Marketing involves a mutually satisfying exchange between parties. Marketing can be defined as a set of processes involved in offering a product to the target market and making it available at the right place and at the right time, at the right price and effectively promoting this offer resulting in a mutually satisfying exchange. It is necessary to conduct marketing research on an ongoing basis in order to find out the target market's demands, as attitudes and societal values can and do change over time. There must be at least two parties in order for an exchange to take place.
The customer (who may or may not also be the consumer) usually offers money in exchange for a satisfying product (be it a good or a service). In addition to being a good or a service, a product can be a person (e.g., rock star or a politician or political party), or an idea. Organisations are expected to offer products which are of an acceptable quality and are available in the right place, at the right time and in the right quantity.
Increasingly, governments, NGOs (non-government organizations) and citizens are demanding higher ethical standards from corporations. The spectacular collapses of once-powerful organisations such as Enron in the U.S. and HIH in Australia to name but a few, illustrates the reasons for requiring higher standards from organisations.
Evolution Of Marketing
Marketing orientations have evolved over the years. At the beginning of last century the marketing orientation was on production, with Henry Ford's famous saying (in terms of the Model T Ford - the first mass produced car) - "give them any colour they want as long as it's black". This was based on more efficient production lines leading to economies of scale, in turn leading to lower prices for consumers. After companies became more efficient at mass producing products, they realised they needed to adopt a selling orientation in order to sell all these products. Around the 1930s - 1940s and particularly after the Second World War, books such as 'The Psychology of Selling' were very popular. Door-to-door selling was wide-spread and companies tried to work out the mechanics of the 'black box' (representing the unknown workings of consumers' minds) and how to most effectively sell to them. The 'hard sell' became synonymous with this era. McMurray's (1944) conceptual paper into the psychology of selling was published in the highly prestigious Journal of Marketing. According to McMurray, advertising (with the resultant aim of making sales) "must become a more exact science, making fuller use of statistics and of the resources which the sciences of psychology and psychiatry offer it" . Around the 1970s, the marketing orientation was emphasised, placing the customer at the centre of the marketing mix. Particularly since the turn of this century, increasing focus on societal marketing emerged. Philip Kotler et al (2003) recognised that organisations need to take the concerns of all stakeholders, including in the wider society (such as governments) into account in their operations.
Segmentation, Targeting And Positioning
Some products can be offered to the mass market, such as certain soft drinks or chewing gum. Other products are targeted only to certain segments of the population. Segmentation involves marketers identifying groups of consumers with similar characteristics. Essentially, four bases for segmentation exist: demographic, psychographic, geographic and behavioural. Demographic segmentation is based on age and/or income and/or gender and/or occupation and/or education. Psychographic segmentation is based on people's interests, opinions and/or lifestyles, etc. Geographic segmentation is based on factors such as location (e.g., rural, urban or suburban) and/or climate. Behavioural segmentation can be based on reason for purchase (self or gift, special occasion, etc.), usage (heavy, medium or light) and/or time of purchase (booking overseas airfares in university holidays, etc.).
Once the broader market/population has been segmented, marketers can choose to target one or more of these segments. This is known as targeting.
Positioning refers to how the target market perceives your offering compared to how they perceive competitors' offerings. Market research is conducted to find out what the target perceives as being important characteristics of that product category. If we take beer as an example, the target market might state that price and alcohol content are the two most important considerations. This is demonstrated in the 'positioning map' below.
The target market would be asked to 'position' various brands of beer according to these two criteria. Marketers can then decide to keep their brand in the current position, or to re-position it, either by physically altering the product (such as increasing or decreasing the level of alcohol) or changing some other aspect of the marketing mix, such as price, distribution or promotion. Marketers can also identify a gap in the market through a positioning map and then develop a product and price it accordingly in order to appeal to the segment not currently being targeted by competitors. Once a segment has been chosen, the marketer targets this segment through their marketing mix.
The marketing mix generally refers to the 4Ps - product, price, place and promotion. Services' marketing incorporates an additional 3 Ps, due to the intangibility of services - people, processes and physical evidence.
A product (physical good) consists of four layers - core, expected, augmented and potential. The core is the functional aspect of the product, for example, a car getting from point A to point B. The expected layer is the benefits (including functionality) the consumer expects to get from the product (for example, we don't expect the car to break down or be of inferior quality. Obviously, our expectations increase in relation to the amount of money we spend on the car). Augmentation refers to additional components, be they tangible (such as GPS, parking sensors) or intangible such as extended warranties and after-sales service. Potential is 'thinking ahead' - for example, the potential of a car going onto 'auto pilot' when the driver is too tired to drive, or a car running on water instead of petrol. The product life cycle (PLC) shows the product from introduction through to decline and associated profits. As can be seen in the graph below, companies do not start making a profit until the end of the introduction stage, due to the high associated new product development costs (R&D, commercialisation, etc.) needing to be recouped.
New products are adopted by the population at different stages and are accordingly priced differently at each of these stages. Different segments of the population exhibit different characteristics -
Innovators: tend to be younger, more socially mobile, better educated, high risk takers, urban and global travellers. This group makes up approximately 2.5% of the population. Innovators are the first to buy new products and accordingly pay a higher price for new technology.
Early Adopters: also well educated, but wait until the 'bugs have been ironed out' before adopting the product. This group makes up about 13.5% of the population and includes Opinion Leaders - those people who are considered to be knowledgeable about a particular product category and are therefore influential.
Early Majority: makes up about 34% of the population. The price has decreased substantially since introduction.
Late Majority: also consists of approximately 34% of the population. The price is lower still and new technology has entered the market some time earlier.
Laggards: tend to be older, less educated, 'set in their ways'. Laggards make up approximately 10% of the population. This group will often only adopt a new product when they are no longer able to obtain, for example, parts or service for their existing product (such as an old computer).
Pricing strategies can be based on setting your prices based on competitor's prices; cost-plus pricing (covering fixed and variable costs and adding a dollar or percentage amount on top); and market-based pricing (finding out the prices that customers are willing to pay). Businesses can use either a skimming, or a penetration pricing approach. A skimming pricing strategy is where you enter the market with a high price in order to maximise revenue, which is appropriate for innovative products (no current competitors) and for prestige products. A penetration pricing strategy is offering your products at a low price in order to maximise market share. Regardless of which approach is taken, as stated in the American Marketing Association marketing definition, the offering (good and/or service) should "have value for customers, clients, partners, and society at large" . The value equation is therefore important when deciding on a pricing strategy and a simple representation is: V = B/P; where V = value. B = benefits and P = price.
Organisations can increase the value to consumers by increasing the benefits and keeping the price constant (such as an Internet service provider giving extra bandwidth each month at the same price), or by keeping benefits constant and lowering price. The ultimate value would be to increase benefits and lower the price, but of course companies need to ensure that they cover their costs and make a profit. Profit is revenue minus costs. Revenue consists of price multiplied by quantity. Costs include fixed and variable. Fixed costs would be full-time staff and building rental/mortgage payments, whereas variable costs rise or fall depending on production - for example, casual staff and electricity.
Place refers to distribution. Distribution strategies can be intensive, selective or exclusive. Low-priced products (typically FMCGs - fast moving consumer goods) follow an intensive distribution, for example, supermarket items. An exclusive distribution strategy means that items are available in only a very few outlets, for example Chanel, Louis Vuitton. A selective distribution strategy means that items are not widely available (as with intensive distribution), but have more retail outlets than exclusive products. An example of selective distribution would be Esprit and Country Road.
Distribution can be direct (from the producer to the customer) or indirect (from the producer, to the wholesaler, to the retailer, to the customer).
Promotion consists of advertising, which can be above the line (ABL), such as newspapers, radio, television, cinema, billboards, Internet, or below the line (BTL) such as sales promotion, public relations, personal selling and publicity. The famous saying 'I know half my advertising dollars are wasted - the problem is, I don't know which half' is attributed to John Wanamaker and illustrates the difficulty of measuring the ROI (return on investment) of ABL promotion. Internet promotion however has radically changed the traditional problems of ABL measurement, with tracking facilities now able to fully measure advertising dollars.
Many companies use a combination of ABL and BTL, known as TTL - through the line. The lines have become increasingly blurred with the popularity of social media networks such as YouTube, with hits in some cases outstripping newspaper readership or television viewing. One such case of a social media campaign having a viral marketing effect is Old Spice reinventing itself through Youtube .
Sales promotion entails giving customers something extra for the same price (such as providing double the normal quantity of goods for the same price) or discounting the price of the standard product. Sales promotion should only be used short term because if it's used long term customers begin to expect it as part of a standard offering.
Public relations is designed to foster good relationships between the company and society (government and citizens, including potential customers). Public relations is particularly important during times of crisis such as a major company scandal, product failure, unethical behaviour, or a disaster linked to an organisation, such as an airliner crash or a landslide due to extreme logging. Publicity is free (financially) to the company but cannot be directly controlled by the company. An example of successful publicity is Richard Branson and his publicity stunts for his Virgin brand. Personal selling is undertaken primarily by prestige brands and in business-to-business (B2B).
Promotion needs to achieve the various stages within the AIDA model in order to result in sales. AIDA stands for Awareness, Interest, Desire and Action (i.e. purchasing the product). The primary promotion objective for a product new to the market is to create awareness that the product exists. Once consumers are aware, they need to be interested in, for example, the features of the product. The next stage is desire to obtain the product. Only when these stages have been achieved, will the product be purchased.
The main differences between goods and services are that services provide:
Intangibility - unlike goods (such as mobile phones, Coca-Cola, etc.) services cannot be seen or touched.
Perishability - services cannot be stored, due to the fact that services are 'consumed' at the time of their being produced. For example, a flight that takes off with empty seats means that the revenue from those seats at that particular time, is gone forever.
Heterogenity - manufactured goods can come off a production line looking exactly the same - for example, cars, computer, soft drink cans, etc. Whilst processes, uniforms, décor etc. can standardised, because services are delivered (produced) by people, services cannot be completely standardised due to differences between people and even changes in, for example, moods of each person.
Inseparability - production cannot be separated from consumption. Think of receiving a haircut, having your home cleaned, your car being serviced, etc.
Services cover what are known as the 7Ps of marketing. Four of these Ps include the traditional 4Ps of marketing (product, price, place & promotion). The additional 3Ps consist of what are known as people, process and physical evidence.
1. People: are at the forefront of an organisation and, as mentioned above in 'inseparability', simultaneously produce the service as it is being consumed. Staff therefore need to be knowledgeable, technically competent, efficient, friendly, empathetic and reliable.
2. Process: this refers to what happens 'behind the scenes' in order to deliver the service. For example, an efficient booking system when you book an air flight and check-in at the airport.
3. Physical evidence: because services are intangible, consumers look for tangible evidence of quality. Hotels therefore ensure their foyers reflect the appropriate level of quality - for example, a 5-star hotel might have marble floors, large bouquets of flowers, high-quality furnishings, expensive lighting and music appropriate to ensuring a high-quality image. We all know the substantial differences in physical evidence between economy, business and first class flights, for example, the width and length of seats, quality of food and drinks etc.
A number of other important concepts exist in marketing and help companies determine their choice of marketing mix objectives, strategies and tactics.
The marketing mix is directly under an organisation's control. The external environment however, cannot be controlled by a company, although companies may seek to influence some of these external factors, such as lobbying government in order to influence policies.
The immediate external environment consists of customers/clients, suppliers, distributors and competitors. The macro environment consists of a number of factors, which can be easily remembered through an acronym - PEST - where P = political/legal/regulatory, E = economic (such as inflation, interest and tax rates, discretionary spending, consumer confidence, economic growth or decline, etc.), S = social/cultural (such as increasing concerns with childhood obesity, increasing popularity of organic foods, less tolerant attitudes towards excessive alcohol consumption, attitudes towards people who smoke, etc.) and T = technological (new technologies can lower costs for producers and in turn can be passed on through lower prices for buyers).
A number of factors influence consumer behaviour, for example personal factors such as demographic and psychological, social/cultural and the situation. Demographic factors include age, income, education, gender and occupation. Psychological factors include personality, beliefs and attitudes and motivation. Social/cultural factors include the culture one is born into - it may also include the culture one has adopted subsequent to the culture of one's birth - subcultures (such as the surfing subculture and the popularity of brands such as Quicksilver) and social influences such as reference groups. The primary reference group is the family we're born into. Once we start school, other groups such as friends have increasing influence on us, as do members of clubs or associations we might belong to as we become older. Three different types of reference groups exist:
Membership group - this is the group that we currently belong to and associate with. Our membership group influences the way we dress, the way we act and may also influence our manner of speech. Our membership group may also influence (to a greater or lesser degree) our beliefs and attitudes.
Aspirational group - this is a group that we would like to belong to one day. In the meantime, we might start adopting some of the characteristics of our aspirational group, such as dressing in a similar manner, driving the same cars, etc.
Disassociative group - we are at pains to avoid any association with this group. For example, we might never want to belong to a gang, therefore will not adopt any of the ways of, for example, dressing, acting and speaking as the members of this group.
The situation can also influence consumers, such as the time of day (are we rushed or do we have lots of time to shop), our moods (research shows that consumers often shop to give themselves some relief from feeling low or inadequate in some way - hence the terms 'retail therapy', 'shop 'til you drop', 'shopaholic'), the situation (is the product for ourselves or is it for a gift) and our motivation (for example, students may be substantially more motivated to purchase a printer for their assignment due next week if their university professor has insisted on accepting printed assignments only). As mentioned above, motivation is part of our psychological influences. Abraham Maslow is well-known for his Hierarchy of Needs. This is often represented as a pyramid showing the various stages of motivation -
1. Physiological: this relates to our most basic and essential needs, such as food and water. Many advertisements relate to food products (think of McDonald's and the many other types of food such as bread, margarine, vegetables to name but a few) and to bottled water and other beverages.
2. Safety: we will not be concerned with what we wear, if we do not first of all feel safe. Products such as gated estates, burglar alarms, security screen doors and windows related to our motivation for safety.
3. Belongingness: this includes our need to love and be loved and to have friends and belong in society. Many products are advertised to address this motivation, such as sparkling wine/champagne, holidays, perfumes. Social networking sites also satisfy this social need.
4. Self-esteem: this relates to our motivation to be seen as successful in some way. Advertised products include prestige cars, university education, buying a house in a desirable location, the type of house, etc.
5. Self-actualisation: this refers to our need to become what we were meant to be, for example, a composer must write his/her music, an artist must paint her/his picture, etc. Advertised products include bungee-jumping, meditation courses, etc.
Consumers go through a series of stages when making a decision whether or not to purchase -
1. Problem Recognition: the difference between our existing state and our desired state. For example, when we are thirsty, we will want to buy something to satisfy our thirst.
2. Information Search: we may seek information from family, friends, publications, organisations (such as the NRMA when purchasing a car), or by visiting a dealer or retailer. The more highly involved we are, the more likely we are to obtain lots of information.
3. Evaluation of Alternatives: once we have obtained information on a variety of brands, we then need to make a decision as to which one we will choose. We might rank the alternatives according to the attributes we think are most important. For example, when buying a computer, in which order would we rank attributes such as size/type of screen, memory capacity, graphics, size (desk-top or laptop) and what weighting would we give each attribute.
4. Purchase: Once we have decided on a particular brand, we then make the purchase.
5. Post-Purchase Evaluation: our level of satisfaction will depend on whether our expectations have been met, exceeded or whether we are disappointed. Cognitive dissonance refers to the fact that we have had to choose one of several alternatives and we wonder if we made the correct decision. Companies try and overcome this by, for example, congratulating the purchaser on the excellent choice they have made. As an example, Toyota uses the slogan 'Oh What a Feeling' as a way of confirming to the purchaser that they made the right decision by choosing a Toyota vehicle.
It is important to note that the difference between high-involvement and low-involvement. With a product category that the purchaser is unfamiliar with, or where the product is expensive relative to discretionary income, a buyer is likely to go through all five steps - highly involved with the product choice, final decision and purchase. For a low-involvement product, such as those we are very familiar with, e.g. toothpaste, we are likely to go straight from Step 1 - recognition that we need a product, directly to Step 4 - to purchase the product.
- ↑ McMurry, R. (1944), "Psychology in Selling", Journal of Marketing, Vol. 9 Issue 2, pp. 114-118
- ↑ Kotler, P., Adam, S., Brown, L. and Armstrong, G. (2003), Principles of Marketing, Prentice Hall, Pearson Education, Australia
- ↑ Definition Of Marketing, American Marketing Association. Retrieved 30th June 2011.
- ↑ Quotations Page, Wanamaker, John (1838-1922)
- ↑ Spice Ad Campaign Goes Viral, CNN. Retrieved 26th June 2011