowledge of all these steps are important for stakeholders to understand their involvement in the process.

The Dynamic Environment

Since the business environment is constantly changing and customer preferences keep evolving, marketers are required to adapt rapidly.

Learning Objectives

Contrast the ever-evolving characteristics of a micro and macro marketing environments and how they apply to the proactivity, profitability and viability of a company

Key Takeaways

Key Points

  • The micro-environment includes the company itself, its suppliers, marketing intermediaries, customer markets, and competitors. It also includes consumers, collaborators, and centers of influence.
  • The macro-environment includes concepts such as demography, economy, natural forces, technology, politics, and culture.
  • Proactive attention to the environment allows marketers to prosper by efficiently marketing in areas with the greatest customer potential. It is important to place equal emphasis on both the macro and micro-environment and to react accordingly to changes within them.
  • Reactive attention to the environment by marketers can lead to a disconnect with potential customers and can allow competitors to gain advantages that will win them a higher market share.

Key Terms

  • demography: the study of human populations, and how they change
  • marketing environment: The factors and forces that affect a firm’s ability to build and maintain successful relationships with customers.
  • macro environment: Larger societal forces that affect the micro-environment.
  • micro environment: Small forces that are close to the company that affect its ability to serve its customers.

The Dynamic Environment

A successful marketing campaign increases a company’s profits and helps it reach its strategic goals. However, there are challenges to marketing because the business environment is constantly changing. Customer preferences and attitudes keep evolving and require managers to adapt rapidly. Another challenge involves reaching different target markets with culturally relevant propositions. McDonald’s is said to be a good example of a company that can effectively reach a diverse audience.

A McDonalds in South Korea

McDonald’s in Seoul, South Korea: McDonald’s marketing takes cultural factors into consideration when creating products and campaigns.

Proactive attention to the environment allows marketers to prosper by efficiently marketing in areas with the greatest customer potential. It is important to place equal emphasis on both the macro and micro-environment and to react accordingly to changes within them. Reactive attention to the environment by marketers can lead to a disconnect with potential customers and can allow competitors to gain advantages that will win them a higher market share.

The Marketing Environment

Two key levels of the marketing environment are the micro-environment and the macro-environment.

The Micro-environment

The micro-environment includes the company itself, its suppliers, marketing intermediaries, customer markets, and competitors. It also includes consumers, collaborators, and centers of influence.

The company aspect of micro-environment refers to the internal environment of the company. Each internal department has an impact on marketing decisions. For example, Research and Development (R & D) has input on the features a product can have, and accounting approves the financial side of marketing plans and budgets.

The suppliers of a company are also a part of the micro-environment because even the slightest delay in receiving supplies can result in customer dissatisfaction. Examples of suppliers for such companies as automobile manufacturers would include providers of steel, aluminum, leather, and even audio system manufacturers.

Marketing intermediaries refer to the people that help the company promote, sell, and distribute its products to final buyers. Examples include wholesalers, and retailers such as Wal-Mart, Target, and Best Buy. Physical distribution firms are places that store and transport the company’s product from its origin to its destination. Examples include food distributors, such as Food Services of America.

Customer markets can include consumer markets, business markets, government markets, international markets, and reseller markets. The consumer market is made up of individuals who buy goods and services for their own personal use. Business markets include those that buy goods and services for use in producing their own products.

Competitors include companies with similar offerings for goods and services. To remain competitive, a company must consider who their biggest competitors are and simultaneously consider its own size and position in the industry. The company should aim to develop a strategic advantage over their competitors.

Collaborators are key marketing partners that lead to higher efficiency. Examples of collaborators include shipping providers, credit card processors, or online shopping cart providers. Centers of influence are also key to successful marketing relationships. These are well-established business people who are good networkers that can lead you to other successful marketing relationships.

The Macro-environment

The macro-environment includes concepts such as demography, economy, natural forces, technology, politics, and culture.

Demography refers to studying human populations in terms of size, density, location, age, gender, race, and occupation. This helps to divide the population into market segments which can be beneficial to a marketer in deciding how to tailor their marketing plan to attract that demographic.

The economic environment refers to the purchasing power of potential customers and the ways in which people spend their money. Within this area are subsistence economies and industrialized economies. Subsistence economies are based on agriculture and consume their own industrial output. Industrial economies have markets that are diverse and carry many different types of goods. Each is important to the marketer because each has a highly different spending pattern as well as a different distribution of wealth.

The natural environment includes the natural resources that a company uses as inputs. As raw materials become increasingly scarcer, the ability to create a company’s product gets much harder.

Technology includes all developments from antibiotics and surgery to nuclear missiles and chemical weapons to automobiles and credit cards. As these markets develop, it can create new markets and new uses for products. It also requires a company to stay ahead of others and update their own technology.

The political environment includes all the laws, government agencies, and groups that influence or limit organizations and individuals within a society. It is important for marketers to be aware of these restrictions as they can be complex and can change often. For example, regulations on packaging, such as the necessary inclusion of ingredients for food products or the limitation on product capability claims, must be understood by marketers to avoid negative public perception or sanctions.

The cultural environment consists of institutions and the basic values and beliefs of a group of people. The values can also be further categorized into core beliefs, which are passed on from generation to generation and are very difficult to change, and secondary beliefs, which tend to be easier to influence. As a marketer, it is important to know the difference between the two and to focus your marketing campaign to reflect the values of a target audience.

Marketing by Individuals and Firms

Marketing by firms compared to marketing by individuals differs greatly in terms of customization level and personal attention.

Learning Objectives

Distinguish between the process used when deciding on marketing plan for a firm or organization and the process used for an individual

Key Takeaways

Key Points

  • The overall marketing strategy of an organization should focus on developing relationships with customers to understand their needs, while also developing goods, services and ideas to meet those needs.
  • Marketing strategies include niche, growth and defensive strategies. These can be implemented with an eye toward market penetration, development or diversification.
  • Personal selling determines a customer’s needs and attains a sales order. The personal selling process is a seven step approach: Prospecting, Pre-Approach, Approach, Presentation, Meeting Objections, Closing the Sale and Follow-Up.

Key Terms

  • niche: an area in a market in which there are unmet needs that, when met, can lead to unique business opportunities
  • target market: a group of people whose needs and preferences match the product range of a company and to whom those products are marketed
  • strategy: a plan of action intended to accomplish a specific goal
  • personal selling: the act of using people to sell products to consumers face-to-face

Marketing by Firms

A marketing strategy is the combination of all of an organization’s marketing goals into one comprehensive plan. The overall marketing strategy of an organization should focus on developing relationships with customers to understand their needs while also developing goods, services and ideas to meet those needs. Creating a marketing strategy generally involves six steps:

  1. Information Gathering: Research potential customers, their needs and spending habits in order to understand what sort of product, service or idea they wish to buy. A specific method of information gathering is targeting, which is the process of finding customers whose needs and preferences match the product range offered by a company.
  2. Evaluation of Organization Capabilities: Decide what your organization can produce and what your organization is not capable of producing based on the organization’s specific strengths and weaknesses.
  3. Identify Market Opportunities: Research the current market for a product idea with no competition or strong demand.
  4. Set Objectives of Marketing Strategy: Decide what results need to be achieved in order to reach the organization’s goals. An objective is a specific result that an organization aims to achieve within a certain timeframe and with available resources.
  5. Formulate an Action Plan: List the specific steps the organization needs to take to implement the marketing plan, and assign the responsibilities to specific staff members. One such step is product positioning, which is the process by which marketers try to create an image or identity in the minds of their target market. Action plans should be based around the 4 Ps of marketing, or SIVA analysis.
  6. Monitor & Evaluate: Study the marketing plan at least once per quarter to track performance against the set objectives.

General Marketing Strategies

  1. Niche Strategy: A niche is an area in a market in which there are unmet needs that, when met, can lead to unique business opportunities. Niche strategy involves finding customers under-served by current offerings. An example of niche marketing is the online, self-help market in which businesses cater to highly specific aspects of peoples’ lives for which they desire tips and advice.
  2. Growth Strategy: This strategy aims to increase revenue from existing market niches and deliver better offerings to new target markets.
  3. Defensive Strategy: This strategy aims to maintain, or defend, a leadership position in a market by developing brand loyalty and mass distribution.
  4. Offensive Strategy: This strategy aims to adopt a policy of “destroyer pricing” to preempt the entry of new firms or drive away existing competitors. Also known as predatory pricing, this strategy is useful when competitors or potential competitors cannot sustain equal or lower prices without losing money.

Ansoff Matrix

To portray alternative growth strategies, Igor Ansoff presented a matrix that focused on the firm’s present and potential products and markets (customers). When considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations.

A matrix that focuses on present and future corporate growth strategies for companies and products - market penetration, market development, product development, and diversification.

Ansoff Matrix: Igor Ansoff created a matrix that shows alternative corporate growth strategies.

The growth strategies include:

  1. Market Penetration: This strategy aims to increase sales of an organization’s current products through an aggressive marketing campaign. Market penetration occurs when a company penetrates a market in which current or similar products already exist. The market penetration strategy is the least risky since it leverages many of the firm’s existing resources and capabilities. A prominent example of market penetration was the emergence of Facebook in the social networking market. It was able to take market share away from competitors such as MySpace.
  2. Market Development: This strategy aims to increase sales by selling current products in new markets to satisfy new consumer needs or to identify new market segments. The development of new markets for the product may be a good strategy if the firm’s core competencies are related more to the specific product than to its experience with a specific market segment.
  3. Product Development: This strategy offers new and improved products to the current market. A product development strategy may be appropriate if the firm’s strengths are related to its specific customers rather than to the specific product itself.
  4. Diversification: In this strategy, companies move into multiple lines of revenue generation. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the “suicide cell. “

Marketing by Individuals

Marketing by individuals, as opposed to organizations, can be most clearly differentiated by the strategy of personal selling. Personal selling is the act of using people to sell products to consumers face-toface. The personal selling process is a seven step approach:

  1. Prospecting – the step where salespeople determine leads or prospects.
  2. Pre-approach – consists of customer research and goal planning for the presentation.
  3. Approach – when the salesperson initially meets with the customer and determines the need.
  4. Presentation – the process of grabbing the customer’s Attention, igniting Interest, creating Desire, and inspiring Action, or AIDA.
  5. Meeting objections – salespeople should do their best to anticipate objections and respectfully respond to them.
  6. Closing the sale – the salesperson uses various techniques to gain a commitment to buy.
  7. Follow-up – following up will ensure customer satisfaction and help establish a relationship with the customer.

These are very general steps, but they form a foundation for differentiating between marketing by individuals and by firms. Personal selling represents the focus and customization that can be achieved through marketing on the individual level as opposed to the organizational level. More specific subjects in the realm of personal selling include qualifying leads; additional information gathering beyond the customer meeting; negotiating; ensuring delivery, training, and satisfactory use of products; and ensuring adequate billing and collection techniques. These factors will be explored in more detail in later chapters.

Adding Value

Marketing adds value to an organization by communicating relevant positioning and building long-term customer relationships.

Learning Objectives

Analyze, from a marketing perspective, how the “value” of a business and the products sold is quantified and qualified

Key Takeaways

Key Points

  • Marketing is the science of choosing target markets through market analysis and market segmentation, as well as understanding consumer buying behavior and providing superior customer value.
  • Value is a customer’s perception of relative price (the cost to own and use) and performance ( quality ) of a product.
  • The “total market offering” includes an organization’s reputation, staff representation, product benefits, and technological characteristics as compared to competitors. Value, in this sense, is defined as the relationship of a firm’s market offerings to those of its competitors.
  • Since value changes based on time, place, and people in relation to changing environmental factors, marketing adapts to consumers changing perceptions and beliefs in order to have optimal value creation.

Key Terms

  • value: a customer’s perception of relative price (the cost to own and use) and performance (quality)
  • benefit: an advantage, help or aid from something
  • customer value analysis: the collection and evaluation of data associated with customer needs and market trends
  • benefit segmentation: the division of the market into subsets according to benefits sought by the consumer or which the product/service can provide
  • attribute: a characteristic or quality of a thing

Adding Value

A main goal of marketing is to add value to an organization. Marketing also aims to present the value an organization’s products can add to a consumer’s life. It is able to accomplish this via the following avenues:

  • It is the link between a society’s material requirements and its economic patterns of response.
  • It satisfies needs and wants through exchange processes and building long-term relationships.
  • It is the process of communicating the value of a product or service through positioning to customers.
  • It is an organizational function and a set of processes for creating, delivering, and communicating value to customers. It also manages customer relationships in ways that benefit the organization and its shareholders.
  • It is the science of choosing target markets through market analysis and market segmentation, as well as understanding consumer buying behavior and providing superior customer value.

Marketing Methods Used to Deliver Value

For marketers to deliver value to a firm’s customers, and also add value to the firm itself, they must consider what is known as the “total market offering. ” This includes the reputation of the organization, staff representation, product benefits, and technological characteristics as compared to the market offerings and prices of competitors. Value, in this sense, can be defined as the relationship of a firm’s market offerings to those of its competitors.

Value in marketing can be defined by both qualitative and quantitative measures. On the qualitative side, value is the perceived gain composed of an individual’s emotional, mental, and physical condition plus various social, economic, cultural, and environmental factors. On the quantitative side, value is the actual gain measured in terms of financial numbers, percentages, and dollars.

One way for an organization to increase its perceived value added is to improve its quality/price ratio. When an organization delivers high quality but at a high price, the perceived value may be low. When it delivers high quality at a low price, the perceived value may be high. The key to delivering high perceived value is for a firm to make consumers believe that its products will help them solve a problem, offer a solution, produce results, and make them happy.

Marketing provides a creative energy exchange between people and organizations in our marketplace. Since value changes based on time, place, and people in relation to changing environmental factors, marketing adapts to consumers changing perceptions and beliefs in order to have optimal value creation.

Customer Value Analysis

To reveal the company’s strengths and weaknesses compared to other competitors, it is important to conduct a customer value analysis. This is the collection and evaluation of data associated with customer needs and market trends. The steps are as follows:

  • Identify the major attributes and benefits, such as ease of use or improved social standing, that customers value for choosing a product. It is important to identify and define benefits as opposed to features.
  • Assess the quantitative importance of the different attributes and benefits. In other words, attempt to assign an actual price differentiation for products with value-adding benefits.
  • Assess the company’s and competitors’ performance on each attribute and benefit. It is important to be honest with yourself about who your actual closest competitors are and how they price their products.
  • Examine how customers in the particular segment rated the company against major competitors on each attribute.
  • Monitor customer perceived value over time.

Value Proposition

Conducting an effective customer value analysis can lead a company to creating an accurate value proposition. A value proposition is a promise of value to be delivered and a belief from the customer that value will be experienced. A value proposition can apply to an entire organization, or parts thereof, or customer accounts, or products or services.

Developing a value proposition is based on a review and analysis of the benefits, costs and value that an organization can deliver to its customers, prospective customers, and other constituent groups within and outside the organization. Organizations can use value propositions to position value to a range of constituents such as:

  • Customers: to explain why a customer should buy from a supplier.
  • Partners: to persuade them to forge a strategic alliance or joint venture.
  • Employees: to “sell” the company when recruiting new people, or for retaining and motivating existing employees.
  • Suppliers: to explain why a supplier should want to be a supplier to an organization or customer.
Louis Vitton Store in Paris

Louis Vuitton Store on Champs-Elysees in France: Louis Vuitton’s marketing team communicates value to consumers by utilizing a high price point.