1.1. What is marketing?

The need for marketing

The idea of a market as a place where buyers and sellers come together can apply to both inputs and outputs. Product markets are those in which an organiza­tion competes for product sales; resource markets are those in which an organization competes for its resource inputs.

In product markets, most private-sector business organisations aim to make a profit from the sale of their products (goods, services and intellectual property) to satisfy consumer wants. However, there are a number of organisations that do not aim to make a profit – for example, some organisations in the public sector and charities. However, almost all organisations will need to market their products. Marketing can promote sales and higher revenues, while in the case of charities it can generate a stream of donations and increase the take-up of the services they provide.

In resource markets, all firms will compete for higher quality and cheaper human resources, materials and component parts, intellectual resources and finance.

In this text-book, we will discuss the key elements of the marketing system: the nature of markets and the nature and importance of products. The way in which an organization configures itself in respect to these elements is crucial to the business success.

Economists refer to a market as a system comprising two ‘sides’. The demand side comprises buyers or consumers of a product or resource; the supply side includes producers or manufacturers of the products or suppliers of the necessary resources.

Market share is a measure of an organization’s performance with regard to its ability to win and retain customers. It can be measured either by volume or by value. Volume measures concern the organiza­tion’s share of units sold to the market (e.g. number of barrels of oil sold by an oil company in proportion to the total number of barrels sold). Value measures concern the sales turnover of one company in proportion to the total value of the market.

We can also define the boundaries of markets in different ways. If different companies define a market in different ways, it is not surprising that the sum of their claimed market share may add to more or less than 100%. The grocery market, for example, may mean dif­ferent things to different companies. One might include just the city market for groceries, whereas another might measure it for the whole of the country. It is clearly important, therefore, that market share measures are stated explicitly with the market boundaries clearly defined.

There are three ways in which markets are commonly defined:

• definition based on product;

• definition based on need satisfaction or function performed;

• definition based on customer identity.

Some definitions of marketing

The definition and boundaries of an organisation’s markets represent a key starting point for the formulation of a business strategy, and provide a basis for measuring competitive performance. The analysis and defi­nition of markets will provide key information concerning opportunities and threats in the business environment.

“The identification, satisfaction and regeneration of customers’ wants at a profit”.

Marketing is not just about advertising or selling. Marketing involves finding out what kinds of design, packaging, pricing, distribution, advertising, promotion, and after-sales service different kinds of customers want, and satisfying their wants in a way that will encourage them to buy a product over and over again. Marketing affects every department in an organization and the prosperity of the whole organization depends upon successful marketing.

“Marketing involves identifying and providing what the customer wants both now and in the future”.

Successful firms are those which can identify and produce what the market wants next and keep ahead of the competition.

“Marketing is War!”

Marketing is about competition between rival firms for a limited amount of consumer spending. Winners in the marketing battle will prosper by increasing their market share and earning more profits. Losers will be eliminated and driven out of business. For example, in the UK fast food market, firms like Wimpy lost their dominant market position when they failed to respond to the threat posed by the US firms McDonalds and Burger King, who, by the late 1980s, had successfully taken over the market.

Marketing principles

Markets are dynamic. They are in a constant state of change due to fluctuations in the economy, changes in the behaviour of competitors, the introduction of new technology, and alterations in government policy. Because of these changes, it is necessary for firms to continually alter and develop their product ranges and promotional strategies to match ever-changing consumer wants.

Marketing involves the application of the following principles:

• Anticipating market opportunities. Businesses need to identify gaps in markets for new products, or new uses for established products, and be aware of markets in which sales are expanding. For example, in the mid-1990s the market for multi-media personal computers was expanding rapidly.

• Satisfying consumer expectations. Consumers will expect the right product to be in the right place at the right time and with the right price and promotion. For example, if the price of a product is above expectations, consumers will not buy it. Similarly, if a high-quality product is priced too low, consumers may be suspicious.

• Generating revenues (and profits). The purpose of marketing is to maximise sales through advertising, promotion, and pricing strategies. Expanding sales will increase revenues and the potential for profit. Charities can also generate donations through careful marketing.

• Utilising technological developments. Technological developments increase the speed at which a firm reacts to the identification of a market opportunity. New machines and production processes can speed up production and reduce costs. Consumers will also expect the latest technological developments in goods and services, such as computer games, home shopping and banking, mobile phones, etc.

• Maximising the benefit to the organisation. Marketing will only be cost-effective if the additional income it generates exceeds the cost involved and ensures the long-term survival of the business.

Effective marketing

Effective marketing means that firms must consider every aspect of the business from the perspective of their customers (customer focus). For example, IKEA, the Swedish furniture company provides basic low, flat-packed furniture. The product range in itself is simple, but the marketing includes cartoon films and playrooms for children, Swedish food, and heavy marketing through home delivery of free catalogues. Through marketing, IKEA is actually selling not just flat-packed furniture, but a family event. In this way, marketing is said to add value or increase the attractiveness of the product to the final consumer.

Product- versus market-orientated firms

Some firms are product-orientated. They introduce new products to a market because they have discovered how to make them, and not because a marketing activity has revealed a consumer want for the product.

Product-orientated firms concentrate on products and production processes. For example, Sinclair Electronics developed and launched the C5 – the first low-cost, mass-produced electric car. This was a technical breakthrough, but the product was a failure because Sinclair had not researched the market. There was little consumer enthusiasm for the product.

A market-orientated firm will continually review and analyse consumer wants and modify their product and marketing strategies accordingly. Market-orientated firms tend to be more successful than firms that concentrate on products and processes, because they produce what the market wants. For example, the Japanese Sony Corporation continually adapts its products and product ranges to meet consumer requirements. Because the investment needed to develop and launch products such as the Walkman, ‘Easycam’, and Mini-disc onto international markets is so huge, Sony must be sure that their marketing is very effective.

Profitability and accountability

Marketing can be expensive. For marketing to be effective, a firm must weigh up marketing costs against the benefits it may yield in terms of improved corporate image, higher sales, and increased profits. For example, in 1994 British Telecom spent over 44 million pounds on advertising. At the same time, profits increased by nearly 1 billion pounds, although this may have been due to many other reasons than advertising. However, when developing marketing strategies, it is important that firms remain accountable to legal and moral considerations. For example, a firm should not mislead consumers or provide false information about products.