Marketing

What is meant by 'marketing'?

Marketing is defined by the Institute of Marketing as

'the management process that identifies, anticipates and supplies customer needs efficiently and profitably.'

The key emphasis is thus on customer needs:

• Identifying and anticipating needs - market research.
• Supplying customer needs - product design and development.
• Efficiently - distribution.
• Profitably - pricing decisions and promotion (informing customers about your product so they buy it).

 Marketing involves much more than just advertising!

Marketing orientation and its alternatives

Marketing orientation

The emphasis in marketing on pre-empting and meeting customers' needs gives rise to a belief system that places the customer at the centre of organisational activity. This marketing orientation is a philosophy of business that permeates all areas focusing attention towards the customer and believing, deep within corporate culture, that to meet the customers' needs better than competitors is the path to corporate success.

Product orientation

Management view is that success is achieved through producing goods and services of optimum quality. The major task is to pursue improved research and development and extensive quality control services.

While customers will generally welcome a better product, this approach has the following dangers:

• costs escalate in the pursuit of the 'perfect product' and customers are no longer willing to pay the resulting price
• the product may include features that customers do not want or value.

Stages in the marketing process

There are a number of techniques for marketing a product, but they generally follow a number of distinct stages:

(1) Market analysis - used to identify gaps and opportunities in a business' environment

(2) Customer analysis - examining customers so that potential customers can be divided into segments with similar purchasing characteristics

(3) Market research -  determining characteristics of each segment such as size, potential, level of competition, unmet needs etc.

(4) Targeting - deciding which segments to target

(5) Marketing mix strategies - developing a unique marketing mix for each segment in order to exploit it properly. Marketing mix strategies are an important element of downstream supply chain management.

Market analysis

Market analysis helps identify the appropriate marketing strategy. This analysis will include the following:

• appraisal and understanding of the present situation - this would include an analysis for each product showing its stage in the product life cycle, strength of competition, market segmentation, anticipated threats and opportunities, customer profile
• definition of objectives of profit, turnover, product image, market share and market position by segment
• evaluation of the marketing strategies available to meet these objectives, e.g. pricing policy, distribution policy, product differentiation, advertising plans, sales promotions, etc.
• definition of control methods to check progress against objectives and provide early warning, thereby enabling the marketing strategies to be adjusted.

There are two purposes of the analysis:

• to identify gaps in the market where consumer needs are not being satisfied
• to look for opportunities that the organisation can benefit from, in terms of sales or development of new products or services.

Customer analysis

There are three sets of strategic questions that are used to analyse customers - segmentation, motivation and unmet needs.

Segmentation 

Who are the biggest, most profitable existing customers and who are the most attractive potential customers?

• Do the customers fall into any logical groups on the basis of characteristics, needs or motivations?
• Can the market be segmented into groups requiring a unique business strategy?

Traditional segmentation focuses on identifying customer groups based on a number of variables that include:

• geographic variables, such as region of the world or country, country size, or climate
• demographic variables, such as age, gender, sexual orientation, family size, income, occupation, education, socio-economic status, religion, nationality/race, and others
• psychographic variables, such as personality, life-style, values and attitudes
• behavioural variables, such as benefit sought (quality, low price, convenience), product usage rates, brand loyalty, product end use, readiness-to-buy stage, decision-making unit, and others.

Value-based segmentation looks at groups of customers in terms of the revenue they generate and the costs of establishing and maintaining relationships with them.

For example, a food manufacturer will approach supermarket chains very differently to the small independent retailer, probably offering better prices, delivery terms, use different sales techniques and deliver direct to the supermarket chain. They might also supply own-label products to the large chain but they are unlikely to be able to offer the same terms to the corner shop. The benefit of segmentation to the company adopting this policy is that it enables them to get close to their intended customer and really find out what that customer wants (and is willing to pay for). This should make the customer happier with the product offered and, hence, lead to repeat sales and endorsements.

Motivation 

 This looks at why customers buy what they buy - the customers' selection and use of their favourite brands, the elements of the product or service that they value most, the customers' objectives and the changes that are occurring in customer motivation.

Unmet needs

This considers why some customers are dissatisfied and some are changing brands or suppliers. The analysis looks at the needs not being met that the customer is aware of.

Market research

Market research can be carried out as follows:

 Desk research

Field research

Test marketing

Before a new product is launched, a test marketing campaign maybe mounted in an area which is relatively small, typical, with a stable population, and which possesses the required promotional facilities.

This can be regarded as the refinement of the marketing mix and campaign before a full national and international launch is approved.

Targeting

As stated above, markets can be segmented in many different ways:

• Geographic - The EU could be split into different countries or viewed as one market. Television advertising regions.
• Demographic - Age, sex, income - e.g. Saga Holidays targets the over 50s.
• Family lifecycle models - e.g. 'empty nesters'.
• Psychological - e.g.older people are more security-conscious.
• Socio-economic - Class based systems e.g. A, B, C1, etc.

Attractive segments can be selected using a range of criteria including:

• Size
• Growth prospects
• Intensity of competition.

Targeting strategies can then be selected from the following:

• Differentiated, where each segment is approached with a different marketing mix e.g. Ford offering a range of different cars at different prices to meet varying customer needs.
• Undifferentiated, where all segments are approached with the same basic marketing mix e.g. originally Ford only offered one colour - black.
• Concentrated, where only one segment is targeted.

Marketing mix strategies

According to Kotler et al. (1999), 'the marketing mix is a set of controllable tactical marketing tools ... that the firm blends to produce the response it wants in the target market'.

Hence, in an effective marketing programme all of those elements are 'mixed' to successfully achieve the company's marketing objectives.

The marketing mix is concerned with how to influence consumer demand and is primarily the responsibility of the marketing department.

The variables are commonly grouped into four classes that Jerome McCarthy refers to as 'the four Ps' - product, price, promotion and place (or distribution). See below for further details.

The marketing mix

The four Ps

• Price - an organisation may attack competitors by reducing price or increasing the size for the same money. The question of price policy in terms of competitors may be stated as Jet petrol's statement, 'We will always sell at 1-2p below the market leaders'.
• Promotion - advertising, money-back coupons, special prizes are all means of boosting sales without cutting price. Whereas a price cut may lead to a retaliatory war from competitors, a money-off coupon is seen as a temporary initiative and competitors may ignore it.
• Place - refers to the outlets, geographic areas and distribution channels. Some manufacturers have specified that only their goods can be sold in an outlet, e.g. most car manufacturers stipulate this requirement. Others choose a competition strategy involving vertical integration by which they take over distribution outlets and block a competitor's products. An example of this is the retail shoe industry.
• Product - refers to anything offered for attention, acquisition, use or consumption that might satisfy a want or need. Products can be physical objects, services, persons, places, organisations and ideas. An organisation may choose to lead the competition by being the best performer in those areas that it believes customers count as important and competitors can be outscored.

Beyond the 4Ps other elements of the marketing mix have come to light through the work of Kotler amongst others, giving rise to the 7Ps model. The extra 3Ps are:

• People - this relates to both staff and the need to understand customer needs.
• Processes - these are the systems through which the service is delivered.
• Physical evidence - testimonials and references regarding proposed service.

The 7Ps applied to e-marketing

E-marketing is marketing carried out using electronic technology.

Here are examples of the effects of electronic methods on marketing:

The traditional 4Ps

The additional 3Ps

Product issues

There are two main product issues to consider:

Product definition

The main issue regarding product is to define exactly what the product should be. This can be done on three levels:

Product positioning

 With all of these factors the question of product positioning is critical - how does our product compare with the offerings of competitors? Is our product better? If so, in what way?

Promotion

Promotion is essentially about market communication. The primary aim is to encourage customers to buy the products by moving them along the AIDA sequence:

Towards this firms will use a combination of different promotional techniques as part of their 'promotional mix', including:

• Advertising - e.g. placing adverts on TV, in newspapers, on billboards, etc.
• Sales promotion techniques - e.g. 'Buy one get one free'.
• Personal selling - e.g. door-to-door salesmen.
• Personal relations (PR) - e.g. sponsoring sports events.

Place (distribution)

The key decision under 'place' is between:

• Selling direct - here the manufacturer sells directly to the ultimate consumer without using any middlemen, e.g. accountancy firms deal directly with their clients without recourse to brokers or other middlemen.
• Selling indirect - here the channel strategy could comprise a mixture of retailer, distributors, wholesalers and shipping agents, e.g. food distribution will often involve distributors and retailers to get the product from farmer to consumer.

Price

The 4Cs

Pricing should be determined with reference to four factors:

• Cost (i.e. we should ensure that all costs are covered)
• Customers (we should consider how much customers are willing to pay)
• Competitors (we should consider how much competitors are/will be charging)
• Corporate objectives (we should consider what we are aiming to achieve - for example, a low price might be necessary when we are trying to break into a market).

Pricing objectives

There are a number of different objectives that a business may be aiming to achieve with its pricing strategy:

• survival - this is a break even requirement. Companies might accept a price that just covers costs in the short-term in order to cope with a short-term crisis (e.g. a recession).
• profit - in the longer-term, businesses will hope to achieve a level of profit that satisfies their longer-term objectives.
• return on investment - a business may have a ROI target that it needs to satisfy and this could be used to determine the price.
• market share - often with new products and markets the initial objective is to achieve a level of market share. This may mean that prices are set below those of rivals' in order to win customers away from rivals.
• cash flow - if a business has cash flow problems it might price products in order to bring in cash to the business more quickly (e.g. by offering settlement discounts).
• status quo - the business may pursue a strategy of non-price competition (e.g. cola companies generally use this approach) in order to maintain an existing (often mature) position.
• product quality - price is often used as an indicator of quality. So a business who want to promote the quality of their product might use a higher selling than that of rivals.

Competitor prices

It is important to analyse competitor prices as part of a business' own pricing strategy. Often the position on the strategy clock will determine where prices must be set in relation to competitors.

For example, a low cost provider will have to ensure that prices are below that of competitors whilst a differentiator might want to have higher prices to reflect the extra product features or services offered.

A key problem in achieving this in the real world is in obtaining accurate, up-to-date information on how much competitors are charging. In some industries (such as publishing) it may appear to be straightforward as prices are often openly advertised, listed on websites or even printed on products. However, this might not disclose bulk discounts given to larger customers or special rates given to contracted customers. There may even be 'hidden extras' that are not disclosed as clearly as the advertised price.

Therefore businesses will often outsource this task to specialist agencies.

Practical pricing methods

• Penetration pricing - a low price is set to gain market share.
• Perceived quality (or prestige) pricing - a high price is set to reflect/create an image of high quality.
• Periodic discounting - this is a temporary reduction in prices for a limited period such as a 'Holiday Sale'.
• Price discrimination - different prices are set for the same product in different markets, e.g. peak/offpeak rail fares.
• Going rate pricing - prices are set to match competitors.
• Price skimming - high prices are set when a new product is launched. Later the price is dropped to increase demand once the customers who are willing to pay more have been 'skimmed off'.
• Negotiated pricing - the price is established through bargaining between the seller and the customer.
• Loss leaders - one product may be sold at a loss with the expectation that customers will then go on and buy other more profitable products.
• Captive product pricing - this is used where customers must buy two products. The first is cheap to attract customers but the second is expensive, once they are captive.
• Bait pricing - this is also used by companies with wide product ranges, but often the lowest priced model is advertised in the hope to attract customers to the line and hope that they will actually decide to buy a higher priced item from the range.
• Bundle pricing - two or more products, usually complementary, are packaged together and sold for one price.
• Cost plus pricing - the cost per unit is calculated and then a mark-up added.

Initiating price increases

A major circumstance provoking price increases is cost inflation. Companies often raise their prices by more than the cost increase in anticipation of further inflation or government price controls in a practice called anticipatory pricing.

Another factor leading to price increases is over-demand. When a company cannot supply all of its customers, it can raise prices, ration supplies to customers or both.

A company needs to decide whether to raise its prices sharply on a one-time basis or to raise it by small amounts several times. In passing price increases on to customers, the company must avoid the image of being a "price gouger". Customers memories are long.

There are techniques for avoiding this image. A sense of fairness must surround any price increase and customers must be given advance notice so they can do some forward buying or shop around. Sharp price increases need to be explained in understandable terms. Companies can also respond to higher costs or over-demand without raising prices.

Possibilities include:

• Shrinking the amount of product instead of raising the price.
• Substituting less expensive materials or ingredients.
• Reducing or removing features to reduce cost.
• Removing or reducing product services such as free delivery and installation.
• Reducing the number of sizes and models used.
• Creating new, economy brands.

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