Understanding Marketing: Role, Process, and Orientation, Study notes of Marketing

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C H A P T E R 1

Understanding

the marketing

process

■ The marketing function

There are many definitions of marketing, and much confusion about what it is. The following definition should clarify this for readers. Marketing is a process for: ● defining markets ● quantifying the needs of the customer groups (segments) within these markets ● determining the value propositions to meet these needs ● communicating these value propositions to all those people in the organization responsible for delivering them, and getting their buy-in to their role ● playing an appropriate part in delivering these value propositions (usu- ally only communications) ● monitoring the value actually delivered. For this process to be effective, organizations need to be consumer– customer-driven. This definition is represented as a ‘map’ in Figure 1.1.

4 Marketing Plans

Asset base

Deliver value

Monitor value

Define markets and understand value

Determining the value proposition

Figure 1.

Starting at the top and moving clockwise, it should be pointed out that the first two boxes are concerned with strategies for markets, whereas the bottom box and the box on the left are concerned with implementing the strategies, once formulated. The fundamental differ- ence between strategies and tactics will be expanded on in Chapter 2.

■ Company capabilities

For now, let us return to the notion of the above definition bringing about a matching between a company’s capabilities and the wants of its

Understanding the marketing process 5

customers. In Chapter 4 we will explain what we mean when we talk about customer wants, but for now it is important to understand what we mean when we talk about a company’s capabilities. To explain this more fully, let us imagine that we have been made redundant and have decided to set ourselves up in our own business. The first thing we would have to do is to decide what it is that we can actually do. In answering this question, we would quickly realize that our actual knowledge and skills restrict us very severely to certain obvious areas. For example, it would be difficult for a former sales manager to set himself up in business as an estate agent, or for an estate agent to start a marketing consultancy, unless, of course, both had the necessary skills and knowledge. A little thought will confirm that it is exactly the same for a company.

Many commercial disasters have resulted from companies diversifying into activities for which they were basically unsuited.

One such case concerns a firm making connectors for the military and aviation markets. When these traditional markets went into decline, the company diversified into making connectors for sev- eral industrial markets such as consumer durables, automobiles and so on. Unfortunately these markets were so completely differ- ent from the ones that the company had been used to that it quickly went into a loss-making situation. Whereas the connector which the company had previously manufactured had been a highly engineered product made to the specifications of a few high-technology customers, the company now had to mass pro- duce simple connectors for broad markets. This meant making for stock and carrying field inventory. It also meant low competitive prices. The sales force did not know how to cope with the demands of their new markets. They had been used to making one or two calls a day and to having detailed technical discussions with buyers, whereas now they were expected to make eight or nine calls a day and to sell against many competitive products. Furthermore, the company just did not have the right image to succeed in the mar- ket. The results of all this were very serious financial losses.

The lesson simply is that all firms have a unique set of capabilities in the form of resources and management skills which are not necessarily cap- able of taking advantage of all market opportunities as effectively, and hence as competitively, as other firms. To summarize, the matching process between a company’s capabilities and customer wants is fundamental to commercial success. That this is so will become clearer as we get further into the task of explaining the role and the nature of marketing.

performance. This is particularly important, because it is the organiza- tion’s people who deliver value to customers. 4 Professional marketing departments, staffed by qualified profession- als (not failures from other functions). All this means is that companies who recruit professionally qualified marketers with appropriate experi- ence have a far greater chance of success than those whose marketing departments are staffed by just about anybody who fancies them- selves as marketers.

Given these ingredients and, above all else, a corporate culture which is not dominated (because of its history) by production, or operations, or financial orientation, all the evidence shows that marketing as a function makes a contribution to the achievement of corporate objectives. Its prin- cipal role is to spell out the several value propositions demanded by dif- ferent customer groups so that everyone in the organization knows what their contribution is in creating this value.

■ The marketing environment

The matching process referred to earlier takes place in what we can call the marketing environment , which is the milieu in which the firm is operat- ing. Perhaps the most obvious constituent of the marketing environment is our competitors , for what they do vitally affects our own behaviour as a company. The point is that, since what our competitors do so vitally affects our own decisions, it is necessary to find some way of monitoring this and other elements of the environment and of building this into our decision- making process. In Chapter 11, we show how this can be done. The political , fiscal , economic , social and legal policies of the governments of the countries where we sell our goods also determine what we can do. For example, inflation reduces the discretionary spending power of con- sumers, and this can result in market decline. Legislation concerning such things as labelling, packaging, advertising, environmentalism, and so on, all affect the way we run our business, and all these things have to be taken account of when we make our plans. Technology is constantly changing, and we can no longer assume that our current range of products will continue to be demanded by our cus- tomers. For example, the introduction of non-drip paint had a profound effect on what had traditionally been a stable market. People discovered that they could use paint without causing a mess, and eventually this product was demanded in new kinds of outlets such as supermarkets. This led to a consequent change in pricing, promotional and distribution policies. One can imagine what happened to some of those paint manu- facturers who continued to make only their traditional products and to distribute them only through the more traditional outlets. Likewise, the advent of the microprocessor revolutionized the com- puter industry, with a devastating effect on companies (such as IBM) who

Understanding the marketing process 7

remained dependent for too long on their supremacy in mainframes. It is interesting to note that IBM is now mainly a service company, with little involvement in hardware. Merging technologies have also revolutionalized traditional industries such as telecommunications, printing, publishing, IT and many others. The point is that the environment in which we operate is not controlled by us, and it is dynamic. Hence, it must be constantly monitored, and we must be prepared to adapt our asset base and our approach to markets. An approach for doing this is outlined in subsequent chapters. So far, we have talked about the three constituent parts of what we have described as a matching process:

1 The capabilities of a firm 2 The wants of customers 3 The marketing environment.

Diagrammatically, this is shown in Figure 1.3.

8 Marketing Plans

Company capabilities Customer wants

The marketing environment

The marketing environment

Matching

Figure 1.

■ Customer wants

Although we shall be dealing with this subject in Chapter 4, let us briefly turn our attention to the subject of customer wants, so that we can com- plete our understanding of what marketing is. Perhaps one of the greatest areas for misunderstanding in marketing concerns this question of customer wants. Companies are accused of manip- ulating innocent consumers by making them want things they do not really need. If this were so, we would not have a situation in which a very high pro- portion of all new products launched actually fail! The fact is, people have always had needs – such as, say, for home entertainment. What changes in the course of time is the way people satisfy their needs. For example, tele- vision was only commercially viable because people needed home enter- tainment, and this was yet another way of fulfilling that need.

The same line of reasoning must also apply to those who continually counsel increased productivity as the only answer to our economic prob- lems. Unfortunately, any additional production would more than likely end up in stock unless people actually wanted what was being produced. It would be different, of course, if there was only a temporary hiccup in demand, but unfortunately this is rarely the case, because markets are dynamic and we must learn to adapt and change as our markets mutate. Central to this question of customer wants is an understanding that there is rarely such a thing as ‘a market’. To start with, it is clear that it is customers who buy products, not markets. A market is merely an aggre- gation of customers sharing similar needs for which they want the prod- ucts and services that best meet these needs. In reality, most markets consist of a number of sub-markets, each of which is different. For exam- ple, the airline market consists of freight and passenger transport. The passenger side can be subdivided further into VFR (visiting friends and relatives), holidays, business travel, and so on. Failure to understand the needs of these very different customer groups would result in failure to provide the desired services at an acceptable price. Of course, it is not quite as easy as this, which is why we devote the whole of Chapter 4 to this very important aspect of what we call ‘market segmen- tation’. But for now it is only necessary to understand that it is our ability to identify groups of customer wants which our particular company capabil- ities are able to satisfy profitably that is central to marketing management.

■ The marketing mix

As we have already said, managing the marketing mix involves the use of the tools and techniques of marketing. Thus, in order for the matching process to take place, we need information. External and internal market- ing information flows (marketing research) and database management are discussed further in Chapter 11. Having found out what customers want, we must develop products or services to satisfy those wants. This is known as ‘product management’, and is discussed in Chapter 5. Obviously we must charge a price for our products, and this is discussed in Chapter 9. We must also tell our customers about our products, for we can be cer- tain that customers will not beat a path to our door to buy whatever it is we are making. Here we must consider all forms of communication, espe- cially advertising, personal selling and sales promotion. These are dis- cussed in Chapters 7 and 8. All that remains now is to get our products into our customers’ hands, thus giving a time and a place utility to our product. Distribution and cus- tomer service are discussed in Chapter 10. Finally, we must consider how to tie it all together in the form of a mar- keting plan. This latter point is so important that the next two chapters are devoted to a discussion of the marketing planning process.

10 Marketing Plans

■ Confusion about what marketing

is – veneer or substance?

It is a sad reflection on the state of marketing that in spite of almost fifty years of marketing education, ignorance still abounds concerning what marketing is. The marketing function (or department) never has been, nor ever will be, effective in an organization whose history to date is one of technical, production, operations or financial orientation. Such enterprises have long since adopted the vocabulary of marketing and applied a veneer of marketing terminology.

Understanding the marketing process 11

Thus, some of the High Street banks have spent fortunes on hiring marketing people, often from the fast-moving consumer goods sector (FMCG), producing expensive TV commercials, and creating a multiplicity of products, brochures and leaflets. Yet still most customers would have difficulty in distinguishing between the major players (so where’s the competitive advantage?).

M A R K E T I N G I N S I G H T

Is this marketing in the sense of understanding and meeting customers’ needs better than the competition, or is it old-fashioned selling with the name changed, where we try to persuade customers to buy what we want to sell them, how, when and where we want to sell it?

The computer industry provides perhaps even clearer examples. For years computer companies have used the word ‘marketing’ quite indiscriminately as they have tried to persuade customers to buy the ever more complex outpourings of their technology. At least one major hardware manufacturer used to call its Branch Sales Managers ‘Marketing Managers’ to create the illusion of a local process of understanding and responding to customer needs. Racked by recession, decline and huge losses, this is an industry in which most of the major players have either gone bankrupt or have changed, root and branch, their business model.

The following are the major areas of confusion regarding marketing:

1 Confusion with sales. One managing director aggressively announced to everyone at the beginning of a seminar in Sydney, Australia: ‘There’s no time for marketing in my company until sales improve!’ Confusion with sales is still one of the biggest barriers to be overcome. 2 Confusion with product management. The belief that all a company has to do to succeed is to produce a good product also still abounds, and not Concorde, Sinclair’s C5, the EMI Scanner, nor the many thousands of

In reality, many companies spend more on advertising when times are good and less on advertising when times are bad. Cutting the advertising budget is often seen as an easy way of boosting the profit and loss account when a firm is below its budgeted level of profit. This tendency is encour- aged by the fact that this can be done without any apparent immediate adverse effect on sales. Unfortunately, this is just another classic piece of misunderstanding about marketing and about the role of advertising in particular. The belief here is that advertising is caused by sales! Also, it is naive in the extreme to assume that advertising effectiveness can be meas- ured in terms of sales when it is only a part of the total marketing process.

■ What does the customer want?

Finally, we have to beware of what the words ‘finding out what the cus- tomer wants’, which appear in most definitions of marketing, really mean. The reality, of course, is that most advances in customer satisfaction are technology-driven. For example, the fabulous technological breakthroughs that occurred as a result of the Houston space programme, when the Americans put two men on the moon, have provided thousands of oppor- tunities for commercial exploitation. The role of marketing has been to find commercial applications for the technology. The truth, of course, is that there are two kinds of research and development:

1 Technology-driven 2 Market-driven.

From the kinds of technology-driven programmes that take place on sci- ence parks and in laboratories around the world come opportunities for commercial exploitation.

Understanding the marketing process 13

From the kinds of market-driven programmes that most companies engage in come incremental, and sometimes discontinuous, improvements to product per- formance. Both are legitimate activities. The former has been glamorized and popularized by companies such as 3M, which claim to encourage and institution- alize unfocused scientific research. This has led to the formation of a number of new businesses and product launches, the most famous of which is Post-It.

M A R K E T I N G I N S I G H T

The main point to remember, however, is that customers do not really know what they want! All they really want are better ways of solving their problems, so one of the main tasks of marketing is to understand the cus- tomers and their problems in depth so that we can continuously work on ways of making life easier for them. Whether this happens as a result of serendipity or focused research and development is less important than the end result.

■ Are business-to-business,

consumer and service marketing

different?

The central ideas of marketing are universal and it makes no difference whether we are marketing furnaces, insurance policies or margarine. Yet problems sometimes arise when we try to implement marketing ideas in service companies and industrial goods companies. A service does not lend itself to being specified in the same way as a product, as it does not have the same reproducible physical dimensions that can be measured. Thus, with the purchase of any service, there is a large element of trust on the part of the buyer, who can only be sure of the quality and performance of the service after it has been completed. Largely because of this, the salesperson actually selling the service obviously becomes part of the service, since this is one of the principal ways in which the potential efficacy of the service can be assessed. Additionally, a service product cannot be made in advance and stored for selling ‘off the shelf’ at some later stage. Nonetheless, apart from some differences in emphasis, the principles of marketing apply to services in exactly the same way. Business-to-business goods are simply those goods sold to other busi- nesses, institutional or government buyers for incorporation into their own products, to be resold, or to be used by them within their own business. Principal types of business-to-business goods are raw materials, compo- nents, capital goods, and maintenance, repair and operating goods and equipment, although even service companies sell direct to other compa- nies rather than to consumers. The fact that the share of world trade enjoyed by some manufacturing countries has slumped so dramatically over the past fifty years is not gen- erally because their products were not as good as those produced by other countries, but because they failed to monitor and understand the environ- mental changes taking place and stuck doggedly to what had worked in the past. On the other hand, organizations that continued to thrive did do this, including, where necessary, sourcing manufacturing in countries with lower costs. One reason for this is that many manufacturing companies naively believe that the name of the game is making well-engineered products. Making well-engineered products is all some companies are concerned about, in spite of the fact that all the evidence points to the conclusion that more often than not it is for other reasons that the final choice is actually made. Failure to understand the importance of market segmentation (to be discussed in Chapter 4), market share, service and reputation, among other things, is the principal reason why such companies fail to compete successfully in so many world markets. Making what they consider to be good products and then giving them to the sales force to get rid of is just not enough. But, quite apart from the fact that there appears to be a sort of status about being on the technical side of business, which sometimes acts as a

14 Marketing Plans

Failure to understand the importance of market segmentation is the principal reason for failure to compete effectively in world markets.

It is not essential to have a formalized marketing department for the analysis, planning and control of the matching process. This is particu- larly so in small, undiversified companies where the chief executive has an in-depth understanding of customers’ needs. Even in large companies it is not necessary to have a marketing department, because the manage- ment of products can be left to the engineers, pricing can be managed by the accountants, distribution can be managed by distribution specialists, and selling and advertising can be managed by the sales manager. The dangers in this approach, however, are obvious. Technicians often place too much emphasis on the physical aspects of the products, account- ants can be too concerned with costs rather than with market values, dis- tribution people can often succeed in optimizing their own objectives for stock while at the same time sub-optimizing other more important aspects of the business (such as customer service), and selling and promotion can often be carried out in a way which may not be in the best interests of the firm’s overall goals. However, as a company’s product range and customer types grow, and as competitive pressures and environmental turbulence increase, so it often becomes necessary to organize the management of marketing under one central control function, otherwise there is a danger of ending up with the kind of product which is brilliant technically but disastrous commercially. In professional organizations, great care is necessary in thinking about the appropriate organizational form for marketing. For example, in a post- graduate business school the major role of the marketing department has traditionally been in the domain of promotion and information coordin- ation. Whilst it does obviously act as a facilitator for strategy development, it is intellectually simplistic to imagine that it could be the originator of strategy. In some other service organizations the central marketing function might also provide the systems to enable others to carry out effective mar- keting, but in such organizations marketing departments never have actu- ally done marketing, nor ever will. The reasons are obvious. If the term ‘marketing’ is intended to embrace all those activities related to demand creation and satisfaction, and the associated intelligence, then it is clear that most marketing takes place during the service delivery and customer contact process, in all its forms. Marketing, then, reflects this process, and it is absurd to believe that it is the sole domain of those people in the organization who happen to belong to the marketing department. As Alan Mitchell, a freelance journalist for Marketing Business , said: ‘To say the Marketing Department is responsible for marketing is like saying love is the responsibility of one family member.’ It is equally absurd to suggest that the personnel department should actu- ally emphasize personnel management, with all other managers in the organization having nothing to do with people. The same could be said for finance and information systems. Indeed, it is such myopic functional sep- aration that got most struggling organizations into the mess they are in today. Much more important, however, than who is responsible for marketing in an organization is the question of its marketing orientation – i.e. the

16 Marketing Plans

It is absurd to believe that marketing is the sole domain of those people in the organization who happen to belong to the marketing department.

degree to which the company as a whole understands the importance of finding out what customer groups want, and of organizing all the com- pany’s resources to satisfy those wants at a profit. Nonetheless, given the definition of marketing supplied earlier, Figure 1.1 is repeated here (as Figure 1.5) as a diagram of this definition, which we shall return to later.

Understanding the marketing process 17

Asset base

Deliver value

Monitor value

Define markets and understand value

Determining the value proposition

Figure 1.

■ Application questions

1 Describe as best you can what you think marketing means in your company. 2 Describe the role of your marketing department, if you have one. 3 If you do not have a marketing department, describe how decisions are made in respect of the following: ● the product itself ● price ● customer service levels ● physical distribution ● advertising sales promotion ● the sales force ● information about markets. 4 How do you distinguish between marketing, promotion and selling in your organization? 5 Would you say your products are what the market wants, or what you prefer to produce? 6 Do you start your planning process with a sales forecast and then work out a budget, or do you start by setting marketing objectives which are based on a thorough review of the previous year’s performance? If the former, describe why you think this is better than the latter.

Understanding the marketing process 19

Company capabilities The company will not be equally good at all things. It will have strengths and weaknesses. The astute company tries to identify customer wants that best match its own strengths, be they its product range, relations with customers, technical expertise, flexibility, or whatever. Inevitably there is an element of compromise in the matching process, but successful com- panies strive to build on their strengths and reduce their weaknesses. Try Exercise 1.

The marketing environment No business operates in a vacuum; it has an environment which not only contains all its exist- ing and potential customers and its competitors, but also many factors outside its control. Changes in the environment in terms of

■ customer wants ■ fashions ■ technology ■ environmental concerns ■ legislation ■ economic climate ■ competition, etc.

present the company with both opportunities and threats. Keeping a finger on the pulse of the environment is essential for the successful company. Try Exercise 1.

Questions raised for the company 1 Q: Is it different marketing a product or a service? A: The central ideas of marketing are universal. 2 Q: What do customers want? A: They don’t always know, but dialogue with them and intelligent research can help to answer this question. 3 Q: Do we need to bother with marketing? A: Some companies are very successful by chance. They happen to be in the right place at the right time. Most other companies need to plan their marketing. Try Exercise 1. 4 Q: Do we need a marketing department? A: Not necessarily. It will depend upon the size and complexity of the company’s range of products and services. The higher the complexity, the more difficult it is to coordi- nate activities and achieve the ‘matching’ of a company to its customers.

20 Marketing Plans

E X E R C I S E S

The exercises are intended to give you an opportunity to explore ways of looking at marketing. Exercise 1.1 enables you to make an assessment of your own beliefs about marketing; the remaining exercises can be applied to your organization.

Below are a number of definitions of marketing that have appeared in books and journals over the last twenty or so years. Read through them carefully and note on a piece of paper the numbers of those which most accurately reflect your own views. While there is no upper limit to the number of definitions you can choose, try, if you can, to limit your choice to a maximum of nine or ten definitions. 1 ‘The planning and execution of all aspects and activities of a product so as to exert optimum influence on the consumer, to result in maximum con- sumption at the optimum price and thereby producing the maximum long-term profit.’ 2 ‘Deciding what the customer wants; arranging to make it; distributing and selling it at a profit.’ 3 ‘Marketing perceives consumption as a democratic process in which con- sumers have the right to select preferred candidates. They elect them by casting their money votes to those who supply the goods or services that satisfy their needs.’ 4 ‘The planning, executing and evaluating of the external factors related to a company’s profit objectives.’ 5 ‘Adjusting the whole activity of a business to the needs of the customer or potential customer.’ 6 ‘... marketing is concerned with the idea of satisfying the needs of cus- tomers by means of the product and a whole cluster of things associated with creating, delivering and, finally, consuming it.’ 7 ‘The total system of interacting business activities designed to plan, price, promote and distribute products and services to present and potential customers.’ 8 ‘{Marketing is} the world of business seen from the point of view of its final result, that is from the customer’s viewpoint. Concern and responsi- bility for marketing must therefore permeate all areas of the enterprise.’ 9 ‘The activity that can keep in constant touch with an organization’s con- sumers, read their needs and build a programme of communications to express the organization’s purposes.’ 10 ‘The management function which organizes and directs all those business activities involved in assessing and converting customer purchasing power into effective demand for a specific product or service and moving the product or service to the final customer or user so as to achieve the profit target or other objectives set by the company.’ 11 ‘The marketing concept emphasizes the vital importance to effective corporate planning and control, of monitoring both the environment in which the offering is made and the needs of the customers, in order that the process may operate as effectively as is humanly possible.’ 12 ‘The organization and performance of those business activities that facili- tate the exchange of goods and services between maker and user.’ 13 ‘The process of: (1) Identifying customer needs, (2) Conceptualizing these needs in terms of the organization’s capacity to produce, (3) Communicating

Introduction

to Chapter 1

exercises

Exercise 1.

Marketing orientation