CHAPTER ONE

MEANING AND RELEVANCE OF MARKETING

LEARNING OBJECTIVES

After reading this chapter, you should be able to:

1.      Define marketing; 

2.      Explain the marketing process;

3.      State the relevance of marketing;

4.      Identify and explain the roles of marketing;

5.      Describe different forms of marketing organizational structure; and

6.      Describe fields or areas of specialization in marketing.  

WHAT IS MARKETING?

Several definitions of marketing abound in the literature. The Chartered Institute of Marketing defines marketing as the management process responsible for identifying, anticipating and satisfying customer requirements profitably.

Kotler and Armstrong (2006:25) 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 turn.” In another definition by the American Marketing Association [AMA] (2004), marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.

Yet, marketing can be defined as a managerial and organizational function and a set of processes for planning, identifying and satisfying consumers’ needs through offering of products or services accompanied with appropriate price, distribution and communication that lead to the organization and other stakeholders’ goal realization.

THE MARKETING PROCESS

Marketing is a process. The process involves understanding customer needs, designing customer-driven market strategy, constructing a marketing program that delivers superior value, building profitable customer relationship and creating satisfaction, and capturing value from customers to create profit. This process is depicted in Figure 1.1.

 

 

Figure 1.1:  Market Process

1.      Understanding customer needs, wants and demands: Consumers always have needs and wants waiting to be satisfied or that are insufficiently satisfied. Needs refers to basic requirements of life such as food, water, shelter, and clothing. Lack of these basic human requirements can cause starvation, sickness and death. These basic human needs exit naturally; they are not created by marketers. The duty of a marketer is to identify consumer needs and satisfy them.

Wants refers to personal desires of life such as blue shirt, jeep car, colour television, telephone, wallet, duplex apartment, etc. Individual wants are shaped by the environmental factors: culture, economic, demographic, psychological and political forces. Lack of wants can only cause dissatisfaction but not sickness and death. Needs is general (i.e. what everybody requires) while wants is specific (what an individual requires). Unlike basic human needs, marketers can create wants. Marketers can also identify the existing wants of consumers and satisfy them.

Demand, by definition, is the ability and willingness of consumers to purchase specified number of goods and services at a specified time, period and place. When consumer needs and wants are translated to purchases, demand is said to have taken place. Put differently, needs and wants backed by purchasing power (i.e. the ability of the consumers to pay for their needs and wants) is referred to as demand in marketing. Level of economic development, employment rate and general income influence consumers’ effective demand.   Thus, marketers must pay serious attention to these economic variables.

 

2.      Designing customer-driven market strategy: Marketing management calls for the application of arts and science in realizing marketing objectives on one hand, and entrepreneurial or company’s objectives on the other hand. Marketing strategy is one way of doing marketing scientifically. Strategy is a means to an end. It specifies exactly how marketing goals can be achieved despite the firms’ limited resources amidst high competition. Thus, marketing strategy raises and provides answers to three basic questions:

i.        What is our target market?

ii.      How can we serve our chosen target market better than the competitors can?  

iii.    Do we have the resources to serve the target market better?

In providing answers to the raised questions, marketing managers must segment the total market, target one or more segments, and position their product in the minds of the consumers as one providing added value.

3.      Constructing a marketing program that delivers superior value: At this level, the marketer needs to transform the marketing strategy into action plan by designing and implementing the company’s marketing mix program. To beat competition, a firm’s offerings must provide superior value, otherwise called added value. This is achievable when a company’s offering attains point-of-parity (POP) and point-of-difference (POD). POPs are product attributes and performances that consumers associate with most competing or substitute brands (i.e. a company and its competitors’ brands); in other words, the minimal attributes and benefits consumers expect from a given product irrespective of the producer. Consumers perceive these associations as prerequisites in every product for it to worth purchasing. Simply put, POP is the consumers’ “zone or range of tolerance and acceptance.”

PODs are product attributes and benefits that consumers associate with a particular brand and which is absent in competing brands. In other words, PODs are products that consumers view as having unique attributes and provide distinct benefits compared to its substitutes. These distinct attributes, performance and benefits are the ones that offer added or superior value to customers. By providing superior value, the company has gained a competitive advantage. 

4.      Building profitable customer relationship and creating customer satisfaction/delight: The essence of understanding and identifying consumer needs and wants, designing customer-driven market strategy, and delivering superior values is to build strong and lasting relationships with profitable customers.

Customer Relationship Management (CRM) has gained considerable attention in recent times. This is because studies have shown that it is costlier to attract new customers than to keep current profitable customers. In other words, it is cheaper and profitable to retain existing customers than to attract new ones. Kotler and Armstrong (2006) define CRM as:

the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspect of acquiring, keeping and growing customers.

Payne and Frow (2005) itemize the following practices underpinning CRM:

i.        the intelligent use of technology, data and analytic methods to acquire customer knowledge;

ii.      the transmission of this knowledge to those managers and employees making decisions about customers;

iii.    the use of this knowledge by managers and employees to select and target customers for marketing purposes; and

iv.    creating connections across departments to support collaboration and generate new customer value.

It is important to note that new customer values create customer satisfaction. By customer satisfaction, we mean the positive difference between customer perception and expectation regarding a particular product. If perception (or product performance) falls short of expectations, the customer is dissatisfied. And if the perception (or product performance) equals the expectations, the customer is satisfied. However, if customer perception (or product performance) exceeds expectations, the customer is highly satisfied or delighted.

Satisfaction is the outcome of a product/service evaluation by customers, implying that service has to be consumed before it can be assessed. It is also important to stress that consumers usually configure expectation before they actually purchase a product. However, perception is the after-purchase consumer construct. A big poser here is “how do consumers form their expectation even before purchasing and consuming the product/service?” Consumers form expectations through various means: from past buying experiences, friends and associates’ advice, and marketers and competitors’ information/promotion and promises.

5.      Capturing value from customers to create profit and customer equity

Business and non-business organizations have clearly stated objectives to be achieved. Business organizations often pursue profit maximization, market share leadership, and shareholders wealth maximizations goals among others. It is at this stage of the marketing process that these objectives are realized.   

In the first four steps, the firm incurs cost in creating value to customers. At this stage, the firm captures value in return from customers through current and future sales, market share and profit.

 

IMPORTANCE OF MARKETING

Marketing is important to firms, customers and economy in the following ways:

1. Marketing helps companies identify segment markets to serve (through segmentation and targeting).

2. Marketing helps a company in identifying customers’ needs (through marketing research).

3. Marketing ensures satisfaction of customer needs (by producing products that meet or exceed consumer needs and expectations).

4. Marketing facilitates effective movement of goods from the producer to the consumers (through effective distribution).

5. Marketing generates revenue for firms (through sales).

6. Marketing creates product awareness to customers (through Integrated Marketing Communication).

7. Marketing provides employment to marketing experts (through personal selling, distribution, marketing research, promotion, and product development).  

8. Marketing estimates future demands for a company’s product (through market forecasting).

9. Marketing empowers consumers through product innovation, price discounts, trade discounts, rebates, premiums, and competition, etc.     

10. Marketing enhances consumers’ welfare (through societal marketing).

11. Marketing safeguards consumers’ rights (through consumerism).

12. Marketing protects the environment (through green/environmental marketing).

13. Marketing principles are applied in solving societal problems through social marketing.

ROLES OF MARKETING

Marketing roles bother on how to structure a marketing organization in order to attain optimum company performance. Marketing roles can be broadly analyzed and understood using two approaches - the function approach and process approach.

1. The functional approach: This is the traditional approach that explains the role of marketing in an organization.  By this approach, all organizations are to recognize marketing as a department with reserved responsibilities to plan, direct, coordinate and control all marketing activities relating to needs identification, product development, pricing, distribution, promotion, customer relationship management, and customer complain management.  

Benefits

a.       It enhances efficiency.

b.      It improves organizational capabilities. 

c.       It encourages specialization and its attendant advantages.

Criticisms

a.       Overspecialization in the marketing area and knowing little or nothing about the important activities of other functional areas.

b.      Lack of effective coordination between marketing and other functional areas.

c.       Regular occurrence of Inter-functional conflicts.

d.      The tendency for functional myopia (the feeling that one department plays less important role in an organization).   

2. The process approach: This is the modern approach that explains the role of marketing in an organization. The approach suggests that while it is necessary for all organizations to have a marketing department, it is equally essential for the marketing knowledge, skills, orientations and values to be dispersed to employees in other departments. This approach ensures that all departments in the organization value customer, share information about customers, and engage in activities designed to meet customer needs.     

Benefits

a.       It minimizes inter-functional or departmental conflicts.

b.      It facilitates greater customer satisfaction.

c.       It enhances effective coordination and integration of marketing activities between marketing and other departments.

d.      It is effective in attracting more customers to do business with a company.

Criticisms

a.       It diffuses the role and responsibilities of a marketing departments and marketers.

b.      It may cause ‘outsourcing” of marketing activities to independent firms.

c.       It may cause reduction in the number of resources allocated to marketing departments.

d.      Many marketing departments have also been downsized and staff retrenched following the adoption of this approach.

 

MARKETING ORGANIZATION STRUCTURE (MOS)

MOS is a diagram showing the units within a marketing organization, the relationship among the units, the management levels, the communication channels, the roles of each unit, the immediate subordinates and superiors.

Types of MOS

The typologies of MOS are functional MOS, process MOS, Product MOS, Regional MOS, and Matrix MOS.

1.      Functional MOS: This is the traditional and commonest type of MOS. A typical manufacturing firm or service outlet is divided into functional areas such as marketing, production, finance, and personnel departments. Start-ups that are yet to expand and have numerous branches often adopt functional MOS. Figure 1.2 shows the functional market organizational structures.

Figure 1.2:  Function Format

2.       Process MOS: A firm that is purely involved in providing marketing services usually adopts the process structure. The process MOS facilitates division of the overall marketing job into specialized areas such as research and development, product development, pricing, distribution and promotion activities or departments. Figure 1.3 shows a process MOS.

Figure 1.3:  Process Format

3.       Product MOS: In this case, a company that produces variety of products may structure or organize the company based on product types. That is, departments will bear product names as depicted in Figure 1.4. This framework greatly enhanced product knowledge and expertise.  

Figure 1.4:  Product Format

4.      Regional MOS: Companies which have expanded and established offices in different geographical areas or regions use regional MOS by simply duplicating the functional, product or process structure. However, each regional branch may modify its product in accordance with the needs of the local consumers. Figure 1.5 illustrates regional MOS.

Figure 1.5:  Regional Format

5.      Matrix MOS: This is a combination of at least two types of MOS described above. For example, a company that produces three products – product ‘A’, product ‘B’ and product ‘C’ – may create pricing department, distribution and sales department for each product department as demonstrated in Figure 1.6. below.

Figure 1.6:  Matrix Format

IMPORTANCE/ROLES OF MARKETING ORGANIZATION STRUCTURE

MOS is of great significance to the organization, its employees and other stakeholders in the following ways:

1.      It gives a vivid picture about the size of the organization – small enterprise, medium enterprise or large enterprise.

2.      It reveals the target markets of the company.

3.      It shows whether an organization produces goods or offers services.

4.      It shows the specialized functions (e.g. departments) in an organization.

5.      It reveals the varieties of products the company offers to the market.

6.      It shows the relationship between the departments in an organization.

7.      It shows the degree of centralization and/or decentralization of activities in an organization.

8.      It shows the pattern of communication flow in an organization.

9.      It shows line of authority and responsibilities in an organization.

BASIC CONCEPTS OF MARKETING

There are some recurrent concepts and terms in marketing that deserve clarification: 

1.         Needs: Basic requirements or necessities of life such as food, shelter and clothing. The essence of marketing is to understand and satisfy consumer needs.

2.         Wants: Consumers’ desire and preferences after basic needs have been satisfied. Examples are blue jeans, Mercedes car, business-class flight, and golden wrist watch. The essence of marketing is to create wants (raise the test and expectations of the customers) and strives to satisfy them.

3.         Demand: The willingness and ability of consumers to purchase a particular commodity at a given price, quantity, time and place. Marketers use historical data to forecast future demand.  

4.         Consumer: One who uses a company’s product.

5.         Customer: One who buys a company’s product.

6.         Market: A group of buyers/consumers.

7.         Industry: A group of sellers/suppliers/companies/firms producing and selling similar commodity.

8.         Satisfaction: When a company’s product performance meets or exceeds customer expectations.

9.         Profit: Excess of sales revenue over cost of production (TR -TC).

10.     Segment: A group of consumers with similar needs

11.     Marketing concept: A philosophy that “marketing efforts and activities should be aimed at satisfying customers’ needs at a profit”.

12.     Marketing mix: A set of controllable tools or elements used by marketers to satisfy customer needs. They are popularly referred to as the 4Ps – product, price, place and promotion.

13.     Exchange: Marketers give out product and collect money in return. 

AREAS OF SPECIALIZATION IN MARKETING

Marketing discipline is very wide in scope, necessitating specialization in any of the following areas:

i.        Industrial marketing: A field of marketing that applies marketing principles in selling goods (raw materials, bye-products, and finished goods) among business enterprises. It is also called Business-to Business (B2B) marketing.

ii.      Service marketing: This field of marketing deals with how intangible goods like health care, transportation, education, telecommunication, hotel, saloon, financial, and legal services can be effectively created, priced, distributed and promoted to the target consumers at a profit.    

iii.    Consumer behavior: This area of marketing is concerned with the study of why and how consumers buy, use and dispose of goods and services to satisfy needs.

iv.    International Marketing: The study of how marketing principles can be applied by companies doing business in more than one country. Is it necessary to differentiate or adapt a company’s marketing offer in different national market despite differences in the culture, consumer income, and laws? 

v.      Political Marketing: This is the study of how to apply marketing principles to present a political party and its candidate for election (i.e. the product) to the voters (i.e. the target market or consumers), and communicate to the voters about the party manifesto (i.e. promotion) in order to attracts their votes (i.e. prices) and win election (i.e. realize profit).

vi.    Social Marketing: The use of marketing principles by individuals or groups to provide social goods or services (e.g. free or subsidized health services) to the public. As a tool, social marketing can influence human behavior in a sustainable and cost-effective way. 

vii.  Green Marketing: This is also called environmental or ecological marketing. This field of marketing lays emphasis on adopting marketing practices that protect and promote environmental core values. For example, a company that uses production systems that minimize gas emission and pollution as well as appropriate packaging may be considered as being environmentally friendly.   

Other areas of marketing specialization are global marketing, domestic marketing, education marketing, and retail marketing, etc.

SELF-ASSESSMENT QUESTIONS

1.      (a) Define marketing.  (b) Identify and explain the salient features of a good marketing definition.

2.      Why do you choose to study marketing?

3.      Discuss the extent to which marketing is relevant to: (a) customers (b) consumers (c) company, and (d) society.

4.      Marketing, as a management function, is often described as a process. Discuss.

5.      Identify and explain the five types of marketing organization structure.

6.      Indicate one area of marketing that you may choose to specialize on and give justifications.