DEFINING MARKETING
Marketing is defined by the American Marketing Association in the following
way:
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.
If you read the definition closely, you see that there are four activities, or
components, of marketing:
1.
Creating. The process of collaborating with suppliers and customers
to create offerings that have value.
2.
Communicating. Broadly, describing those offerings, as well as
learning from customers.
3.
Delivering. Getting those offerings to the consumer in a way that
optimizes value.
4.
Exchanging. Trading value for those offerings.
Let’s look more closely at some of the components that make up this
definition.
VALUE
Value is at the center of everything that marketing does (Figure 1). What
does value mean?
Marketing is composed of four activities centered on customer value:
creating, communicating, delivering, and exchanging value.
When we use the term value, we mean the benefits buyers receive that meet
their needs. In other words, value is what the customer gets by purchasing
and consuming a company’s offering. So, although the offering is created by
the company, the value is determined by the customer.
Furthermore, our goal as marketers is to create a profitable exchange for
consumers. By profitable, we mean that the consumer’s personal value
equation is positive. The personal value equation is value = benefits received
– [price + hassle]
Hassle is the time and effort the consumer puts into the shopping process.
The equation is a personal one because how each consumer judges the
benefits of a product will vary, as will the time and effort he or she puts into
shopping. Value, then, varies for each consumer.
One way to think of value is to think of a meal in a restaurant. If you and
three friends go to a restaurant and order the same dish, each of you will like
it more or less depending on your own personal tastes. Yet the dish was
exactly the same, priced the same, and served exactly the same way.
Because your tastes varied, the benefits you received varied. Therefore the
value varied for each of you. That’s why we call it a personal value equation.
Value varies from customer to customer based on each customer’s needs.
The marketing concept, a philosophy underlying all that marketers do,
requires that marketers seek to satisfy customer wants and needs. Firms
operating with that philosophy are said to be market oriented. At the same
time, market-oriented firms recognize that exchange must be profitable for
the company to be successful. A marketing orientation is not an excuse to
fail to make profit.
Firms don’t always embrace the marketing concept and a market orientation.
Beginning with the Industrial Revolution in the late 1800s, companies
were production orientation. They believed that the best way to compete
was by reducing production costs. In other words, companies thought that
good products would sell themselves. Perhaps the best example of such a
product was Henry Ford’s Model A automobile, the first product of his
production line innovation. Ford’s production line made the automobile cheap
and affordable for just about everyone. The production era lasted until the
1920s, when production-capacity growth began to outpace demand growth
and new strategies were called for. There are, however, companies that still
focus on production as the way to compete.
From the 1920s until after World War II, companies tended to be selling
orientation, meaning they believed it was necessary to push their products
by heavily emphasizing advertising and selling. Consumers during the Great
Depression and World War II did not have as much money, so the
competition for their available dollars was stiff. The result was this push
approach during the selling era. Companies like the Fuller Brush Company
and Hoover Vacuum began selling door-to-door and the vacuum-cleaner
salesman (they were always men) was created. Just as with production, some
companies still operate with a push focus.
In the post–World War II environment, demand for goods increased as the
economy soared. Some products, limited in supply during World War II, were
now plentiful to the point of surplus. Companies believed that a way to
compete was to create products different from the competition, so many
focused on product innovation. This focus on product innovation is called
the product orientation. Companies like Procter & Gamble created many
products that served the same basic function but with a slight twist or
difference in order to appeal to a different consumer, and as a result
products proliferated. But as consumers had many choices available to them,
companies had to find new ways to compete. Which products were best to
create? Why create them? The answer was to create what customers
wanted, leading to the development of the marketing concept. During this
time, the marketing concept was developed, and from about 1950 to 1990,
businesses operated in the marketing era.
So what era would you say we’re in now? Some call it the value era: a time
when companies emphasize creating value for customers. Is that really
different from the marketing era, in which the emphasis was on fulfilling the
marketing concept? Maybe not. Others call today’s business environment
the one-to-one era, meaning that the way to compete is to build
relationships with customers one at a time and seek to serve each
customer’s needs individually. For example, the longer you are customer of
Amazon, the more detail they gain in your purchasing habits and the better
they can target you with offers of new products. With the advent of social
media and the empowerment of consumers through ubiquitous information
that includes consumer reviews, there is clearly greater emphasis on
meeting customer needs. Yet is that substantially different from the
marketing concept?
Still others argue that this is the time of service-dominant logic and that we
are in the service-dominant logic era. Service-dominant logic is an approach
to business that recognizes that consumers want value no matter how it is
delivered, whether it’s via a product, a service, or a combination of the two.
Although there is merit in this belief, there is also merit to the value
approach and the one-to-one approach. As you will see throughout this book,
all three are intertwined. Perhaps, then, the name for this era has yet to be
devised.
Whatever era we’re in now, most historians would agree that defining and
labeling it is difficult. Value and one-to-one are both natural extensions of the
marketing concept, so we may still be in the marketing era. To make matters
more confusing, not all companies adopt the philosophy of the era. For
example, in the 1800s Singer and National Cash ter adopted strategies
rooted in sales, so they operated in the selling era forty years before it
existed. Some companies are still in the selling era. Recently, many
considered automobile manufacturers to be in the trouble they were in
because they work too hard to sell or push product and not hard enough on
delivering value.
CREATING OFFERINGS THAT HAVE VALUE
Marketing creates those goods and services that the company offers at a
price to its customers or clients. That entire bundle consisting of the tangible
good, the intangible service, and the price is the company’s offering. When
you compare one car to another, for example, you can evaluate each of
these dimensions—the tangible, the intangible, and the price—separately.
However, you can’t buy one manufacturer’s car, another manufacturer’s
service, and a third manufacturer’s price when you actually make a choice.
Together, the three make up a single firm’s offer.
Marketing people do not create the offering alone. For example, when the
iPad was created, Apple’s engineers were also involved in its design. Apple’s
financial personnel had to review the costs of producing the offering and
provide input on how it should be priced. Apple’s operations group needed to
evaluate the manufacturing requirements the iPad would need. The
company’s logistics managers had to evaluate the cost and timing of getting
the offering to retailers and consumers. Apple’s dealers also likely provided
input regarding the iPad’s service policies and warranty structure. Marketing,
however, has the biggest responsibility because it is marketing’s
responsibility to ensure that the new product delivers value.
COMMUNICATING OFFERINGS
Communicating is a broad term in marketing that means describing the
offering and its value to your potential and current customers, as well as
learning from customers what it is they want and like. Sometimes
communicating means educating potential customers about the value of an
offering, and sometimes it means simply making customers aware of where
they can find a product. Communicating also means that customers get a
chance to tell the company what they think. Today companies are finding
that to be successful, they need a more interactive dialogue with their
customers. For example, Comcast customer service representatives monitor
Twitter. When they observe consumers tweeting problems with Comcast, the
customer service reps will post resolutions to their problems. Similarly,
JCPenney has created consumer groups that talk among themselves on
JCPenney-monitored Web sites. The company might post questions, send
samples, or engage in other activities designed to solicit feedback from
customers.
Mobile devices, like iPads and Droid smartphones, make mobile marketing
possible too. For example, if consumers check-in at a shopping mall on
Foursquare or Facebook, stores in the mall can send coupons and other offers
directly to their phones and pad computers.
A BMW X5 costs much more than a Honda CRV, but why is it worth more? What makes up the complete
offering that creates such value? (Source: Wikimedia Commons)
Companies use many forms of communication, including advertising on the
Web or television, on billboards or in magazines, through product placements
in movies, and through salespeople. Other forms of communication include
attempting to have news media cover the company’s actions (part of public
relations [PR]), participating in special events such as the annual
International Consumer Electronics Show in which Apple and other
companies introduce their newest gadgets, and sponsoring special events
like the Susan G. Komen Race for the Cure.
DELIVERING OFFERINGS
Marketing can’t just promise value, it also has to deliver value. Delivering an
offering that has value is much more than simply getting the product into the
hands of the user; it is also making sure that the user understands how to
get the most out of the product and is taken care of if he or she requires
service later. Value is delivered in part through a company’s supply chain.
The supply chain includes a number of organizations and functions that
mine, make, assemble, or deliver materials and products from a
manufacturer to consumers. The actual group of organizations can vary
greatly from industry to industry, and include wholesalers, transportation
companies, and retailers. Logistics, or the actual transportation and storage
of materials and products, is the primary component of supply chain
management, but there are other aspects of supply chain management that
we will discuss later.
EXCHANGING OFFERINGS
In addition to creating an offering, communicating its benefits to consumers,
and delivering the offering, there is the actual transaction, or exchange, that
has to occur. In most instances, we consider the exchange to be cash for
products and services. However, if you were to fly to Louisville, Kentucky, for
the Kentucky Derby, you could “pay” for your airline tickets using frequentflier miles. You could also use Hilton Honors points to “pay” for your hotel,
and cash back points on your Discover card to pay for meals. None of these
transactions would actually require cash. Other exchanges, such as
information about your preferences gathered through surveys, might not
involve cash.
When consumers acquire, consume (use), and dispose of products and
services, exchange occurs, including during the consumption phase. For
example, via Apple’s “One-to-One” program, you can pay a yearly fee in
exchange for additional periodic product training sessions with an Apple
professional. So each time a training session occurs, another transaction
takes place. A transaction also occurs when you are finished with a product.
For example, you might sell your old iPhone to a friend, trade in a car, or ask
the Salvation Army to pick up your old refrigerator.
Disposing of products has become an important ecological issue. Batteries
and other components of cell phones, computers, and high-tech appliances
can be very harmful to the environment, and many consumers don’t know
how to dispose of these products properly. Some companies, such as Office
Depot, have created recycling centers to which customers can take their old
electronics.
Apple has a Web page where consumers can fill out a form, print it, and ship
it along with their old cell phones and MP3 players to Apple. Apple then pulls
out the materials that are recyclable and properly disposes of those that
aren’t. By lessening the hassle associated with disposing of products, Office
Depot and Apple add value to their product offerings.
KEY TAKEAWAYS
The focus of marketing has changed from emphasizing the product,
price, place, and promotion mix to one that emphasizes creating,
communicating, delivering, and exchanging value. Value consists
of the benefits an individual receives minus the price the consumer
paid and the time and effort they expended making the purchase.
LICENSES AND ATTRIBUTIONS
Reading: The Four Ps Of Marketing
THE FOUR PS OF MARKETING
The traditional way of viewing the components of marketing is in terms
of the four Ps:
1.
2.
3.
Product. Goods and services (creating offerings).
Promotion. Communication.
Place. Getting the product to a point at which the customer can purchase it
(delivering).
4.
Price. The monetary amount charged for the product (exchanging).
Introduced in the early 1950s, the four Ps were called the marketing mix, and
a typical marketing plan would include a mix of these four components.
Getting the four Ps right for any given marketing effort depends first on
identifying your target customer – who are you trying to sell to, and how will
you provide value to them? Once you know who you’re targeting, you can
refine decisions around product, promotion, place and price to ensure you
are delivering something of value.
Recall the American Marketing Association’s current definition of marketing,
which emphasizes the four activities
of creating, communicating, delivering, and exchanging. You might be
wondering why this definition shifts away from the four Ps. The answer is that
they are not exactly the same. Product, price, place, and promotion
are nouns. As such, these words fail to capture all the activities of marketing.
For example, exchanging requires mechanisms for a transaction, which
consist of more than simply a price or place. Exchanging requires, among
other things, the transfer of ownership. For example, when you buy a car,
you sign documents that transfer the car’s title from the seller to you. That’s
part of the exchange process.
Even the term product, which seems pretty obvious, is limited. Does the
product include services that come with your new car purchase (such as free
maintenance for a certain period of time on some models)? Or does the
product mean only the car itself? The following video expands upon the
concept of the four Ps and explains its more dynamic use today.
LICENSES AND ATTRIBUTIONS
Reading: The Marketing Environment
THE MARKETING ENVIRONMENT
1.
By and large, managers can control the four Ps of the marketing mix: they
can decide which products to offer, what prices to charge for them, how to
distribute them, and how to reach target audiences. Unfortunately, there are
other forces at work in the marketing world—forces over which marketers
have much less control. These forces make up a company’s external
marketing environment, which, as you can see in Figure 1, “The Marketing
Environment,” can be divided into five sets of factors:
Political and regulatory
2.
Economic
3.
Competitive
4.
Technological
5.
Social and cultural
Figure 1. The Marketing Environment
These factors—and changes in them—present both threats and opportunities
that require shifts in marketing plans. To spot trends and other signals that
conditions may be in flux, marketers must continually monitor the
environment in which their companies operate. To get a better idea of how
they affect a firm’s marketing activities, let’s look at each of the five areas of
the external environment.
THE POLITICAL AND REGULATORY ENVIRONMENT
Federal, state, and local bodies can set rules or restrictions on the conduct of
businesses. The purpose of regulation is to protect both consumers and
businesses. Businesses favor some regulations (such as patent laws) while
chafing under others (such as restrictions on advertising). The tobacco
industry, for example, has had to learn to live with a federal ban on TV and
radio advertising. More recently, many companies in the food industry have
expressed unhappiness over regulations requiring the labeling of trans-fat
content. The broadcasting industry is increasingly concerned about fines
being imposed by the Federal Communications Commission for offenses
against “standards of decency.” The loudest outcry probably came from
telemarketers in response to the establishment of “do-not-call” registries. All
these actions occasioned changes in the marketing strategies of affected
companies. Tobacco companies rerouted advertising dollars from TV to print
media. Food companies reduced trans-fat levels and began targeting health-
conscious consumers. Talent coordinators posted red flags next to the names
of Janet Jackson (of the now-famous malfunctioning costume) and other
performers. The telemarketing industry fired workers and scrambled to
reinvent its entire business model.
THE ECONOMIC ENVIRONMENT
Every day, marketing managers face a barrage of economic news. They must
digest it, assess its impact, and alter marketing plans accordingly.
Sometimes (but not recently), the news is cause for optimism—the
economy’s improving, unemployment’s declining, consumer confidence is
up. At other times (like today), the news makes them nervous—our economy
is weak, industrial production is down, jobless claims are rising, consumer
confidence has plummeted, credit is hard to get. Naturally, business thrives
when the economy is growing, employment is full, and prices are stable.
Marketing products is easier because consumers are willing to buy. On the
other hand, when the economy is slowing (or stalled) and unemployment is
rising, people have less money to spend, and the marketer’s job is harder.
Then there’s inflation, which pushes interest rates upward. If you’re trying to
sell cars, you know that people facing higher interest rates aren’t so anxious
to take out car loans. Sales will slip, and to counteract the anticipated
slowdown, you might have to add generous rebates to your promotional
plans. Moreover, if you operate in foreign markets, you can’t focus on solely
domestic economic conditions: you have to monitor the economy in every
region where you do business. For example, if you’re the marketing director
for a U.S. company whose goods are manufactured in China and sold in
Brazil, you’ll need to know as much as you can about the economies in three
countries: the United States, China, and Brazil. For one thing, you’ll have to
pay particular attention to fluctuations in exchange rates, because changes
will affect both your sales and your profits.
THE COMPETITIVE ENVIRONMENT
Imagine playing tennis without watching what your opponent was doing.
Marketers who don’t pay attention to their competitors are playing a losing
game. In particular, they need to monitor the activities of two groups of
competitors: the makers of competing brands and the makers of substitute
products. Coke and Pepsi, for instance, are brand competitors who have
engaged in the so-called cola wars for decades. Each tries to capture market
share by convincing people that its soft drinks are better. Because neither
wants to lose share to the other, they tend to resort to similar tactics. In
summer 2004, both companies came out with nearly identical new colas
boasting half the sugar, half the calories, and half the carbohydrates of
regular colas. Coke called its product Coke C2, while Pepsi named its
competing brand PepsiEdge. Both companies targeted cola drinkers who
want the flavor of a regular soda but fewer calories. (By the way, both
products failed and were taken off the market.) Meanwhile, Coke and Pepsi
have to watch Nantucket Nectars, whose fruit drinks are substitute products.
What if Nantucket Nectars managed to get its drinks into the soda machines
at more fast-food restaurants? How would Coke and Pepsi respond? What if
Nantucket Nectars, which markets an ice tea with caffeine, introduced an ice
tea drink with mega amounts of caffeine? Would marketers at Coke and Pepsi
take action? What if Nantucket Nectars launched a marketing campaign
promoting the health benefits of fruit drinks over soda? Would Coke and
Pepsi reply with campaigns of their own? Would they respond by introducing
new non-cola products?
THE TECHNOLOGICAL ENVIRONMENT
When’s the last time you rented a DVD of a new movie? And do you even
remember ever renting a videotape? Technology evolves rapidly and these
days, videotapes are long since past. While DVDs are still common, Blu-ray,
digital downloads and on-demand services are the more forward-looking
formats for people who want to watch movies at home. Hopefully onetime videotape makers monitored technological trends in the industry and
took steps to keep up or otherwise protect themselves from losses (maybe
even getting out of the market). In addition to making old products obsolete,
technological advances create new products. Where would we be without the
cell phone, digital cameras, text messaging, LASIK surgery, and global
positioning systems? New technologies also transform the marketing mix in
another important way: they alter the way companies market their products.
Consider the revolutionary changes brought about by the Internet, which
offers marketers a new medium for promoting and selling a vast range of
goods and services. Marketers must keep abreast of technological advances
and adapt their strategies, both to take advantage of the opportunities and
to ward off threats.
THE SOCIAL AND CULTURAL ENVIRONMENT
Marketers also have to stay tuned to social and cultural factors that can
affect sales. The values and attitudes of American consumers are in a state
of almost constant flux; what’s cool one year is out of style the next. Think
about the clothes you wore five years ago: would you wear them today? A lot
of people wouldn’t—they’re the wrong style, the wrong fit, the wrong
material, the wrong color, or just plain wrong. Now put yourself in the place
of a marketer for a clothing company that targets teenagers and young
adults. You wouldn’t survive if you tried to sell the same styles every year. As
we said at the outset of this chapter, the key to successful marketing is
meeting the needs of customers. This means knowing what they want right
now, not last year. Here’s another illustration. The last few decades have
witnessed monumental shifts in the makeup of the American workforce. The
number of women at all levels has increased significantly, the workforce has
become more diverse, and telecommuting is more common. More people
place more importance on balancing their work lives with the rest of their
lives, and fewer people are willing to sacrifice their health to the demands of
hectic work schedules. With these changes have come new marketing
opportunities. As women spend more time at work, the traditional duties of
the “homemaker” have shifted to day-care centers, nannies, house-cleaning
services, and (for those who can afford them) child chauffeurs, birthday-party
coordinators, and even family-photo assemblers. The number of gyms has
mushroomed, the selection of home office furniture has expanded, and
McDonald’s has bowed to the wishes of the health-conscious by eliminating
its “super-size” option.
[1]
1.
Sandra Tsing Loh, “Nannyhood and Apple Pie,” The Atlantic, October 1, 2003, 122–23. ↵
LICENSES AND ATTRIBUTIONS
Reading: Generation Effects And Consumer Behavior
GENERATION GAPS
Clothiers who target teens and young adults (such as Gap and Abercrombie
& Fitch) must estimate the size of both current and future audiences. So
must compan…
