One of the most important functional areas in business is marketing, as it deals with customers more than any other function. Companies such as Google, Swiss Bank, Deutsche Bank, Gucci, Airbus, Apple, McDonalds, and Toyota have a passion for understanding their customers and satisfying their needs in “well-defined target markets” (Kotler & Armstrong, 2014, p. 4). Basically, marketing is a managerial and social function through which companies and consumers create and exchange value.
The American Marketing Association (AMA) defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (AMA, 2013, para. 1).
Kotler and Armstrong (2014) define marketing as the “process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return” (p. 5).
On the other hand, Kotler and Keller (2015) define marketing management as the science and art of selecting target markets, and the practice of acquiring, maintaining, and growing customers through the creation, delivery, and communication of superior customer value—all while maintaining profitability.
Remember, marketing is not selling; selling is just a component of marketing!
The Marketing Process
Selecting a product or a service to develop is a demanding process that requires cross-functional teams to research, select, develop, and launch new products. In addition, the company needs to evaluate the attractiveness of a new business. Sometimes the company may seek external help to develop a new product, as it may lack the necessary technical expertise, market knowledge, or resources, or may simply want to spread the financial risk involved (i.e., open innovation, or innovation using strategic alliances.)
The marketing process involves five steps (Kotler & Armstrong, 2014, p. 5):
1. understanding the marketplace and consumer needs and wants
2. designing a consumer-driven marketing strategy
3. constructing an integrated marketing program that delivers superior value
4. building profitable relationships and creating consumer satisfaction
5. capturing value from customers to create profits and customer equity
To effectively engage in the marketing process, a business needs to understand the following elements:
2. how to acquire market knowledge (primary and secondary research)
3. how to turn that knowledge into products that are needed and wanted by a group of consumers
4. how to create market offerings that not only create value for the consumer but profitability for the organization
5. how to accomplish these tasks while being socially responsible and engaging in ethical behavior
Furthermore, there are five major customer value themes (Kotler & Armstrong, 2014, p. XVI):
1. creating value for the consumer in order to capture value from them in return
2. creating and managing strong local and global value-creating brands
3. capitalizing on new marketing technologies, such social media (i.e., digital marketing)
4. assessing and managing return on marketing investment
5. sustainable global marketing
AMA. (2013). Marketing definition. Retrieved from www.ama.org
Kotler, P. & Armstrong, G. (2014). Principles of marketing (15th ed.). Upper Saddle River, NJ: Pearson.
Kotler, P., & Keller, K. (2015). Marketing management (15th ed.). Upper Saddle River, NJ: Pearson.
What is Marketing?
What makes a business idea work? Does it only take money? Why are some products a huge success and similar products a dismal failure? How was Apple, a computer company, able to create and launch the wildly successful iPod, yet Microsoft’s first foray into digital audio players was a total disaster? If the size of the company and the money behind a product’s launch were the difference, Microsoft would have won. But for Microsoft to have won, it would have needed something it has not had in a while—good marketing, so it could produce and sell products that consumers want.
So how does good marketing get done?
Marketing is defined by the American Marketing Association as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (American Marketing Association, n.d.). If you read the definition closely, you see that there are four activities, or components, of marketing:
· creating—the process of collaborating with suppliers and customers to create offerings that have value
· communicating—broadly, describing those offerings, as well as learning from customers
· delivering—getting those offerings to the consumer in a way that optimizes value
· exchanging—trading value for those offerings
The traditional way of viewing the components of marketing is via the four Ps:
· product—goods and services (creating offerings)
· place—getting the product to a point at which the customer can purchase it (delivering)
· price—the monetary amount charged for the product (exchanging)
Introduced in the early 1950s, the four Ps were called the marketing mix, meaning that a marketing plan is a mix of these four components.
If the four Ps are the same as creating, communicating, delivering, and exchanging, you might be wondering why there was a change. The answer is that they are not exactly the same. Product, price, place, and promotion are nouns. As such, these words fail to capture all the activities of marketing. For example, exchanging requires mechanisms for a transaction, which consist of more than simply a price or place. Exchanging requires, among other things, the transfer of ownership. For example, when you buy a car, you sign documents that transfer the car’s title from the seller to you. That’s part of the exchange process.
Even the term product, which seems pretty obvious, is limited. Does the product include services that come with your new car purchase (such as free maintenance for a certain period of time on some models)? Or does the product mean only the car itself?
Finally, none of the four Ps describes particularly well what marketing people do. However, one of the goals of this book is to focus on exactly what marketing professionals do.
Value is at the center of everything marketers do. What does value mean?
When we use the term value, we mean the benefits buyers receive that meet their needs. In other words, value is what the customer gets by purchasing and consuming a company’s offering. Although the offering is created by the company, the value is determined by the customer.
Furthermore, our goal as marketers is to create a profitable exchange for consumers. By profitable, we mean that the consumer’s personal value equation is positive. The personal value equation is
value = benefits received – [price + hassle].
Hassle is the time and effort the consumer puts into the shopping process. The equation reflects personal impressions, because each consumer will judge the benefits of a product differently, as with the time and effort he or she puts into shopping. Value, then, varies for each consumer.
One way to think of value is to imagine a meal in a restaurant. If you and three friends go to a restaurant and order the same dish, each of you will like it more or less depending on your personal tastes. Yet the dish was exactly the same, priced the same, and served exactly the same way. Because your tastes varied, the benefits you received varied. Therefore, the value varied for each of you. That’s why we call it a personal value equation.
Value varies from customer to customer based on each customer’s needs. The marketing concept, a philosophy underlying all that marketers do, requires that marketers seek to satisfy customer wants and needs. Firms operating with that philosophy are said to be market oriented. At the same time, market-oriented firms recognize that the exchange must be profitable for the company to be successful. A marketing orientation is not an excuse to fail to make profit.
Firms don’t always embrace the marketing concept and a market orientation. Beginning with the Industrial Revolution in the late 1800s, companies were production oriented. They believed that the best way to compete was by reducing production costs. In other words, companies thought that good products would sell themselves. Perhaps the best example of such a product was Henry Ford’s Model A automobile, the first product of his production line innovation. Ford’s production line made the automobile cheap and affordable for many more people. The production era lasted until the 1920s, when production-capacity growth began to outpace demand growth, and new strategies were called for. There are, however, companies that still focus on production as the way to compete.
From the 1920s until after World War II, companies tended to be selling oriented, meaning they believed it was necessary to push their products by heavily emphasizing advertising and selling. Consumers during the Great Depression and World War II did not have as much money, so the competition for their available dollars was stiff. The result was this push approach during the selling era. Companies like the Fuller Brush Company and Hoover Vacuum began selling door-to-door, and the vacuum-cleaner salesperson position was created. Just as with production, some companies still operate with a push focus.
In the post–World War II environment, demand for goods increased as the economy soared. Some products, limited in supply during World War II, were now plentiful to the point of surplus. Companies believed that to compete, they had to sell different products than the competition, so many focused on product innovation. This focus on product innovation is called the product orientation. Companies like Procter & Gamble created many products that served the same basic function as one another, but with a slight twist or difference in order to appeal to a different consumer, and as a result products proliferated. But as consumers had many choices available to them, companies had to find new ways to compete. Which products were best to create? Why create them? The answer was to create what customers wanted, leading to the development of the marketing concept, and from about 1950 to 1990, businesses operated in the marketing era.
So what era would you say we’re in now? Some call it the value era, a time when companies emphasize creating value for customers. Is that really different from the marketing era, in which the emphasis was on fulfilling the marketing concept? Maybe not. Others call today’s business environment the one-to-one era, meaning that the way to compete is to build relationships with customers one at a time and to serve each customer’s needs individually. For example, the longer you are a customer of Amazon, the more details they gain about your purchasing habits and the better they can target you with offers of new products. With the advent of social media and the empowerment of consumers through ubiquitous information from consumer reviews, there is clearly greater emphasis on meeting customer needs. But is that substantially different from the marketing concept?
Still others argue that this is the time of service-dominant logic, and that we are in the service-dominant logic era.
Service-dominant logic is an approach to business that recognizes that consumers want value no matter how it is delivered, whether it’s via a product, a service, or a combination of the two.
Although there is merit in this belief, there is also merit to the value approach and the one-to-one approach, and all three beliefs are intertwined. Perhaps, then, the name for this era has yet to be decided.
Whatever era we’re in now, most historians would agree that defining and labeling it is difficult. Value and one-to-one approaches are both natural extensions of the marketing concept, so we may still be in the marketing era. To make matters more confusing, not all companies adopt the philosophy of the era. For example, in the 1800s, Singer and National Cash Register adopted strategies rooted in sales, so they operated in the selling era forty years before it existed. Some companies are still in the selling era. Recently, many believed automobile manufacturers had fallen into trouble because they had been working too hard to sell or push product and not hard enough on delivering value.
Creating Offerings That Have Value
Marketing creates goods and services that the company offers at a price to its customers or clients. The entire bundle consisting of the tangible good, the intangible service, and the price is the company’s offering. When you compare one car to another, for example, you can evaluate each of these dimensions—the tangible, the intangible, and the price—separately. However, you can’t buy one manufacturer’s car, another manufacturer’s service, and a third manufacturer’s price when you actually make a choice. Together, the three make up a single firm’s offer.
Marketing people do not create the offering alone. For example, when the iPad was created, Apple’s engineers were also involved in its design. Apple’s financial personnel had to review the costs of producing the offering and provide input on how it should be priced. Apple’s operations group needed to evaluate the manufacturing requirements the iPad would need. The company’s logistics managers had to evaluate the cost and timing of getting the offering to retailers and consumers. Apple’s dealers also likely provided input regarding the iPad’s service policies and warranty structure. Marketing, however, has the biggest responsibility because it is their responsibility to ensure that the new product delivers value.
Communicating is a broad term in marketing that means describing the offering and its value to your potential and current customers, as well as learning from customers what they want and like. Sometimes communicating means educating potential customers about the value of an offering, and sometimes it means simply making customers aware of where they can find a product. Communicating also means that customers get a chance to tell the company what they think. Today, companies are finding that to be successful, they need a more interactive dialogue with their customers. For example, Comcast customer service representatives monitor Twitter. When they observe consumers tweeting problems with Comcast, the customer service reps will post resolutions to their problems. Similarly, JCPenney has created consumer groups that talk among themselves on JCPenney-monitored websites. The company might post questions, send samples, or engage in other activities designed to solicit feedback from customers.
Mobile devices, like iPads and Droid smartphones, make mobile marketing possible too. For example, if consumers check in at a shopping mall on Foursquare or Facebook, stores in the mall can send coupons and other offers directly to their phones and computers.
Companies use many forms of communication, including advertising on the internet or television, on billboards or in magazines, through product placements in movies, and through salespeople. Other forms of communication include attempting to have news media cover the company’s actions (part of public relations), participating in special events such as the annual International Consumer Electronics Show in which Apple and other companies introduce their newest gadgets, and sponsoring special events like the Susan G. Komen Race for the Cure.
Marketing can’t just promise value, it also has to deliver value. Delivering an offering that has value is much more than simply getting the product into the hands of the user; it also entails making sure the user understands how to get the most out of the product and that he or she is taken care of if service is required later on. Value is delivered in part through a company’s supply chain. The supply chain includes a number of organizations and functions that mine, make, assemble, or deliver materials and products from a manufacturer to consumers. The actual group of organizations can vary greatly from industry to industry, and include wholesalers, transportation companies, and retailers. Logistics, or the actual transportation and storage of materials and products, is the primary component of supply-chain management, but there are other aspects of supply-chain management that we will discuss later.
In addition to creating an offering, communicating its benefits to consumers, and delivering the offering, there is the actual transaction, or exchange, that has to occur. In most instances, we consider the exchange to be cash for products and services. However, if you were to fly to Louisville, Kentucky, for the Kentucky Derby, you could pay for your airline tickets using frequent-flier miles. You could also use Hilton Honors points to pay for your hotel, and cash-back points on your Discover card to pay for meals. None of these transactions would actually require cash. Other exchanges, such as information about your preferences gathered through surveys, might not involve cash.
When consumers acquire, consume, and dispose of products and services, an exchange occurs. For example, via Apple’s One-to-One program, you can pay a yearly fee in exchange for additional periodic product training sessions with an Apple professional. Each time a training session occurs, another transaction takes place. A transaction also occurs when you are finished with a product. For example, you might sell your old iPhone to a friend, trade in a car, or ask the Salvation Army to pick up your old refrigerator.
Disposing of products has become an important ecological issue. Batteries and other components of cell phones, computers, and high-tech appliances can be very harmful to the environment, and many consumers don’t know how to dispose of these products properly. Some companies, such as Office Depot, have created recycling centers where customers can take their old electronics.
Apple has a web page where consumers can fill out a form, print it, and ship it to Apple along with their old cell phones and MP3 players. Apple then pulls out the materials that are recyclable and properly disposes of those that aren’t. By reducing the hassle associated with disposing products, Office Depot and Apple add value to their product offerings.
The focus of marketing has changed from emphasizing the product, price, place, and promotion mix to one that emphasizes creating, communicating, delivering, and exchanging value. Value is a function of the benefits an individual receives, and consists of the price the consumer paid and the time and effort the person expended making the purchase.
Check Your Knowledge
What is the personal value equation?
value = benefits received – [price + hassle]
value = product + service
value = product + price + promotion + place
value = creating + communicating + delivering + exchanging
Correct! Value is a measure of what a customer receives in exchange for the money and time spent.
Incorrect. These are possible benefits, but value equation must include cost of money and time.
Incorrect. This is the original marketing mix dating to the 1950s.
Incorrect. This is the American Marketing Association’s more recent definition of the marketing mix.
What is the American Marketing Association’s current definition of marketing?
value = benefits received – [price + hassle]
value = product + service
product, price, promotion, and place
creating, communicating, delivering, and exchanging
Incorrect. Value is a measure of what a customer receives in exchange for their money and time.
Incorrect. These are possible benefits, but value equation must include cost of money and time.
Incorrect. This is the original marketing mix dating to the 1950s.
Correct! This is the American Marketing Association’s more recent definition of the marketing mix.
Identify the two marketing mix terms that relate to offerings.
product and creating
promotion and communicating
place and delivering
price and exchanging
Correct! Companies create products or services to offer to potential consumers.
Incorrect. Communicating, or promoting, a product or service comes after its creation.
Incorrect. Delivering a product or service to a place where it is useful to the consumer is the third element.
Incorrect. Exchanging a product or service for a given price is the final element.
Who Does Marketing?
The short answer to the question of who does marketing is “everybody!” But let’s take a moment and consider in greater detail how different types of organizations engage in marketing.
The obvious answer to the question, who does marketing? is for-profit companies like McDonald’s, Procter & Gamble (the makers of Tide detergent and Crest toothpaste), and Walmart. For example, McDonald’s creates a new breakfast chicken sandwich for $1.99 (the offering), launches a television campaign (communicating), makes the sandwiches available on certain dates (delivering), and then sells them in its stores (exchanging). When Procter & Gamble (P&G) creates a new Crest tartar-control toothpaste, it launches a direct-mail campaign in which it sends information and samples for dentists to offer to their patients. P&G then sells the toothpaste through retailers like Walmart, which has a panel of consumers sample the product and provide feedback through an online community. These are all examples of marketing activities.
For-profit companies can be defined by the nature of their customers. A business-to-consumer (B2C) company like P&G sells products to be used by consumers like you, while a business-to-business (B2B) company sells products to be used within another company’s operations, as well as by government agencies and entities. To be sure, P&G sells toothpaste to other companies like Walmart (and probably to the army, prisons, and other government agencies), but the end user is an individual person.
Another way to categorize companies that engage in marketing is by the functions they fulfill. P&G is a manufacturer, Walmart is a retailer, and Grocery Supply Company is a wholesaler of grocery items that buys from companies like P&G in order to sell to small convenience store chains. Though they have different functions, all these types of for-profit companies engage in marketing activities. Walmart, for example, advertises to consumers.
Grocery Supply Company salespeople will call on convenience store owners to take orders and will build in-store displays. P&G might help Walmart or Grocery Supply Company with templates for advertising or suggest special cartons to use in an in-store display, but all the companies are using marketing to help sell P&G’s toothpaste.
Similarly, all the companies engage in dialogue with their customers to understand what to sell. For Walmart and Grocery Supply, the dialogue may result in changing what they buy and sell. For P&G, customer feedback may yield a new product or a change in pricing strategy.
Nonprofit organizations also engage in marketing. When the American Heart Association (AHA) created a heart-healthy diet for people with high blood pressure, it bound the diet into a small book, along with access to a special website that people could use to plan their meals and record their health-related activities. The AHA then sent copies of the diet to doctors to give to patients. When does an exchange take place, you might be wondering? And what does the AHA get out of the transaction?
From a financial standpoint, the AHA does not directly benefit. Nonetheless, the organization is meeting its mission, or purpose, of getting people to live heart-healthy lives and considers the campaign a success when doctors give the books to their patients. The point is that the AHA is engaged in the marketing activities of creating, communicating, delivering, and exchanging. This won’t involve the same kind of exchange as a for-profit company, but it is still marketing.
When a nonprofit organization engages in marketing activities, this is called nonprofit marketing.
Some schools offer specific courses in nonprofit marketing, and many marketing majors begin their careers with nonprofit organizations.
Government entities also engage in marketing activities. For example, when the US Army advertises to parents of prospective recruits, sends brochures to high schools, or brings a Bradley Fighting Vehicle to a state fair, the army is engaging in marketing. The US Army also listens to its constituencies, as evidenced by recent research aimed at understanding how to serve military families more effectively. One result was advertising aimed at improving parents’ responses to their children’s interest in joining the army. Another was a program aimed at encouraging spouses of military personnel to access counseling services when their spouse is serving overseas.
Similarly, the Environmental Protection Agency (EPA) runs a number of advertising campaigns designed to promote environmentally friendly activities. One such campaign promoted the responsible disposal of motor oil instead of simply pouring it on the ground or into a storm sewer.
There is a difference between these two types of activities. When the army is promoting the benefits of enlisting, it hopes young men and women will join the army. By contrast, when the EPA runs commercials about how to properly dispose of motor oil, it hopes to change people’s attitudes and behaviors so that social change occurs. Social marketing, which can be done by government agencies, nonprofit institutions, religious organizations, and others, is conducted in an effort to achieve certain social objectives. Convincing people that global warming is a real threat via advertisements and commercials is social marketing, as is the example regarding the EPA’s campaign to promote the responsible disposal of motor oil.
If you create a résumé, are you using marketing to communicate the value you have to offer prospective employers? If you sell yourself in an interview, is that marketing? When you work for a wage, you are delivering value in exchange for pay. Is this marketing, too?
Some people argue that these are not marketing activities and that individuals do not necessarily engage in marketing. (Some people also argue that social marketing really isn’t marketing either.) What do you think? Can individuals market themselves and their ideas?
Marketing can be thought of as a set of business practices that for-profit organizations, nonprofit organizations, government entities, and individuals can use. When a nonprofit organization engages in marketing activities, this is called nonprofit marketing. Marketing conducted in an effort to achieve certain social objectives is called social marketing.
· What types of companies engage in marketing?
· What is the difference between nonprofit marketing and social marketing?
· What can individuals do for themselves that would be considered marketing?
Why Study Marketing?
Products don’t sell themselves. Generally, the “build it and they will come” philosophy doesn’t work. Good marketing educates customers so that they can find the products they want, make better choices about those products, and extract the most value from them. In this way, marketing helps facilitate exchanges between buyers and sellers for the mutual benefit of both parties. Likewise, good social marketing provides people with information and helps them make healthier decisions for themselves and others.
Of course, all business students should understand all functional areas of the firm, including marketing. There is more to marketing, however, than simply understanding its role in the business. Marketing has a tremendous impact on society.
Marketing Delivers Value
Marketing not only delivers value to customers, it also creates value for the firm as it develops a reliable customer base and increases its sales and profitability. Franklin D. Roosevelt, the US president with perhaps the greatest influence on our economic system, once said, “If I were starting life over again, I am inclined to think that I would go into the advertising business in preference to almost any other. The general raising of the standards of modern civilization among all groups of people during the past half century would have been impossible without the spreading of the knowledge of higher standards by means of advertising” (Famous Quotes and Authors, n.d.). Roosevelt referred to advertising, but advertising alone is insufficient for delivering value. Marketing finishes the job by ensuring that what is delivered is valuable.
Marketing Benefits Society
Marketing benefits society in general by improving people’s lives in two ways. First, as we mentioned, it facilitates trade. As you have learned, or will learn, in economics, being able to trade makes people’s lives better. Because better marketing means more successful companies, jobs are created. This growth generates wealth for workers, who are then able to make purchases, which, in turn, creates more jobs.
The second way marketing improves the quality of life is through the function of the value-delivery approach in creating choices for consumers. When you add all the marketers together who are trying to deliver offerings of greater value to consumers and are effectively communicating that value, consumers are able to make more informed decisions about a wider array of choices. From an economic perspective, more choices and smarter consumers are indicative of a higher quality of life.