LESSON 1: Unit 1: Introduction to Marketing Management Introduction Marketing is as old as civilization. Though marketing is talked and discussed in business terms today, its origin goes back to the ancient civilization when man used symbols, signs and material to transact and communicate with others. Modern marketing revolves around the concepts, which are age old. The first signs that man made to communicate with others gave birth to the idea of marketing. The evolution of marketing has made it a structured discipline to study; otherwise marketing did exist in the ancient past. Marketing was also used as a synonym for the art of selling in the past. Even today much confusion exists between marketing and selling amongst students of management and practitioners, regarding the two dominant modes of business and exchange. Defining Marketing-related Factors Marketing starts with customers and ends with customers. Creation of superior customer value and delivering high levels of customer satisfaction are at the heart of present day marketing. It is a matter of common sense to appreciate the key marketing success factors. In case a company really endeavours to understand customer needs, carefully studies competition, develops and offers superior value at a reasonable price, makes these products available at places convenient to customers, and communicates with them effectively and efficiently, such products have every reason to be in demand and will sell consistently. Successful companies have one common trait. They are all very strongly customer-focused in their orientation. Many other factors contribute to achieving business success, such as developing great strategy, committed and skilled human resources, reliable and fast information systems, and excellent implementation and control. But in the final analysis, the focus and dedication of all these companies is to really understand customers’ needs and wants as much as possible and create satisfied customers in their target markets. In case someone asks several people what they think marketing is, the chances are these casually picked persons will reveal a variety of descriptions in their responses. Probably, the first two items describing marketing will be advertising and personal selling, as these two are the most visible aspects of marketing for most people. Marketing includes many more activities than what most people realise. The shortest definition of marketing is satisfying consumer needs in a socially responsible way at a profit. Authors of marketing books have defined marketing in different words. A few of these definitions are mentioned here. The American Marketing Association defines marketing as: “Marketing is an organisational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organisation and its stakeholders.” Philip Kotler says, “Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others”. Pride and Ferrel’s definition says, “We define marketing as the process of creating, distributing, promoting, and pricing goods, services, and ideas to facilitate exchange relationships in a dynamic environment” “It (marketing) is the whole business seen from the point of view of its final result, that is, from the customer’s point of view”. (Peter F. Drucker, Practice of Management (1954). The essence of all these definitions of marketing is satisfying customer needs and wants. Apparently, this core objective sounds simple, but it is not. Research shows that in many cases customers either have inhibitions about revealing their real needs or wants by intent or may not really know themselves. It is believed that the subconscious is the real storehouse of deep-rooted motives. To the extent possible, marketers undertake consumer research and try to learn about the target customers’ needs and wants, and design appropriate marketing programmes to satisfy target customers Keeping in view the definitions of marketing, some important aspects of modern marketing can be distinguished 1. Marketing is a societal process. 2. Marketing deals with customer needs, wants, products, pricing, distribution, and promotion. 3. Marketing focuses on delivering value and satisfaction to customers through products, services, ideas, etc. 4. Marketing facilitates satisfying exchange relationships. 5. Marketing takes place in a dynamic environment. 6. Marketing is used in both for-profit and not-for-profit organisations. 7. Marketing is extremely important to businesses and the economy of a country. Concept of Exchange The concept of exchange is the essence and central to marketing thinking. Unless there is actual or potential exchange, there is no marketing. People can acquire what they need or want by pursuing socially acceptable behaviours or the behaviours not approved by the society. Two socially acceptable approaches of acquiring things include self-producing or exchanging what a person needs or wants. The third method, begging is viewed in some societies as a somewhat less than dignified way of acquiring things. The fourth approach may include behaviours such as shoplifting, burglary, or using potentially threatening force, etc., to acquire things, and these means are totally unacceptable by all civilised societies and punishable by law. The highly regarded way to acquire what a person needs or wants is the concept of exchange in marketing context. Both parties in an exchange offer something of value, and freely acceptable to each other. It is understandable that parties involved in an exchange must first agree to terms and conditions laid-down by each party so that actual exchange take Notes Something of Value (Goods, Service, Ideas, etc.) Both Parties Freely Agree to the Terms and Conditions of Exchange (Money, Credit, Goods, Labour) Something of Value Marketer Customer Barter System Barter is where people exchanged goods for other goods. It is trading for goods without a fixed price tag. Some places barter with currencies, and some use only goods to trade with. The old trading posts were often barter only, with little currency. In ancient times when money was not invented trade as a whole was on barter system. This was possible only in a simple economy but after the development of economy, direct exchange of goods without the use of money, was not without defects. There were various defects in this system. These were the following; 1. Double Coincidence of Wants 2. Absence of Standard Value 3. Indivisibility of Commodities 4. Absence of Store of Value In the modern economy barter system cannot succeed. Money is indispensable for large scale production. The functions of money are the same which were defects in barter system. Needs, Wants and Demand The very existence of human beings spells the presence of needs, and marketing thinking starts with this very important realisation. It is wrong to believe that anyone can invent needs. Needs are part of the basic fabric of human life. A need can be defined as a felt state of deprivation of some basic satisfaction. This means that unless the individual feels deprived of some basic satisfaction, at least for this individual, the need does not exist. Humans have a long list of needs, some very basic and others complex. The basic needs are physiological or biogenic in nature, and individuals are born with them. These needs are essential to sustaining human life such as need for air, water, food, shelter, clothing, and sex. These basic needs are also referred to as primary needs. Other types of needs are those that individuals learn as a result of being brought up in a culture and society such as need to belong, acquire knowledge, self-expression, self-esteem, prestige, power, achievement, etc. These are considered as secondary needs, also called acquired needs and generally believed to be the result of an individual’s subjective psychological makeup and relationship with others. Example: To differentiate between need and want, let us assume four individuals are hungry; their need is food. Assuming they have the resources to get involved in acquiring food to satisfy hunger, they go to McDonald’s. One orders a vegetable burger; the second orders Puff, the third asks for a chicken burger, and the fourth buys a huge ice cream. All of them are Notes eating some variation of food to satisfy hunger. The specific satisfier that an individual looks for defines the want. Therefore, wants are specific satisfiers of some needs. Individual wants are shaped by culture, life style, and personality. Example: An individual buys a Mercedes as a status symbol and a tribal chief in some remote area of Amazon rain forests sticks an eagle feather in his headgear as status symbol. To satisfy any given need, different people may express a variety of wants and the total number of wants for all sorts of needs is apparently unlimited. Just because people have needs and wants is not enough to affect exchanges. The resources to acquire the products are limited for every individual and hence people want to buy products that they believe will provide the maximum value and satisfaction for their money. When the want is backed by purchasing power, it is called the demand and marketers are particularly interested in demand rather than just needs or wants. Marketing aims at identifying human and social needs and endeavours to satisfy them by creating, communicating, and delivering products and services. According to Kotler, marketers are involved in marketing 10 different entities: tangible products, services, events, information, ideas, places, persons, experiences, properties, and organisations to accomplish the objective of delivering satisfaction to customers. People buy products only because these are seen as means to satisfy certain needs or wants. The concept of product is broad in its meaning and includes everything that is capable of satisfying a need and can be a physical product, service, idea, person, place, or organisation. Marketers make a sensible distinction between goods and services to place them in right perspective. Physical products are tangible and services are intangible. People acquire products or buy the services not so much for the sake of being the owner or consumer, but to derive the benefits they provide. Who would buy food just to look at it? No one presumably would buy a refrigerator to just own it but for the reason that it provides the benefit of protecting the food from becoming stale and keeping it fresh. A large family with more resources will probably buy a bigger twodoor refrigerator, while a nuclear two or three member family with lesser resources may perhaps want a smaller capacity refrigerator. Marketing Components Marketing is the effective procedure of generating responses, hopefully in a predictable manner. The components of marketing are: 1. Ongoing review, Augmentation of business, Marketing Strategies: Continuing to assess the strengths and weakness of the business and its marketing strategies with reference to continuously improving strategies. 2. Conducting Market Research: Estimation the size, potential of your customer market and understanding the industry and economic drivers with reference to the strengths and weaknesses of your competitors. 3. Customer Perspective: Understand the customer perspective. Very often, this is where the seed of innovation begins as we learn more about the customer perspective, we start to be able to identify new, emerging customer needs. 4. Differentiating: Standing out from your competitors based on price or value or developing a niche market where you are the dominant player. 5. Creating Visibility: Keep your business clearly visible to your target customer groups. If not, what things you need to do to become more visible to each of the customer group that you serve? E.g., Developing a marketing communications strategy and branding strategies will help you do this. 6. Developing Channels to Distribute Product/Service: To develop deep and wide channels for distributing your product and/or services. 7. Establishing a Marketing Budget: Budgeting for the cost of all promotional activity – salaries/commissions of sales people, advertising, sales promotions, trade show promotions, print/media packages, etc. 8. Trial, Error: To finance trial, error with your marketing activities to determine what works best. 9. Tracking Results: Track your marketing results to determine what’s working the best. 10. Following Through: Keep your promises to your customers with reference to the customer service and operations providing on-time, quality product. Marketing Tasks In a nutshell, marketing is demand management and the demand for products and services often requires different approaches for a variety of reasons. There may also be other situations where demand management would require different types of handling. Example: Demand for hotel accommodation at Mussoorie declines during a severe winter. Philip Kotler and Sidney J. Levy identified eight major demand states in two different articles: 1. Negative Demand: This situation is faced when a major part of the target market dislikes the product and may even pay a price to avoid it. The marketing task is to unearth and analyse the reasons for this state, and to learn if a product redesign or change in marketing mix elements can help. Example: Unpleasant and painful medical treatment has a negative demand. 2. No Demand: The customers may be unaware or indifferent towards the product. The remedy is to create product awareness and connect product benefits to customers’ needs and wants. Example: Small brands often face no demand situation . 3. Dormant Demand: This may occur when the currently available products fail to satisfy the strong needs that customers feel. To meet the latent demand more effectively, the marketing task is to develop product or service if the market size is favourable. Example: Cigarettes with no ill effects. 4. Falling Demand: Sooner or later, companies face this situation with respect to their products or services. The task is to reverse this trend, and marketing should find out the reasons and take swift remedial action. New markets, product feature modification, or more focused and effective promotion may hold the solution. Example: There is a falling demand for desktops these days. 5. Fluctuating Demand: Many companies experience this pattern, the demand varying according to the season, or festivals, etc. The task is to synchronise marketing efforts to alter the demand pattern by adopting flexible pricing, and sales promotion techniques. Example: Air conditioners, Refrigerators, etc. have fluctuating demand 6. Full Demand: This is a situation all companies aspire and work for. The task is to maintain the level of demand and keep pace with the changing customer preferences and ever increasing competition and monitor customer satisfaction. Example: A situation where the no. of shirts produced by the manufacturers meets the level of demand. 7. Excess Demand: At this demand level, the company is unable to meet the demand level. The only option usually available is to find ways to decrease demand temporarily or permanently. Generally, marketing seeks to discourage overall demand through demarketing, either by increasing prices or reducing promotion and services. Selective demarketing involves reducing demand from those markets that are less profitable. Example: Popular models of cars, like Maruti Suzuki Swift, have excess demand. 8. Unwholesome Demand: This concerns managing demand for harmful products. The marketing task is to make the public aware about the dangers and harmful effects caused through misuse or over use of such products by using appropriate degree of fear appeals, price hike, or reduced availability. Marketing Concepts Since the later part of the 19th century, marketing has gradually evolved through various marketing orientations. These stages in marketing evolution present a generalised picture and a sufficiently significant number of companies have adopted the most modern marketing concept or philosophy. A marketing orientation (also called the marketing concept, or consumer focus) is one that allows the wants and needs of customers and potential customers to drive all the firm’s strategic decisions. The firm’s corporate culture is systematically committed to creating customer value. In order to determine customer wants, the company usually needs to conduct marketing research. The marketer expects that this process, if done correctly, will provide the company with a sustainable competitive advantage. This consumer focus can been seen as a process that involves three steps. First customer want are researched, then the information is disseminated thoughout the firm and products are developed, then finally customer satisfaction is monitored and adjustments made if necessary. The concept of marketing orientation was developed in the late 1960s and early 1970s at Harvard University and at a handful of forward thinking companies. It replaced the previous sales orientation that was prevalent between the mid 1950s and the early 1970s, and the production orientation that predominated prior to the mid 1950s. Production Concept This concept, viewed as one of the oldest of managerial orientations, typically aimed at achieving as high an output as possible. This philosophy assumed that customers would be more interested in acquiring conveniently available, reasonably priced, and well-made products. Keeping in view the market behaviour prevailing in times when customers did not have much choice, it was a sound approach. The focus of managers, generally having backgrounds in manufacturing and engineering, was to concentrate on achieving increasingly higher efficiency in production, lower production costs, and more intensive distribution. Even today, this approach seems to be quite sensible in relatively underdeveloped and developing economies because customers are more interested in owning a product and not overly concerned about finer features and aesthetic appeal. In general, one important condition seems to be favourable to adopt production orientation: when the masses look for a cheaper product and demand far exceeds production. Example: In India, The National Textile Corporation (NTC) and all its subsidiaries are sticking to this philosophy while producing textiles for the huge, poverty-stricken population in this country. Their philosophy and positioning is reflected in their ad, “Clothiers of the nation with affordable prices.” In the global scenario, for nearly three decades Intel Corporation focused on achieving increasingly high production output of its successive generations of processors so as to bring down the prices of each improved version. The production concept is unlikely to get discarded for a very long time to come, because there would always be products and populations of such a nature that some companies would feel comfortable with this philosophy. Product Concept The Product Concept has the proposition that consumers will favor 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. Innovations in the scientific laboratory are commercialized and consumers get an opportunity to know and use these products. This is called “Technology Push Model”. The problem with this orientation is that 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. Example: The Golden Eye Technology was brought to the Indian market by t major means of increasing sales and profits during 1920s to 1950s in the developed countries of Notes that period. Companies believed that the most important marketing activities were personal selling, advertising, and distribution. Selling concept is geared towards converting existing product(s) into cash rather than first finding and then satisfying customer needs. Sales concept is often observed in practice when companies show heavy reliance on their promotional capabilities based on “hard sell” approach. It is obvious that if a company’s products do not match the changing tastes and requirements of customers, with many alternative choices available, managers might be inclined to go for aggressive promotional efforts to sell enough quantities. Example: In his book, The End of Marketing as We Know It, Sergio Zyman writes that the purpose of marketing is to sell more stuff to more people more often for more money in order to make more profit. Of late, this has been happening in case of some Credit Cards in our country. Generally, “hard sell” is often seen in case of products or services that people buy without giving much thought to the matter, such as non-essential goods, and tend to postpone such purchases. With ever intensifying competition, products becoming more standardised without any meaningful differentiation i.e., commoditization, heavy promotional efforts in all possible manners are bound to remain the practice, in order to grab more share of the customers’ purse. The consequences of “hard sell” might harm the customer base to the extent that, in some cases, they might even bad-mouth the product if the product fails to match up to their expectation Marketing Concept After World War II, the variety of products increased, people had more discretionary income, and could afford to be selective and buy only those products that more precisely met their changing needs and wants. However, these needs were not immediately obvious. Sometime during the mid-1950s, there was growing recognition among American business people that merely efficient production and extensive promotion, including hard selling, did not guarantee that customers would buy products. With the passage of time, more knowledge, and experience, customers increasingly seemed unwilling to be persuaded. More and more companies found that determining what customers wanted was a must before making a product, rather than producing products first and then persuading them to buy. The key questions became: 1. What do customers really want? 2. Can we develop it while they still want? 3. How can we keep our customers satisfied? Thus, the marketing concept era began. Marketing concept proposes that an organisation should focus on customer needs and wants, coordinate its efforts, and endeavour to accomplish organisational goals. Geraldine E Williams reported that the CEO of Nike said, “For years we thought of ourselves as a production-oriented company, meaning we put all our emphasis on designing and manufacturing the product. But now we understand that the most important thing we do is market the product.” The major focus of all sets of organisational activities should be satisfying customer needs. This requires carefully listening to customers as a student listens to a teacher. Stanley F Slater and John C Narver reported that there is positive relationship between market orientation and performance. Sometimes, philosophies that sound quite reasonable and appear attractive on paper, are difficult to put into practice. To embrace the marketing concept as the guiding philosophy, the concerned firm must accept certain general conditions and manage some problems. Alan Grant and Leonard Schlesinger are of the view that market-orientation requires organisation-wide generation of market intelligence across departments, and organisation wide responsiveness to it. It mean establishing a reliable information system to learn about real needs of customers and design the right need satisfying solutions. Setting up an information system can usually be an expensive proposition and requires committing money and time to its development and maintenance. Company-wide coordination may require restructuring the internal operations and overall objectives in case of one or more departments. Appreciating the critical role of marketing, the head of marketing has to be part of the top management team. Acceptance and implementation of marketing concept demands support of top management and other managers and staff. To inculcate a customer-orientation culture, it is necessary that employees at all levels in the organisation should understand the value of the customer and the importance of the customer satisfaction. Obviously, the internal customers (company employees at all levels) themselves should be satisfied and motivated to promote an organisation-wide culture that puts high value on creating a satisfied customer. For this, the company has to ensure an appropriate work environment and take care of their legitimate needs. Benson P. Shapiro is of the opinion that a company is customer focused if the answers are “yes” to the four critical questions: 1. Are we easy for customers to do business with? 2. Do we keep our promises? 3. Do we meet the standards we set? 4. Are we responsive to customer needs? The marketing concept emphasises three main principles: Customer-oriented Planning and Implementations It should be the sole aim of all employees, irrespective of their department or functional area, to satisfy customers’ needs. It would require carefully segmenting the market on the basis of the right criteria, targeting suitable segment(s), learning about customer needs and wants, analysing and spotting the right opportunities and matching them with the company’s strengths. Coordination of all Organisational Activities Mainly product planning, pricing, distribution, and promotion should be combined in a sensible and consistent manner, and the head of marketing should be a part of top-level management. Coordinated Marketing is Critically Important to achieve Organisational Goals The reward of doing the job well will bring in sales and profits because without profits, the firm cannot survive, neither would it be in a position to improve its offers. Example: Marketing concept is significantly different from production concept and selling concept. Not long ago, Indian auto companies, Hindustan Motors, Premier Automobiles, and Bajaj Auto hardly showed any consideration for customers, producing obsolete models in large numbers (demand exceeded the supply). Though the prices kept on increasing, little was done to improve the models. Bajaj was the only manufacturer of scooters preferred by customers and to own one, customers had to deposit money in advance and wait for five to ten years before they could become proud owners. It is only after the entry of Maruti cars, with Japanese collaboration, that things started changing. Premier Auto, and Hindustan Motors experienced major setbacks, sales declined and ultimately there were hardly any willing buyers. In the beginning, Maruti found it difficult to meet the demand and buyers willingly booked the car and waited for delivery. Bajaj Auto faced a similar situation as customers had many choices of two-wheelers. The position now appears as if almost every auto manufacturer is desperatel trying to please customers. Customers have strong preferences for certain features and price Notes ranges. Maruti has even started selling second-hand, reconditioned, and reliable cars from its outlets to customers looking for such deals, is order to expand its hold on the market. CEO Top Management Middle Management Frontline Managers and Employees Customer CEO Top Management Middle Management Frontline Managers and Employees Customer In line with the marketing concept, it is imperative that the typical pyramid depicting an organisation needs to be inverted to pursue marketing concept. In an inverted position, the customer will occupy the highest pedestal and top management will be at the bottom position. The communication flow will start from the customer, and the employees and executives will look up to learn what the customer wants and then respond to the inputs. This is the way to offer desired value, deliver more satisfaction, and help retain the customer. Did u know? Marketing concept is sometimes interpreted as a philosophy of attempting to satisfy all customers’ needs with no concern for the cost. This would seem to be a sure way to financial disaster. The marketing concept is consistent with the idea of taking into consideration only those customer segments that the company can satisfy both effectively and profitably. The firm has to earn profits to survive, offer new and better products and services, and be a meaningful member of society. A company might therefore choose to offer less costly products and services to unprofitable customer segments, or even avoid them altogether. Being market-oriented pays dividends and has a significant effect on company performance. Nature/ FEATURES /CHARACTERSTICS of Marketing The Nature of Marketing (or Modern marketing) may be studied under the following points: 1. Human activity Originally, the term marketing is a human activity under which human needs are satisfied by human efforts. It’s a human action for human satisfaction. 2. Consumer-oriented A business exist to satisfy human needs, hence business must find out what the desire of customer (or consumer) and thereby produce goods & services as per the needs of the customer. Thus, only those goods should be produce that satisfy consumer needs and at a reasonable profit to the manufacturer (or producer). 3.Art as well as science In the technological arena, marketing is the art and science of choosing target markets and satisfying customers through creating, delivering, and communicating superior customer value. It is a technique of making the goods available at right time, right place, into right hands, right quality, in the right form and at right price. 4.Exchange Process All marketing activities revolve around commercial exchange process. The exchange process implies transactions between buyer and seller. It also involves exchange of technology, exchange of information and exchange of ideas. 5.Starts and ends with customers Marketing is consumer oriented and it is crucial to know what the actual demand of consumer is. This is possible only when required information related to the goods and services is collected from the customer. Thus, it is the starting of marketing and the marketing end as soon as those goods and services reach into the safe hands of the customer. 6.Creation of Utilities Marketing creates four components of utilities viz. time, place, possession and form. The form utility refers to the product or service a company offers to their customers. The place utility refers to the availability of a product or service in a location i.e. Easier for customers. By time utility, a company can ensure that products and services are available when customers need them. The possession utility gives customers ownership of a product or service and enables them to derive benefits in their own business. 7.Goal oriented: Marketing seeks to achieve benefits for both buyers and sellers by satisfying human needs. The ultimate goal of marketing is to generate profits through the satisfaction of the customer. 8.Guiding element of business Modern Marketing is the heart of industrial activity that tells what, when, how to produce. It is capable of guiding and controlling business. 9.System of Interacting Business Activities Marketing is the system through which a business enterprise, institution or organization interacts with the customers with the objective to earn profit, satisfy customers and manage relationship. It is the performance of business activities that direct the flow of goods and services from producer to consumer or user. 10.Marketing is a dynamic process series of interrelated functions Marketing is a complex, continuous and interrelated process. It involves continuous planning, implementation and control.