A Very Short, Fairly Interesting and Reasonably Cheap Book about Studying Marketing

Jim Blythe

• Publisher: SAGE Publications Ltd
• Year: 2006
• Print ISBN: 9781412930888, 9781412930871
• eBook ISBN: 9781446222621
• Edition: 1
• Topic: Business
• Subtopic: Marketing
• Index: Business

Studying Marketing is packed full of lively debate and funny anecdotes covering topics marketing students are familiar with, such as key thinkers and concepts, and some they are not. It looks at areas most textbooks ignore, such as the development of marketing as a discipline and as an academic subject, and raises arguments that students haven?t heard about in their lectures.

Conceived by Chris Grey as an antidote to conventional textbooks, each book in the 'Very Short, Fairly Interesting and Reasonably Cheap' series takes a core area of the curriculum and turns it on its head by providing a critical and sophisticated overview of the key issues and debates in an informal, conversational and often humorous way.

Suitable for Marketing students at Undergraduate and Postgraduate level. Along with professionals involved in marketing and anyone interested in how marketing works. 

Part 1

Proper Subjects that Preceded Marketing

1

The Economists

In 1776, the year of the start of the American War of Independence, a Scotsman called Adam Smith published a remarkable book. It was called An Inquiry into the Nature and Causes of the Wealth of Nations, and it set out to explain how countries become wealthy. The lengthy title is usually condensed to simply Wealth of Nations nowadays, but the ideas within the book are still well-regarded to this day (Smith, 1998 [1776]). Smith’s liking for lengthy titles extended into the book itself. It is subdivided into five books, totalling 32 chapters in all, and although each chapter is fairly short, the book is a substantial one which seeks to encompass all aspects of wealth creation.

Smith’s work is important because it was the first book to be written about economics: it is interesting because it says a lot about life in the eighteenth century. For instance, Smith uses the example of pin manufacture, explaining the eighteenth-century process in considerable detail in order to show how division of labour increases efficiency. In Chapter Two of Book One, Smith outlines the basis of the marketing concept, as follows:

But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer, and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.

The marketing concept essentially says that the route to success is to consider the customer’s needs – which is exactly what Adam Smith was telling us 230 years ago. Smith saw self-interested exchange as one of the cornerstones of developing wealth in nations, and for developing the wealth of individuals. This is a concept which certainly has resonances for modern marketers – the idea that marketing delivers a standard of living was widespread in the 1960s and 1970s. Indeed, for many marketers the whole basis of marketing is the management of exchange.

Smith’s ideas became the basis for the Classical school of economics (replacing the early Mercantilist and Physiocratic schools). Classical economics took the view that the ‘invisible hand’ of the marketplace would ultimately result in the greatest good for the greatest number, because each person would ensure his or her own welfare by exchanging with others: provided the exchanges were fair, the end result would be an increase in everyone’s wealth. Smith suggested that three basic factors of production (land, labour and capital) could be combined in different ways to create wealth, and that (in the long run, at least) these factors would be combined in the most efficient way possible, since that would be in everybody’s best interests. Later economists included the idea that entrepreneurship is also a factor of production: the willingness to risk one’s own capital and creative effort in the hope of future rewards is essential if businesses are to start up and to prosper.

Smith also believed that a free marketplace would lead to full employment, and that government intervention in the marketplace (which had been advocated by the Mercantilists) would lead to distortions, thus reducing the efficiency of the market in creating wealth for everyone.

Not surprisingly, these ideas were warmly greeted by merchants and landowners. There has probably never been a time when business people didn’t want to get the government off their backs, and following on from the radical intervention of government during the Mercantilist period (when governments applied huge tariffs to anything imported, and offered huge subsidies to anything which could be exported) Smith must have been a hero to the businessmen of his day.

greed is good

Gordon Gecko, in the film Wall Street, famously said ‘The point is, ladies and gentlemen, greed is good. Greed works, greed is right … and greed, mark my words, will save not only Teldar Paper but the other malfunctioning corporation called the USA.’ Smith could have written those words himself. But how true is this idea?

As is almost always the case with a one-solution argument, the frame of the picture has been drawn too small. Not everybody knows what’s good for them, for example. Some people are poor negotiators. Some exchanges are fraudulent. Some people have more power in the relationship than others – an idea put forward by a later economist, David Ricardo, who pointed out that we don’t have unlimited land, and therefore landowners will experience a steady increase in the value of their land as demand increases (Ricardo, 1992 [1817]). Two hundred years later marketers are still struggling with the concept that exchange is not always fair or good for the consumer – we know that it’s easy to sell people products which are unhealthy, environmentally damaging, or socially unacceptable but are we morally justified in doing so? According to Gordon Gecko (and Adam Smith), there is no problem, because greed is good. In which case we might as well all become drug dealers and pornographers, because that’s where the money is.

Before you rush off to start a new career, it may be worth considering the contributions of later economists. Ricardo has already had a mention for explaining that landowners have more power in the relationship than either capital or labour. Following on from this idea, Thomas Malthus (1992 [1798]) put forward the proposition that rising population would mean that limited resources would quickly be exhausted – population increases geometrically, whereas other resources only increase arithmetically. According to Malthus, we should all have starved to death long ago, which of course has not happened (at least in wealthy countries) because our population has stabilized and in any case our production of food has become much greater than anticipated. The basic principle remains, though, that the planet has only finite resources and (whether there are more of us or not) we are consuming those resources at an increasing rate. Malthus may have been replaced by Friends of the Earth, but the Cassandra-like warnings are growing ever louder.

Ricardo and Malthus filled in some of the gaps in Smith’s thinking, and (of course) complicated the model quite a lot by adding a moral and ethical dimension. Some marketers (notably Kotler) have put forward the idea that marketers need to be socially responsible, and consider the long-term welfare of the customers. This concept has been expressed as ‘societal marketing’ – a lovely idea, but one which might be difficult to push through at a board meeting.

The drawbacks of classical economics became painfully clear as the nineteenth century rolled on. Wealth became concentrated in the hands of capitalists and landowners, and wages were screwed down as low as the employers could manage – there was plenty of labour around, but land was no more plentiful than it had been since the Ice Age, and capitalists held the purse-strings and controlled the means of production. This led to the economists having a bit of a re-think. The leading thinker on this issue was, of course, Karl Marx. Marx was a German living in London, and he saw all about him the effects of the laissezfaire, Smith-type classical economics. Non-intervention by government had not led, as Smith had thought, to the greatest wealth of the greatest number, but had instead created poverty and misery for the bulk of the population, and fabulous wealth for a few. Marx believed that capitalism would eventually destroy itself, because wealth was created by labour and eventually the starving masses would rise up and overthrow their masters, making private property obsolete in a world where the workers ran things (Marx, 1993 [1867]).

Marxist thinking created the great Communist countries of the twentieth century, and encouraged revolutionaries everywhere to rise up against the capitalists. It would be interesting to find out if Marxism could ever work: it was only ever tried in agricultural economies, never in a modern industrialized state, so we may never know the answer. I always thought Marx was a brave soul, but with fatally-flawed thinking: he thought he had discovered the laws of history, but in fact there are no laws because people are just making things up as they go along. His belief that labour added value to raw materials did not take account of the idea of a bad workman, for instance – those of us who have been employers know that there are some people whom we should pay to stay at home, because they cause more damage than they are worth if they show up for work. He also ignored a factor which became the fourth element of classical economics: enterprise.

Enterprise is the willingness to take a risk, and it is an essential part of any business activity, especially in start-ups. Being prepared to back a new idea or a new product with hard cash and personal effort is what makes things happen, but this did not figure in Marx’s thinking. Sitting in the British Museum Library (which is where he wrote Das Kapital, his monumental work on capitalism) he was probably not exactly in the entrepreneurial hotbed of London.

So far most economists had been thinking about wealth and welfare from a somewhat lofty plane – their thinking was about ways to increase the wealth of the country as a whole, and how economic policies could be applied to everything in order to create the right conditions for prosperity. Few of them had considered what happens at the level of the individual person or company. In other words, they had invented macroeconomics before inventing microeconomics. This may seem a little odd in view of the fact that the word ‘economics’ is derived from a Greek word meaning ‘housekeeping’.

Classical economists had theorized that prices are determined by the costs of production. This may have been the case in the eighteenth century, but it is certainly not the case nowadays. The thinking was that suppliers would produce goods as cheaply as they could, then add on a profit margin and offer the products for sale. Most of us tend to think this is still largely the case, and most accountants and engineers use this approach when they calculate prices, using cost-plus pricing. This self-centred view of the exchange process leaves out half the equation, namely the customers, despite Smith’s declaration that ‘the customer is king’. What Marginalist economists (represented by Alfred Marshall and Leon Walras) contributed was that prices are also determined by demand.

This may seem obvious now, but was not quite so obvious in the nineteenth century. Alfred Marshall (1997 [1890]) developed a complex mathematical proof for the laws of supply and demand – in order to tell us that if something is too expensive, people won’t buy it, but if it is cheap they will buy more of it. Not exactly rocket science, but it is one of the key concepts of microeconomics. The ‘pile it high and sell it cheap’ school of marketing certainly has its adherents, but (as is always the case with economic, or any other, models) the frame is too small to show the whole picture. Walras, who was an economics professor at the University of Lausanne, felt himself to be on the periphery of economic thought. At the time, most economists were based in the UK, so Walras had to say something pretty profound to get himself noticed. What he actually came out with was a general equilibrium theory, which demonstrated mathematically that economies would naturally find an equilibrium in which the prices of commodities were stable (Walras, 1984 [1874]). In fact, the theory had more holes in it than a string vest, but later economists plugged many of the holes and Walras is now regarded as a major contributor to the field.

Where Marshall and Walras went slightly adrift is by postulating that competing products are identical, and that everyone has perfect knowledge of the marketplace. To put it as kindly as possible, these two assumptions do not easily transfer into the real world. It may be true that mackerel caught by two competing fishermen have little to choose between them, and therefore the fishermen would have to charge more or less the same price, but the same is not true of sausages, cheeses, Bird’s Eye ready meals, cars, books, or indeed anything with some kind of manufacturing to add value to it. Marx would have loved the idea of product differentiation – it is proof positive that adding more labour to something increases its value.

The other assumption, perfect knowledge, also does not stand up to close scrutiny. Even if one has perfect knowledge (for example, by using the Internet to make comparisons), this does not translate readily into an ability to do something about it. Knowing that a second-hand Ford Mondeo can be bought for £300 less from a dealer in Sheffield does not help much if one happens to live in Penzance. Equally, knowing that one plumber can fix a burst pipe for £20 less than the plumber who is currently working on the pipe is no help if it is three in the morning and the kitchen is flooded. In practice, of course, perfect knowledge (like the perfect England football team) does not actually exist, however pleasant and intellectually satisfying it might be to discuss the possibility among friends.

Another interesting idea from the Marginalists was that capital, labour and land would each receive their proper reward according to their contribution to the finished product. This is a peculiar proposition, because it seems to imply that there is some kind of automatic process involved – perhaps the invisible hand of the market – and that people are powerless to change it. In practice, of course, people negotiate (or even cheat a bit) in order to increase their personal welfare at the expense of others. The main effect of the Marginalist view of reward is that those who were most successful at grabbing the loot for themselves were able to justify their rapacity with a solid academic argument – hurrah for marginalism. Like Smith before them, the Marginalists were (understandably) the darlings of the ‘haves’ while Marxist economists were beloved by the ‘have nots’.

Being able to put an acceptable face on the concept of greed is understandable, of course. When one’s friends ask what you do for a living, ‘Grind the faces of the poor’ is not the right answer. ‘Generate wealth and jobs for the poor’ sounds a lot better.

‘it’s the economy, stupid!’

During the 1992 American Presidential election, Bill Clinton needed reminding that the US economy was going to be a key issue in the campaign. His strategist, James Carville, put up a sign in Clinton’s campaign headquarters which said simply, ‘The economy, stupid!’ to remind Clinton to stay focused on economic issues.

Governments love to intervene (or interfere, depending on your viewpoint) in the economy because of the remarkable effect it has on voters. Everybody wants the economy to grow, because growth means more wealth to be divided up: once we have created a bit of wealth, everybody has an interest in how it is divided. Governments throughout the world feel an irrepressible urge to tinker with things, and of course because governments set the taxes and spend such a large proportion of the national wealth on welfare, wars and paperwork, they have a huge impact on the economy of the country anyway.

What the government gets up to may seem to be far removed from what marketers do in their day-to-day lives, except of course where legislation prevents us from advertising in a particular way, or selling a particular category of product. In fact, government policy has far-reaching effects on the business environment in which marketers operate. Policy has often shifted according to the current fashionable ideas among economists: whether the ideas are acceptable or not probably depends largely on the prevailing mood of the country. For example, in the Mercantilist era of economic thought, it was assumed that the wealth of a country could be measured by its ownership of precious metals – gold and silver, predominantly. These metals could either be mined or (for countries without mines) be bought using exported products. Thus countries such as England, having no gold mines, were forced to subsidize exports and apply huge tariffs to imports. (Wales does have gold mines, but these are small and have not added appreciably to the country’s wealth.) The main effect of raising tariffs on imports was to add considerably to the level of smuggling: the seventeenth-century equivalent of the booze cruise was a short trip to Brittany to bring back French brandy and wines, landing back at an isolated Cornish cove to hide the booty.

A group of French economists, the Physiocrats, did not accept the Mercantilist view of the economy: they believed that agriculture was the true source of all wealth. This view seems to have lasted until the present day in France, but in the eighteenth century it was a new idea. The Physiocrats also believed that income and output formed a circular flow, which could only be disrupted by government interference, so they advocated a laissezfaire attitude. This model turned out to be somewhat simplistic (surprises all round) and of course was not popular with governments, who naturally believe that it is their job to run things.

Smith rejected the idea that agriculture was the only source of wealth, but he did accept the view that governments should stay clear of trying to run the economy. However, a later Classicist, John Stuart Mill (1998 [1848]), pointed out that a laiss...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Introduction: Studying Marketing
• PART I PROPER SUBJECTS THAT PRECEDED MARKETING
• PART II MARKETING AS A PROPER SUBJECT
• PART III SELLING MARKETING
• Epilogue
• References
• Index