Marketing: The Basics

Karl Moore, Niketh Pareek

• Publisher: Routledge
• Year: 2009
• eBook ISBN: 9781135225902
• Edition: 2
• Topic: Business
• Subtopic: Business General
• Index: Business

'…a punchy, stripped-down version of what marketing is all about.' – The Times Higher Education Supplement

If you have a product you're looking to market, or you're seeking to learn more about the potential of online marketing, Marketing: The Basics tells you everything you need to know about the techniques marketers use to push their product to the 'tipping point'. The essentials of e-commerce are explored and explained, along side more traditional marketing approaches in this revised and updated new edition. This book:

• Explains the fundamentals of marketing and useful concepts such as the Long Tail
• Includes an international range of topical case studies, such as Obama's presidential campaign, Facebook, and Google
• Also includes a glossary of terms, guides to further reading and critical questions to assist further thinking and study

This lively and user-friendly introduction is perfect for professionals seeking to learn more about subject, and recommended for sixth-form, first-year undergraduate and MBA students.

1
WHAT IS MANAGEMENT?

Before delving into the world of marketing management, let us pause and briefly discuss what management is exactly, its history and how it has evolved through time.

Management is not only a word used to describe a group of executives. Management is also a philosophy. Management is the means to achieve an end. The late Peter Drucker, the doyen of management gurus, once said that, ‘The purpose of a business is to create a customer’. If you do that well, profits will follow.

For public institutions, they aim to increase social welfare for the public they serve by redistributing tax revenue; for non-governmental organizations, their goal is to improve the welfare of the disadvantaged or promote the observance of human rights or improve the state of the natural environment.

Though the goals of these three types of organization are different, which in turn means the decisions senior executives make will differ, all three operate with limited resources. As such, the approaches taken to realize their goals are remarkably similar. Management is the coordination of activities to maximize limited resources enabling an organization to realize a stated goal or objective.

The idea of management dates back to the beginning of civilization. The root of the word management can be traced back to Roman times. The Latin word manum agree translates as ‘lead by the hand’, but more tellingly, also means using power and jurisdiction to lead. The word management itself did not appear until the early Renaissance, with the French using the word ménagement to describe the art of conducting. By 1589, the word was absorbed into the English language. Less than 100 years later, the words ‘manager’ and ‘management’ became common words in the English vocabulary and remain so today.

During the Age of Enlightenment, an intellectual movement originating in Europe during the eighteenth century, classical economists like Adam Smith and John Stuart Mill formalized ideas about satisfying human needs with limited resources. The two discussed how scarcity affected the allocation of resources, methods of production and pricing of goods. While academics discussed problems related to scarcity, manufacturers experimented with production processes which led to an abundance of innovations: quality-control procedures, replaceable parts and mass-production techniques quickly revealed their benefit. Mass production, in particular, was one of the greatest innovations of that time. It utilized assembly lines and permitted high rates of production at a very low cost. It is because of mass production, much of the material wealth we enjoy today exists.

Mass production also fostered the creation of the multinational corporation, an organization that sought to vertically integrate itself controlling all factors of production, capturing all the profits within each production step, creating an immense amount of wealth for shareholders. However, at the same time, mass production meant workers were forced to do the same, repetitive actions day in day out, numbing both the brain and motivation. Workplace-related injuries during this time were unacceptably high by today’s standards.

The first comprehensive theories of management appeared in the 1920s. Henri Fayol was one of the first to explore the various branches of management and their interrelationships. Within the next twenty years, academics from the arts and sciences began applying principles of psychology, sociology and statistics to explain phenomena occurring in the business world. Subjects covering topics related to organizational behaviour, human resources and econometrics began to be taught at newly opened business schools in universities such as Harvard.

Today, there are thousands of journals containing information on just about any issue in the field On top of that, there are tens of thousands of websites, trade magazines and pamphlets that cater their reporting to a particular market. Having so much information is both a blessing and a curse: the information you seek likely exists, finding it is another story. Rest assured the marketplace of ideas does exist.

SUGGESTIONS FOR FURTHER READING

Peter Drucker, Management: Tasks, Responsibilities, Practices, New York, Harper & Row, 1974. A classic by the original management guru, who passed away at the age of 95 in 2005. His contribution to the field is immeasurable and he will forever be remembered as one of the most influential thinkers of his time. This is a big book and takes a while to get through. Alternatively, try the shorter essays in Drucker’s The New Realities, New York, Harper & Row, 1989.

Henry Mintzberg, Managing, San Francisco, CA, Berrett-Koehler Publishers, 2009. After 40 years of studying management, Professor Mintzberg summarizes what he has learned. A great read.

Karl Moore and David Lewis, Origins of Globalization, London, Routledge, 2009. This book covers management and business in the Assyrian, Phoenician, Greek and Roman empires. It argues that there was ‘known world’ globalization in the Roman Empire.

WHAT IS MARKETING MANAGEMENT?

Simply put, marketing management is the application of marketing-related strategies and tactics to meet an organization’s stated goals. By that definition every resource, human or otherwise, is participating in the marketing process. In business, marketing has two aims. The first is to attract new customers by highlighting the potential value of a good or service. Getting customers is an active process, meaning the business must solicit the customer; rarely do customers come to a business.

The second aim of marketing is to retain customers by continually meeting and surpassing the customer’s satisfaction with the product. Researchers have found that often as much as 80 per cent of a company’s revenue accrues from as few as 20 per cent of a company’s repeat customers. The luxury car manufacturer Lexus estimated the lifetime value of a satisfied customer was worth $1.17 million, or roughly 20 times the retail price of one car.

Something just doesn’t add up. Unless Toyota (the makers of Lexus) has managed to hide from securities regulators that they are a majority shareholder in a major oil company, the cost of spare parts and maintenance checks do not add up to $1.17 million. How then did Lexus come up with a figure so high

It turns out that when a customer is satisfied with a product and when the opportunity presents itself that person is likely to tell her friends – who are often in the same socio-economic class – how pleased she is, a social phenomenon marketers call word-of-mouth marketing. Despite how much influence advertises like to think they wield over customers, a personal endorsement plays a much larger role in a purchasing decision than any slick marketing campaign. Just take a look at Google as proof. With no formal advertising whatsoever, other than encouraging users to ‘spread the word’, their company has grown from a tiny start-up to the market leader in Internet search.

Back to our Lexus example, one satisfied customers glowing recommendation is literally worth a million dollars. There’s something else at work here. Why would someone choose to purchase a Lexus over another car company with a similar product? The value Lexus owners receive goes beyond the physical product. Clearly, the brand offers a set of benefits that extend far beyond the attributes of their product. We will take a closer look at brands later in the chapter but for now we will only state that those products that add meaning and experience truly differentiate themselves in the mind of customers.

WHAT ARE THE RESPONSIBILITIES OF A MARKETING MANAGER?

Marketing is one of the central functions of a firm the others typically being Research and Development (R&D), Manufacturing or Operations, Finance, IT and Human Resources (HR). Whereas the other functions concentrate on internal matters, marketing’s focus is solely on the customer. Marketing is the most critical of all activities for without a customer there is no revenue, leaving little for the other functions to do. As such, the fate of the organization rests in the abilities of its marketing managers.

It is difficult to generalize about the precise duties and responsibilities of marketing managers. The reason being if one were to do all of the activities that fall under the rubric of marketing, they’d be a communicator, seller, planner, researcher, analyst, product developer, supply chain specialist, online experience optimizer, or in other words, every activity that involves meeting a customer’s need would be a responsibility of a marketing manager. A busy person indeed.

For the sake of that poor person who has to do everything, we’ve divided his tasks into five categories. The first would be to become market experts. Sales are the life and death of a company’s fortunes. Understanding which market forces drive their respective market and how to stimulate demand using various tools and strategies is an essential skill. Second, a marketing manager is a communicator, interacting with customers to inform them about the benefits a product offers. Everything from advertisements to the labelling on the package sends a message to the customer of the benefits that reside within. At the same time, the marketing manager listens to customers to understand which needs are not being satisfied In the long term it is the customer who drives market dynamics. Third, a marketing manager is a steward. Brands are the bread and butter of companies. It is up to the marketing manager to oversee the program that strengthens and enhances the image of the brand. Fourth, a marketing manager is also a negotiator. Rarely do producers sell directly to their customers, instead they rely on intermediaries to distribute their product. Marketing managers need to learn how to negotiate with intermediaries deals that are beneficial to both parties. Finally, marketing managers are managers. They have face-to-face contact with other members of the organization; they oversee projects and rely on their personal values to help them through ethically difficult situation. Even when the job is simplified a marketing manager needs to wear many hats.

THE FUNDAMENTAL PRINCIPLES OF MARKETING

In every subject, there are fundamental axioms that underlie its theoretical foundation. In economics, for example, it is assumed that all actors are rational beings, have access to the same set of information and seek to maximize their utility. Being a subset of economics, it’s no surprise that many of the fundamental assumptions of economics also apply to marketing, however we don’t assume that information is uniformly distributed. We do assume that actors in this world are rational, but they might not make the same decision given the same set of circumstances, because – and this is our third assumption – there is an abundance of choice.

The fundamental principle underlying marketing theory is that throughout the course of a day, humans instinctually seek to satisfy their intrinsic needs. These needs can be classified into three groups physical, social or individual. Physical needs include food, shelter and security. Social needs include a desire for companionship or acceptance within a group. Finally, self-expression and desire for knowledge are types of individual needs.

To satisfy these needs, humans must consume. Though the desire to satisfy unmet needs is instinctual, the items or actions chosen to satisfy those needs are not motivated by carnal impulses. On the contrary, the choices a person makes, called wants, are influenced by cultural and personal experiences. For example, if you live in East Asia, eating rice for breakfast is commonplace. In Western Europe and North America, however, a typical breakfast entails eating a grain or corn-based cereal. Since humans have the same needs but different wants, it opens up the possibility for many products to exist.

But how does a company determine the extent of the variation? The process is called market segmentation, a process which entails taking a population and dividing it into groups according to a set of shared characteristics. In order to create these groups, market research is needed to identify the characteristics that the segment shares. Market research is the planned, systematic collection and analysis of data used by managers to make a decision. Market research provides information on a customer’s preferences, their buying habits, their attitudes, likes and needs. Furthermore, market research reveals the potential size and purchasing power of the segment.

An example of segmentation is what drug firm Pfizer, is now doing. In the past they used sales reps to call regularly on physicians to inform them about new types of therapies. However, Pfizer no longer treats all physicians alike; research revealed that many physicians did not appreciate sales reps taking up their already limited time. Physicians much prefer to evaluate information while attending seminars or during their spare time reading information published on the Internet. As such, Pfizer responded by segmenting physicians according to their communication preferences. By doing so, Pfizer could better allocate its resources to the needs of each group.

Segmenting the market allows the marketer to identify which group or groups are the most attractive. For any market there are many potential segments: one of the great challenges of marketing is carefully choosing a small number of segments on which to focus your limited resources. Learning to say no to opportunities is a difficult thing for many marketers to do! Even a giant like IBM has only finite resources and must carefully align them to the markets for which it has best advantages over their competitors. The segment(s) the firm decides to market their product is called the target market. It is the target market that is exposed to a variety of carefully calibrated marketing strategies, what we call the five Ps (product, place, price, promotion and people). Together, the strategies chosen for the 5 Ps is known as the marketing mix.

We discuss market segmentation...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• CONTENTS
• List of illustrations
• Introduction
• 1 What is management?
• 2 Marketing as a corporate function
• 3 Segmentation, targeting and positioning
• 4 Online marketing
• 5 Product and placement
• 6 Price
• 7 Promotion
• 8 People
• 9 Market research
• 10 Global marketing
• Glossary
• Index