Principles of Marketing Unit 1 Introduction

Principles of Marketing Unit 1 Introduction WHAT IS MARKETING?  Marketing is managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering satisfaction.  For eg.: Wal-Mart and Big-Bazaar has become world’s largest retailer, and one of the world’s largest companies, by delivering on its promise, “Always low prices, Always!” DEFINITION “ The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return”. -By Philip Kotler  Many people think of marketing only as selling and advertising. However, selling and advertising are only the tip of the marketing iceberg.  Today, marketing must be understood not in the old sense of making a sale- “telling and selling”but in the new sense of satisfying customer needs.  If the marketer understands consumer needs; develops products and services that provide superior customer value; and prices, distributes and promotes them effectively, these products will sell easily. THE MARKETING PROCESS The marketing process involves five steps. 1. Understand the market place and customer needs and wants. 2. Design a customer-driven marketing strategy. 3. Construct an integrated marketing program that delivers superior value. 4. Build profitable relationships and create customer delight. 5. Capture value from customers to create profits and customer equity. Under the market place and customer needs and wants Design a customer-driven marketing strategy Research Customers and the Market Place Select customers to serve- market segmentation and targeting Manage Marketing Information and Customer Data Decide on value propositiondifferentiation and positioning Construct an integrated marketing program Product and service designbuild strong brand Pricing- create real value Distributionmanage demand and supply chain Promotioncommunicate the value proposition Build profitable relationships and create customer delight Customer relationship management (CRM): build strong relationship with chosen customers Partner relationship management: build strong relationship with marketing partners Capture value from customers to create profits and customer equity Create satisfied, loyal customers Capture customer lifetime value Increase share of market and share of customer Step1-  Understand the market place and customer needs and wants- (Core Concepts of Marketing)  As a first step, marketers need to understand customer needs and wants and the market place 1. 2. 3. 4. 5. within which they operate which includes understanding of five core customer and market place conceptsneeds, wants and demands Market offerings- products, services and experiences Value and satisfaction Exchanges and relationships Markets. Needs, Wants and Demands- Core Concepts of Marketing:  Needs are states of felt deprivation which includes physical needs for food, clothing, warmth and safety, social needs for belonging and affection, and individual needs for knowledge and self expression.  Wants are the form that human needs take as shaped by culture and individual personality. For e.g. one needs food but want hamburger, French fries and a soft drink.  Demands are human wants that are backed by buying power. Given their wants and resources, people demand products with benefits that add up to the most value and satisfaction. Outstanding marketing companies go to great lengths to learn about and understand their customers’ needs, wants and demands. They conduct consumer research analyze mountains of customer data. Their peoples at all levels-including top management-stay close to customers. For eg. Banking industry. Market Offerings- Products, Services and Experiences  Consumers’ needs and wants are fulfilled through a market offering.  Market offering is nothing but some combination of products, services, information or experiences offered to a market to satisfy a need or want.  Market offerings are not limited to physical products. They also include services, activities or benefits offered for sale that are essentially intangible and do not result in the ownership of anything. Eg. banking, airline, hotel, tax preparation and home repair services.  However, many sellers make the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products i.e. they suffer from marketing myopia.  Smart marketers look beyond the attributes of the products and services they sell. Value and Satisfaction  Customers form expectations about the value and satisfaction that various market offerings will deliver and buy accordingly.  Satisfied customers buy again and tell others about their good experiences.  Dissatisfied customers often switch to competitors and disparage the products to others.  Marketers must be careful to set the right level of expectations.  If they set expectations too low, they may satisfy those who buy but fail to attract enough buyers. Whereas if they raise expectations too high, buyers will be disappointed.  Customer value and customer satisfaction are key building blocks foe developing and managing customer relationships. Exchange and Relationships  Marketing occurs when people decide to satisfy needs and wants through exchange relationships.  Exchange is the act of obtaining a desired object or response from someone by offering something in return.  Marketers want to build strong relationships by consistently delivering superior customer value. Markets  The concepts of exchange and relationships lead to the concept of a market.  A market is the act of actual and potential buyers of a product or service.  These buyers share a particular need or want that can be satisfied through exchange relationships.  Sellers must search for buyers, identify their needs, design good market offerings, set prices for them, promote them and store and deliver them.  Activities such as product development, research, communication, distribution, pricing and services are core marketing activities. Elements of a modern marketing system  Although we normally think of marketing as being carried on by sellers, buyers also carry on marketing.  Consumers do marketing when they search for the goods they need at prices they can afford.  Company purchasing agents do marketing when they track down sellers and bargain for good terms.  In the usual situation, marketing involves serving a market of final consumers in the face of competitors.  The company and the competitors send their respective offers and messages to consumers, either directly or through marketing intermediaries.  All of the actors in the system are affected by major environmental forces- demographic, economic, physical, technological, political/ legal and social/ cultural.  Each party in the system adds value for the next level. All of the arrows represent relationships that must be developed and managed.  Thus, a company’s success at building profitable relationships depends not only on its own actions but also on how well the entire system serves the needs of final consumers. For eg. Wal-Mart cannot fulfill its promise of low prices unless its suppliers provide merchandise at low costs. And Ford cannot deliver high quality to car buyers unless its dealers provide outstanding sales and service. Step 2Designing a Customer-Driven Marketing Strategy  Once it fully understands consumers and market place, marketing management can design a customer-driven marketing strategy.  Marketing Management can be defined as the art and science of choosing target markets and building profitable relationships with them.  The marketing manager’s aim is to find, attract, keep and grow target customers by creating, delivering and communicating superior customer value.  To design a winning marketing strategy, the marketing manager must answer two important questions What customers will we serve? i.e. what’s our target market?  How can we serve these customers best? i.e. what’s our value proposition? Selecting customers to serve The company must first decide who it wills serve.  It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing).  Some people think of marketing management as finding as many customers as possible and increasing demand. But marketing managers know that they cannot serve all customers in every way.  By trying to serve all customers, they may not serve any customers well.  Instead, the company wants to select only customers that it can serve well and profitably.  Thus, marketing managers must decide which customers they want to target and the level, timing and nature of their demand.  Simply put, marketing management is customer management and demand management. Choosing a Value Proposition The company must also decide how it will serve targeted customers- how it will differentiate and position itself in the marketplace.  A company’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs.  Such value propositions differentiate one brand from another. They answer the customer’s question- “Why should I buy your brand rather than a competitor’s?  Companies must design strong value propositions that give them the greatest advantage in their target markets.  Eg. Fair & Lovely’s punch line says “Kale ko bhi gora bana de”, Daag- the fire…indicating that its an action movie, also kuch kuch hota hai.. with punch line someone somewhere is made for each other…stating that it’s a love story, move-aaahhh se aahhhhh tak…etc. Step 3Preparing an Integrated Marketing Plan and Program  So, the company’s marketing strategy outlines which customers the company will serve and how it will create value for these customers.  Next, the marketer develops an integrated marketing program that will actually deliver the intended value to its target customers.  The marketing program builds customer relationships by transforming the marketing strategy into action.  It consists of the firm’s marketing mix, the set of marketing tools the firm uses to implement its marketing strategy.  The major marketing mix tools are classified into four broad groups, called the four Ps of marketing: product, price, place and promotion.  To deliver on its value proposition, the firm must first create a need-satisfying market offering (product).  It must decide how much it will charge for the offer (price) and how it will make the offer available to its target consumers (place).  Finally, it must communicate with target consumers about the offer and persuade them to its merits (promotion).  Thus the firm must blend all these marketing mix tools into a comprehensive, integrated marketing program that communicates and delivers the intended value to chosen customers. Step 4Building Customer Relationships  The first three steps in the marketing process- understanding the market place and customer needs, designing a customer-driven marketing strategy and constructing marketing programs- all lead up to the fourth and the most important step: i.e. building customer relationships.  Customer relationship management (CRM) is perhaps the most important concept of modern marketing.  Until recently, CRM has been defined narrowly as a customer data management activity.  By this definition it involves managing detailed information about individual customers.  In this broader sense, CRM is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.  It thus deals with all aspects of acquiring, keeping and growing customers. Step 5Capturing Value from Customers  The first four steps in the marketing process involve building customer relationships by creating and delivering superior customer value.  The final step involves capturing value in return, in the form of current and future sales, market share and profits.  By creating superior customer value, the firm creates highly satisfied customers who stay loyal and buy more. This in turn means greater long-term returns for the firm. So, what is marketing? Pulling it all together…  Simply put, marketing is the process of building profitable customer relationships by creating value for customers and capturing value in return.  The first four steps of the marketing process focus on creating value for customers.  The company first gains a full understanding of the market place by researching customer needs and managing marketing information.  It then designs a customer-driven marketing strategy based on the answers to two simple questions:  The first question is “What consumers will we serve?” (Market segmentation and targeting). Good marketing companies know that they cannot serve all customers in every way. Instead, they need to focus their resources on the customers they can serve best and most profitably.  The second marketing strategy question is “How can we best serve targeted customers?” (Differentiation and positioning). Here, the marketer outlines a value proposition that spells out what values the company will deliver in order to win target customers.  With its marketing strategy decided, the company now constructs an integrated marketing program- consisting of a blend of the four marketing mix elements or the four Ps- that transforms the marketing strategy into real value for customers.  The company develops product offers and creates strong brand identities for them.  It prices these offers to create real customer value and distributes these offers to make them available to target consumers.  Finally, the company designs promotion programs that communicate the value proposition to target consumers and persuade them to act on the market offerings.  Throughout the process, marketers practice CRM to create customer satisfaction and delight.  In creating customer value and relationships, however, the company cannot do it alone. It must work closely with marketing partners both inside the company and throughout the marketing system.  Thus, beyond practicing good CRM, firms must also practice good partner relationship management.  Thus, in the first four steps the company creates value for customers and in the final step it reaps rewards of its strong customer relationships by capturing value from customers. This helps the company to capture customer lifetime value and greater share of customer. The result is increased long-term customer equity for the firm. MARKETING CONCEPTS Business enterprises conduct their marketing activity around these five concepts: 1. The Production Concept 2. The Product Concept 3. The Selling Concept 4. The Marketing Concept 5. The Societal Marketing Concept. The Production Concept  The production concept emerges out of the production orientation of the firm.  It is based on the idea that the more we make, the more profitable we become. So let us go out and make customers buy our products.  The basic proposition is that customers will choose products and services that are widely available and are of low cost.  So managers try to achieve higher volume by lowering production costs and following intensive distribution strategy.  Application of this concept however leads to poor quality of service and higher level of impersonalization in business.  This seems to be a viable strategy in a developing market where market expansion is the survival strategy for the business. The Product Concept  The product concept has the proposition that consumers will favour those products that offer attributes like quality, performance and other innovative features.  Managers focus on developing superior products and improving the existing product lines over a period of time.  The problem with this orientation is that the managers forget to read the customer’s mind and launch products based on their own technological research and scientific innovations.  Many times it is observed that innovations enter in the market before the market is ready for the product.  Innovative products are launched without educating the customers about them and the probable benefit or value that the customer is likely to get by using the new products. The Selling Concept  The selling concept proposes that customers, be the individuals or organizations will not buy enough of the firm’s products unless they are persuaded to do so through the selling effort.  So companies should undertake selling and promotion of their products for marketing success.  This approach is applicable in the cases of unsought goods like life insurance, vacuum cleaner, fire fighting equipments including fire extinguisher, etc.  These industries are seen having a strong network of sales force  Firms with high capacity apply this orientation, in which their goal is to sell what they produce than what the customer really wants.  The problem with this approach is the assumption that the customer will certainly buy the product after persuasion and if dissatisfied will not complain.  In reality this does not happen and companies pursuing this concept often fail in business. The Marketing Concept  The marketing concept proposes that the reason for success lies in the company’s ability to create, deliver and communicate a better value proposition through its marketing offer, in comparison to the competitors for its chosen target segment.  Selling focuses on the needs of the seller and marketing focuses on the needs of the buyer.  Selling is preoccupied with the seller’s need to convert his product into cash whereas marketing deals with the idea of satisfying customer needs by offering a quality product and the whole cluster of things associated with creating, delivering and finally consuming it.  The marketing concept is thus an elaborative attempt to explain the phenomenon that rests on four key issues like target market, customer need, integrated marketing communication and profitability. The Societal Marketing Concept  The societal marketing concept proposes that enterprise’s task is to determine the needs, wants and intentions of the target market and to deliver the expected satisfaction more effectively and efficiently than the competitors in a way to preserve or enhance the consumer’s and society’s well being.  For eg.: the fruit juice companies like Tropicana, real, cloud 9, etc. takes into consideration the health of the consumers. They provide energy drinks which will help the consumers to quench their thirst as well as remain healthy whereas companies like coca-cola, Pepsi, etc provide soft drinks which are harmful for the health. So they lay focus only on the marketing aspect and not on the societal marketing aspects.  The societal marketing concept is thus an extension of the marketing concept to cover society in addition to the consumers. SIGNIFICANCE/ IMPORTANCE OF MARKETING/ RELEVANCE OF MARKETING IN A DEVELOPING ECONOMYImportance of marketing is mainly attributed to the following category: A. Importance to society: 1. Delivery of goods as per standard of living- The main object of marketing is to provide goods and services to the society according to their needs and taste at reasonable and affordable prices. In order to satisfy the various wants of people new inventions are made. Marketing creates and increases demand for the new and existing products and thus raises the standard of living of the people. 2. Provides employment- Sound marketing system helps in providing employment in different marketing processes such as marketing research, retail and wholesale business, transport, storing and warehousing, publicity work, etc. 3. Reduction in distribution cost- Marketing aims at reducing the cost of distribution as far as possible, so that the commodities might be within the reach of maximum number of consumers. Marketers use marketing channels to reach its end users. 4. Increase in national income- Sound marketing system is associated with creation of increased demand for goods and services. An increased demand stimulates production activity in the country which in turn increases the national income. 5. Protection against business slump- Trade cycles causes fluctuations in prices. Sometimes there is a period of depression followed by a period of boom. A period of depression and low prices is very harmful to the economy. With the decrease in demand many small units stop production, leading to wide spread unemployment and a chain of other evils. A sound marketing system can give protection against business slump by discovering new markets, reducing cost of distribution, making it acceptable to customer, modifying or improving he existing product and suggesting alternative uses. B. Importance to the Firms: 1.Business planning and decision-making- Marketing is helpful not only to plan the production but also in business planning and taking various decisions regarding business. In today’s economy, production is planned according to the sales forecasts and not according to the production capacity of the firm. All activities such as planning, production, purchase, finance or design revolve around the marketing decisions. Thus, marketing decisions influence the business decisions. 2. Increasing profits- Every business is carried on with the profit motive. Marketing helps in increasing the business profits by reducing the selling cost on one hand and increasing the demand of the product on the other hand through advertising and sales promotion activities. 3. Source of information- Business collects various information regarding customer’s changing behaviors from time to time through marketing. Marketing also provides information to the firm about the competitors, products, production, marketing and price policies. It helps the firm in framing its own policies or making necessary adjustments therein accordingly. C. Importance to underdeveloped economy- Marketing has a special significance in underdeveloped economies. A rapid development of the economy is possible only by adopting the modern methods of marketing. An effective marketing system will help mobilize modern and innovative techniques of marketing. D. Importance to Developed Economy- In developed countries, the volume of production with all its upto-date technology is generally more than the demand. In order to maintain the level of production, it is absolutely necessary that the quantity produced must be disposed off rapidly within the country itself or abroad which is possible only by a very sound and advanced “Marketing System”. E. Importance in Buyer’s and Seller’s Market- When the supply of goods exceeds the demand, it is called buyer’s market. On the other hand when the demand for the goods and services exceeds supply, it is called seller’s market. In such a situation only those firms succeed which adopts, “Marketing System”. FUNCTIONS OF MARKETING A. Exchange Functions: 1. Buying- Buying is the one part of exchange process, other being the selling. Buying is the first step in the process of marketing. A manufacturer has to buy raw materials for production, a wholesaler has to buy goods to sell to the retailer, and a retailer has to buy goods to be sold to the consumer. Buying involves transfer of ownership of goods. 2. Assembling- Assembling means creation and maintenance of the stock of goods, purchased from different sources. The goods have sometimes to be collected and assembled at one place. Buying and assembling are two distinct processes which involve elements such as kind, quality, and price, date of delivery and other terms and conditions. All this requires specialized knowledge on the part of the buyers. 3. Selling-Selling is important from the point of view of the seller as well as the consumer. The profit making object of a business concern is achieved only through the sale of goods. This function involves product planning and development, creation of demand, market research, selection of channel of distribution, negotiation of terms of sale such as quality, quantity and price of product, etc. B. Physical Supply Functions: 1. Transportation- Transportation is he movement of goods from the centre of production to the centre of consumption. Marketing system requires an economical and effective transportation system. A god system of transportation increases the value of goods by the creation of place utility. The opening of new markets have been possible by the quick transportation &communication. It has resulted in the extension of markets, regular supply, lower price and improved services to the consumers. 2. Storage and Warehousing- When production is seasonal but consumption is annual or when production is continuous but consumption is seasonal storage becomes necessary. Storage involves holding and preserving of goods between the time of their production to the time of their consumption. C. Facilitating Functions: 1. Standardization- Standardization has now been accepted as an ethical basis of marketing. A standard is a measure that is generally recognized as a model for comparison. Standards are determined on the basis of colour, weight, quality and other factors of a product. It facilitates purchase and sale of goods. Goods are purchased by brand name. 2. Grading- Grading is the act of separating or sorting out goods into a number of grades according to established specifications, such as quality and size of the product. Grading is required for the products like food grains, fruits, cosmetics, etc. 3. Branding- Branding is the art of marketing. It is the measurement of giving a particular name, term, sign or symbol to a product/ service for specific identification of one seller or group of sellers. The identification creates consumer awareness, which in turn helps to build good product image and enhance chances of repeat purchases. A brand is essentially a sellers promise to provide specific features, benefits and services consistently to the buyers. 4. Packaging- Package is the external wrapper or container of the product. Packaging may be defined as the general group of activities which involve designing and producing the container or wrapper for a product. A good package protects the product against deterioration, preserves the freshness and flavor of the product, provides convenience to the customers, increases economy and communicates information about the product. A good package makes the handling of the product easier for both the consumer as well as the dealer. Good packaging also helps in inventory control. 5. Labelling- A label is a small slip placed on the product. It gives information regarding the nature, contents, price, batch no., ownership, etc. of the product. A label is medium through which the manufacturer gives necessary information to the consumer about the product. The label is usually affixed on the package. A label plays an important role in making the package and branding function meaningful. Labelling thus helps in the identification of the product. It stresses the features of the product which are advertised. And by mentioning the price of the product, labeling helps in curtailing defraudation of consumers by the retailers. DIFFERENT APPROACHES OF MARKETING 1. Commodity Approach 2. Institutional Approach 3. Functional Approach 4. Management Approach or Decision-Making Approach 5. Legal Approach 6. Economic Approach 1. Commodity Approach  This approach studies marketing on the basis of “commodity”.  The marketing situation of each product is studied as regards to its sources of supply, marketing organization and policies involvement of middlemen, extent of market, etc.  This approach is also called as descriptive approach.  In this method, commodity serves as a focus around which other aspects of marketing are studied.  Its main defect is that it is repetitive and time consuming.  Sometimes the classification of products also becomes difficult. 2. Institutional Approach  Under this approach, the description and analysis of the different institutions engaged in marketing are undertaken.  Here we not only study products but also analyze the various functions and activities of the producers, wholesalers, agents, retailers, transporters, etc.  The different institutions serve as separate “cells” of the marketing body and the functions performed by each cell form part of whole marketing.  This approach is also considered defective as it fails to bring out effectively the inter-relations of all the institutions. Here the marketing process is split up into three important factors i.e. Concentration In a highly developed and a large economy, many a times, particular products are produced at one place and customers may be located thousands of miles away, say at distant places.  Then it becomes necessary to bring accessibility in making goods available for consumption as and when demanded by those ultimate consumers.  Therefore, the product should be available at centre point from where the product can be purchased by the consumers.  As countries develop and multinational trade increased due to globalization, then activities like storage, transportation, assembling, inventory management, standardization and grading and handling of customers order brings more importance in the marketing process.  All these activities are included in the process of concentration including financing and riskbearing also. Equalization Equalization is the intermediate activity which occurs between the process of concentration and dispersion.  The process of equalization involves proper adjustment of supply at all centers of distribution, where the supply of goods has to be balanced with the demand for goods on the basis of time, quality and quantity.  Thus it can be said that equalization is the process of making available the goods in a particular place or market just in accordance to the actual demand so that the chances of loss might be minimized.  The process involves storage and transportation of goods in required quantities, where transport equalizes supply place-wise and warehousing equalizes it time-wise. Dispersion Dispersion is that process through which goods and services produced are delivered to their real consumers at the right time and right place in the right quantity, through the most appropriate channels of distribution.  The assembled stock of goods is sub divided into smaller lots required to meet the needs of buyers.  The intermediaries like wholesalers, retailers, middlemen etc are engaged in this activity as the goods are distributed through these different channels for sale to consumers. 3. Functional Approach  It splits down the field of marketing into separate functions.  Specific functions are those concerned with buying, selling, transportations, storage, standardization, grading, financing, risk taking and marketing research etc.  This approach is definitely an improvement over the former ones but not entirely free from defects. 4. Management Approach  It combines certain features of the other earlier mentioned three approaches.  The basis of this approach is that marketing is purely a management function.  However changes in marketing are brought about by two types of factors i.e. controllable and uncontrollable.