Marketing (Encyclopedia of Business and Finance)
The term market is the root word for the word marketing. Market refers to the location where exchanges between buyers and sellers occur. Marketing pertains to the interactive process that requires developing, pricing, placing, and promoting goods, ideas, or services in order to facilitate exchanges between customers and sellers to satisfy the needs and wants of consumers. Thus, at the very center of the marketing process is satisfying the needs and wants of customers.
NEEDS AND WANTS
Needs are the basic items required for human survival. Human needs are an essential concept underlying the marketing process because needs are translated into consumer wants. Human needs are often described as a state of real or perceived deprivation. Basic human needs take one of three forms: physical, social, and individual. Physical needs are basic to survival and include food, clothing, warmth, and safety. Social needs revolve around the desire for belonging and affection. Individual needs include longings for knowledge and self-expression, through items such as clothing choices. Wants are needs that are shaped by both cultural influences and individual preferences. Wants are often described as goods, ideas, and services that fulfill the needs of an individual consumer. The wants of individuals change as both society and technology change. For example, when a computer is released, a consumer may want it simply because it is a new and improved technology. Therefore, the purpose of marketing is to convert these generic needs into wants for specific goods, ideas, or services. Demand is created when wants are supported by an individual consumer's ability to purchase the goods, ideas, or services in question.
Consumers buy products that will best meet their needs, as well as provide the most fulfillment resulting from the exchange process. The first step in the exchange process is to provide a product. Products can take a number of forms such as goods, ideas, and services. All products are produced to satisfy the needs, wants, and demands of individual buyers.
The second step in the satisfaction process is exchange. Exchange occurs when an individual receives a product from a seller in return for something called consideration. Consideration usually takes the form of currency. For an exchange to take place, it must meet a number of conditions. (1) There must be at least two participants in the process. (2) Each party must offer something of value to the other. (3) Both parties must want to deal with each other. (4) Both participants have the right to accept or to reject the offer. (5) Both groups must have the ability to communicate and deliver on the mutual agreement. Thus, the transaction process is a core component of marketing. Whenever there is a trade of values between two parties, a transaction has occurred. A transaction is often considered a unit of measurement in marketing. The earliest form of exchange was known as barter.
HISTORICAL ERAS OF MARKETING
Modern marketing began in the early 1900s. In the twentieth century, the marketing process progressed through three distinct erasroduction, sales, and marketing. In the 1920s, firms operated under the premise that production was a seller's market. Product choices were nearly nonexistent because firm managers believed that a superior product would sell itself. This philosophy was possible because the demand for products outlasted supply. During this era, firm success was measured totally in terms of production. The second era of marketing, ushered in during 1950s, is known as the sales era. During this era, product supply exceeded demand. Thus, firms assumed that consumers would resist buying goods and services deemed nonessential. To overcome this consumer resistance, sellers had to employ creative advertising and skillful personal selling in order to get consumers to buy. The marketing era emerged after firm managers realized that a better strategy was needed to attract and keep customers because allowing products to sell themselves was not effective. Rather, the marketing concept philosophy was adopted by many firms in an attempt to meet the specific needs of customers. Proponents of the marketing concept argued that in order for firms to achieve their goals, they had to satisfy the needs and wants of consumers.
MARKETING IN THE OVERALL BUSINESS
There are four areas of operation within all firms: accounting, finance, management, and marketing. Each of these four areas performs specific functions. The accounting department is responsible for keeping track of income and expenditures. The primary responsibility of the finance department is maintaining and tracking assets. The management department is responsible for creating and implementing procedural policies of the firm. The marketing department is responsible for generating revenue through the exchange process. As a means of generating revenue, marketing objectives are established in alignment with the overall objectives of the firm.
Aligning the marketing activities with the objectives of the firm is completed through the process of marketing management. The marketing management process involves developing objectives that promote the long-term competitive advantage of a firm. The first step in the marketing management process is to develop the firm's overall strategic plan. The second step is to establish marketing strategies that support the firm's overall strategic objectives. Lastly, a marketing plan is developed for each product. Each product plan contains an executive summary, an explanation of the current marketing situation, a list of threats and opportunities, proposed sales objectives, possible marketing strategies, action programs, and budget proposals.
The marketing management process includes analyzing marketing opportunities, selecting target markets, developing the marketing mix, and managing the marketing effort. In order to analyze marketing opportunities, firms scan current environmental conditions in order to determine potential opportunities. The aim of the marketing effort is to satisfy the needs and wants of consumers. Thus, it is necessary for marketing managers to determine the particular needs and wants of potential customers. Various quantitative and qualitative techniques of marketing research are used to collect data about potential customers, who are then segmented into markets.
In order to better manage the marketing effort and to satisfy the needs and wants of customers, many firms place consumers into groups, a process called market segmentation. In this process, potential customers are categorized based on different needs, characteristics, or behaviors. Market segments are evaluated as to their attractiveness or potential for generating revenue for the firm. Four factors are generally reviewed to determine the potential of a particular market segment. Effective segments are measurable, accessible, substantial, and actionable. Measurability is the degree to which a market segment's size and purchasing power can be measured. Accessibility refers to the degree to which a market segment can be reached and served. Substantiality refers to the size of the segment in term of profitability for the firm. Action ability refers to the degree to which a firm can design or develop a product to serve a particular market segment.
Consumer characteristics are used to segment markets into workable groups. Common characteristics used for consumer categorizations include demographic, geographic, psychographic, and behavioral segmentation. Demographic segmentation categorizes consumers based on such characteristics as age, gender, income level, and occupation. It is one of the most popular methods of segmenting potential customers because it makes it relatively easy to identify potential customers. Categorizing consumers according to their locations is called geographic segmentation. Consumers can be segmented geographically according to the nations, states, regions, cities, or neighborhoods in which they live, shop, and/or work. Psychographic segmentation uses consumers' activities, interests, and opinions to sort them into groups. Social class, lifestyle, or personality characteristics are psychographic variables used to categorize consumers into different groups. In behavioral segmentation, marketers divide consumers into groups based on their knowledge, attitudes, uses, or responses to a product.
Once the potential market has been segmented, firms need to station their products relative to similar products of other producers, a process called product positioning. Market positioning is the process of arranging a product so as to engage the minds of target consumers. Firm managers position their products in such a way as to distinguish it from those of competitors in order to gain a competitive advantage in the marketplace. The position of a product in the marketplace must be clear, distinctive, and desirable relative to those of its competitors in order for it to be effective.
There are three basic market-coverage strategies used by marketing managers: undifferentiated, differentiated, and concentrated. An undifferentiated marketing strategy occurs when a firm focuses on the common needs of consumers rather than their different needs. When using this strategy, producers design products to appeal to the largest number of potential buyers. The benefit of an undifferentiated strategy is that it is cost-effective because a narrow product focus results in lower production, inventory, and transportation costs. A firm using a differentiated strategy makes a conscious decision to divide and target several different market segments, with a different product geared to each segment. Thus, a different marketing plan is needed for each segment in order to maximize sales and, as a result, increase firm profits. With a differentiated marketing strategy, firms create more total sales because of broader appeal across market segments and stronger position within each segment. The last market coverage strategy is known as the concentrated marketing strategy. The concentrated strategy, which aims to serve a large share of one or a very few markets, is best suited for firms with limited resources. This approach allows firms to obtain a much stronger position in the segments it targets because of the greater emphasis on these targeted segments. This greater emphasis ultimately leads to a better understanding of the needs of the targeted segments.
Once a positioning strategy has been determined, marketing managers seek to control the four basic elements of the marketing mix: product, price, place, and promotion, known as the four P's of marketing. Since these four variables are controllable, the best mix of these elements is determined to reach the selected target market.
Product. The first element in the marketing mix is the product. Products can be either tangible or intangible. Tangible products are products that can be touched; intangible products are those that cannot be touched, such as services. There are three basic levels of a product: core, actual, and augmented. The core product is the most basic level, what consumers really buy in terms of benefits. For example, consumers do not buy food processors, per se; rather, they buy the benefit of being able to process food quickly and efficiently. The next level of the product is the actual productn the case of the previous example, food processors. Products are typically sorted according to the following five characteristics: quality, features, styling, brand name, and packaging. Finally, the augmented level of a product consists of all the elements that surround both the core and the actual product. The augmented level provides purchasers with additional services and benefits. For example, follow-up technical assistance and warranties and guaranties are augmented product components. When planning new products, firm managers consider a number of issues including product quality, features, options, styles, brand name, packaging, size, service, warranties, and return policies, all in an attempt to meet the needs and wants of consumers.
Price. Price is the cost of the product paid by consumers. This is the only element in the marketing mix that generates revenue for firms. In order to generate revenue, managers must consider factors both internal and external to the organization. Internal factors take the form of marketing objectives, the marketing-mix strategy, and production costs. External factors to consider are the target market, product demand, competition, economic conditions, and government regulations. There are a number of pricing strategies available to marketing managers: skimming, penetration, quantity, and psychological. With a price-skimming strategy, the price is initially set high, allowing firms to generate maximum profits from customers willing to pay the high price. Prices are then gradually lowered until maximum profit is received from each level of consumer. Penetration pricing is used when firms set low prices in order to capture a large share of a market quickly. A quantity-pricing strategy provides lower prices to consumers who purchase larger quantities of a product. Psychological pricing tends to focus on consumer perceptions. For example, odd pricing is a common psychological pricing strategy. With odd pricing, the cost of the product may be a few cents lower than a full-dollar value. Consumers tend to focus on the lower-value full-dollar cost even though it is really priced closer to the next higher full-dollar amount. For example, if a good is priced at $19.95, consumers will focus on $19 rather than $20.
Place. Place refers to where and how the products will be distributed to consumers. There are two basic issues involved in getting the products to consumers: channel management and logistics management. Channel management involves the process of selecting and motivating wholesalers and retailers, sometimes called middlemen, through the use of incentives. Several factors are reviewed by firm management when determining where to sell their products: distribution channels, market-coverage strategy, geographic locations, inventory, and transportation methods. The process of moving products from a manufacturer to the final consumer is often called the channel of distribution.
Promotion. The last variable in the marketing mix is promotion. Various promotional tools are used to communicate messages about products, ideas, or services from firms and their customers. The promotional tools available to managers are advertising, personal selling, sales promotion, and publicity. For the promotional program to be effective, managers use a blend of the four promotional tools that best reaches potential customers. This blending of promotional tools is sometimes referred to as the promotional mix. The goal of this promotional mix is to communicate to potential customers the features and benefits of products.
International business has been practiced for thousands of years. In modern times, advances in technology have improved transportation and communication methods; as a result, more and more firms have set up shop at various locations around the globe. A natural component of international business is international marketing. International marketing occurs when firms plan and conduct transactions across international borders in order to satisfy the objectives of both consumers and the firm. International marketing is simply a strategy used by firms to improve both market share and profits. While firm managers may try to employ the same basic marketing strategies used in the domestic market when promoting products in international locations, those strategies may not be appropriate or effective. Firm managers must adapt their strategies to fit the unique characteristics of each international market. Unique environmental factors that need to be explored by firm managers before going global include trade systems, economic conditions, political-legal, and cultural conditions.
The first factor to consider in the international marketplace is each country's trading system. All countries have their own trade system regulations and restrictions. Common trade system regulations and restrictions include tariffs, quotas, embargoes, exchange controls, and non-tariff trade barriers. The second factor to review is the economic environment. There are two economic factors which reflect how attractive a particular market is in a selected country: industrial structure and income distribution. Industrial structure refers to how well developed a country's infrastructure is while income distributed refers to how income is distributed among its citizens. Political-legal environment is the third factor to investigate. For example, the individual and cultural attitudes regarding purchasing products from foreign countries, political stability, monetary regulations, and government bureaucracy all influence marketing practices and opportunities. Finally, the last factor to be considered before entering a global market is the cultural environment. Since cultural values regarding particular products will vary considerably from one country to another around the world, managers must take into account these differences in the planning process.
Just as with domestic markets, managers must establish their international marketing objectives and policies before going overseas. For example, target countries will need to be identified and evaluated in terms of their potential sales and profits. After selecting a market and establishing marketing objectives, the mode of entry into the market must be determined. There are three major modes of entry into international markets: exporting, joint venture, and direct investment. Exporting is the simplest way to enter an international market. With exporting, firms enter international markets by selling products internationally through the use of middlemen. This use of these middlemen is sometimes called indirect exporting. The second way to enter an international market is by using the joint-venture approach. A joint venture takes place when firms join forces with companies from the international market to produce or market a product. Joint ventures differ from direct investment in that an association is formed between firms and businesses in the international market. Four types of joint venture are licensing, contract manufacturing, management contracting, and joint ownership. Under licensing, firms allow other businesses in the international market to produce products under an agreement called a license. The licensee has the right to use the manufacturing process, trademark, patent, trade secret, or other items of value for a fee or royalty. Firms also use contract manufacturing, which arranges for the manufacture of products to enter international markets. The third type of joint venture is called management contracting. With this approach, the firms supply the capital to the local international firm in exchange for the management know-how. The last category of joint venture is joint ownership. Firms join with the local international investors to establish a local business. Both groups share joint ownership and control of the newly established business. Finally, direct investment is the last mode used by firms to enter international markets. With direct investment, a firm enters the market by establishing its own base in international locations. Direct investment is advantageous because labor and raw materials may be cheaper in some countries. Firms can also improve their images in international markets because of the employment opportunities they create.
Boone, Louise E., and Kurtz, David L. (1992). Contemporary Marketing, 7th ed. New York: Dryden/Harcourt Brace.
Churchill, Gilbert A., and Peter, Paul J. (1995). Marketing: Creating Value for Customers. Boston: Irwin.
Farese, Lois, Kimbrell, Grady, and Woloszyk, Carl (1991). Marketing Essentials. Mission Hills, CA: Glencoe/McGraw-Hill.
Kotler, Philip, and Armstrong, Gary (1993). Marketing, an Introduction, 3rd ed. Englewood Cliffs, NJ: Prentice-Hall.
Semenik, Richard J., and Bamossy, Gary J. (1995). Principles of Marketing: A Global Perspective, 2d ed. Cincinnati, OH: South-Western.
Marketing (Encyclopedia of Small Business)
Marketing is a general term used to describe all the various activities involved in transferring goods and services from producers to consumers. In addition to the functions commonly associated with it, such as advertising and sales promotion, marketing also encompasses product development, packaging, distribution channels, pricing, and many other functions. The modern marketing concept, which is applied by most successful small businesses, is intended to focus all of a company's activities upon uncovering and satisfying customer needs. After all, an entrepreneur may come up with a great product and use the most efficient production methods to make it, but all the effort will have been wasted if he or she is unable to consummate the sale of the product to consumers.
The importance of marketing in the modern business climate cannot be overstated. In fact, management guru Peter F. Drucker has claimed that marketing "is so basic it cannot be considered a separate function It is the whole business seen from the point of view of its final result, that is, from the customer's point of view." Marketing is the source of many important new ideas in management thought and practiceuch as flexible manufacturing systems, flat organizational structures, and an increased emphasis on servicell of which are designed to make businesses more responsive to customer needs and preferences. This suggests that small business owners must master the basics of marketing in order to succeed.
In the Macmillan Small Business Handbook, Mark Stevens discussed four main areas of marketing in which entrepreneurs should concentrate their efforts:1) determining the needs of customers through market research; 2) analyzing their own competitive advantages and developing an appropriate market strategy; 3) selecting specific target markets to serve; and 4) determining the best marketing mix to satisfy customer needs. The first three tasks are most appropriately performed when a start-up business is preparing to enter a market, or when an existing business is considering entering a new market or promoting a new product. The marketing mix, on the other hand, includes the main decision areas that an entrepreneur must consider on an ongoing basis. Some elements of the market environment, such as the general economic conditions, are beyond a small business owner's control. But he or she can adjust elements of the company's marketing mixhich consists of the "four Ps": product, place, price, and promotiono better fit the market environment.
The term "marketing" is derived from the word "market," which refers to a group of sellers and buyers that cooperate to exchange goods and services. The modern concept of marketing evolved during and after the industrial revolution in the 19th and 20th centuries. During that period, the proliferation of goods and services, increased worker specialization, and technological advances in transportation, refrigeration, and other factors that facilitated the transfer of goods over long distances resulted in the need for more advanced market mechanisms and selling techniques. But it was not until the 1930s that companies began to place a greater emphasis on advertising and promoting their products and began striving to tailor their goods to specific consumer needs. By the 1950s, many larger companies were sporting entire marketing departments charged with devising and implementing marketing strategies that would complement, and even direct, overall operations. Since the 1970s, the primary marketing trend has been a greater focus on providing benefits, rather than products, to customers.
MACRO-MARKETING AND MICRO-MARKETING
Macro-marketing refers to the overall social process that directs the flow of goods and services from producer to consumer. It is the economic system that determines what and how much is to be produced and distributed by whom, when, and to whom. E. Jerome McCarthy and William D. Perreault, Jr. identified eight universal macro-marketing functions that make up the economic process:1) buying, which refers to consumers seeking and evaluating goods and services;2) selling, which involves promoting the offering; 3) transporting, which refers to the movement of goods from one place to another; 4) storing, which involves holding goods until customers need them; 5) standardization and grading, which entails sorting products according to size and quality; 6) financing, which delivers the cash and credit needed to perform the first five functions; 7) risk taking, which involves bearing the uncertainties that are part of the marketing process; and 8) market information, which refers to the gathering, analysis, and distribution of the data necessary to execute these marketing functions.
In contrast, micro-marketing refers to the activities performed by the individual providers of goods and services within a macro-marketing system. Such organizations or businesses use various marketing techniques to accomplish objectives related to profits, market share, cash flow, and other economic factors that can enhance their well being and position in the marketplace. The micro-marketing function within an entity is commonly referred to as marketing management. Marketing managers strive to get their organizations to anticipate and accurately determine the needs and wants of customer groups. Afterward they seek to respond effectively with a flow of need-satisfying goods and services. They are typically charged with planning, implementing, and then measuring the effectiveness of all marketing activities.
THE TARGET MARKETING CONCEPT
Micro-marketing encompasses a number of related activities and responsibilities. Marketing managers must carefully design their marketing plans to ensure that they complement related production, distribution, and financial constraints. They must also allow for constant adaptation to changing markets and economic conditions. Perhaps the core function of a marketing manager, however, is to identify a specific market, or group of consumers, and then deliver products and promotions that ultimately maximize the profit potential of that targeted market. This is particularly important for small businesses, which more than likely lack the resources to target large aggregate markets. Often, it is only by carefully selecting and wooing a specific group that a small firm can attain profit margins sufficient to allow it to continue to compete in the marketplace.
For instance, a manufacturer of fishing equipment would not randomly market its product to the entire U.S. population. Instead, it would likely conduct market researchsing such tools as demo-graphic reports, market surveys, or focus groupso determine which customers would be most likely to purchase its offerings. It could then more efficiently spend its limited resources in an effort to persuade members of its target group(s) to buy its products. Perhaps it would target males in the Midwest between the ages of 18 and 35. The company may even strive to further maximize the profitability of its target market through market segmentation, whereby the group is further broken down by age, income, zip code, or other factors indicative of buying patterns. Advertisements and promotions could then be tailored for each segment of the target market.
There are infinite ways to address the wants and needs of a target market. For example, product packaging can be designed in different sizes and colors, or the product itself can be altered to appeal to different personality types or age groups. Producers can also change the warranty or durability of the good or provide different levels of follow-up service. Other influences, such as distribution and sales methods, licensing strategies, and advertising media also play an important role. It is the responsibility of the marketing manager to take all of these factors into account and to devise a cohesive marketing program that will appeal to the target customer.
THE FOUR PS
The different elements of a company's marketing mix can be divided into four basic decision areasnown as the "four Ps": product, place, promotion, and pricehich marketing managers can use to devise an overall marketing strategy for a product or group of goods. These four decision groups represent all of the variables that a company can control. But those decisions must be made within the context of outside variables that are not entirely under the control of the company, such as competition, economic and technological changes, the political and legal environment, and cultural and social factors.
Marketing decisions related to the product (or service) involve creating the right product for the selected target group. This typically encompasses research and data analysis, as well as the use of tools such as focus groups, to determine how well the product meets the wants and needs of the target group. Numerous determinants factor into the final choice of a product and its presentation. A completely new product, for example, will entail much higher promotional costs to raise consumer awareness, whereas a product that is simply an improved version of an existing item likely will make use of its predecessor's image. A pivotal consideration in product planning and development is branding, whereby the good or service is positioned in the market according to its brand name. Other important elements of the complex product planning and management process may include selection of features, warranty, related product lines, and post-sale service levels.
Considerations about place, the second major decision group, relate to actually getting the good or service to the target market at the right time and in the proper quantity. Strategies related to place may utilize middlemen and facilitators with expertise in joining buyers and sellers, and they may also encompass various distribution channels, including retail, wholesale, catalog, and others. Marketing managers must also devise a means of transporting the goods to the selected sales channels, and they may need to maintain an inventory of items to meet demand. Decisions related to place typically play an important role in determining the degree of vertical integration in a company, or how many activities in the distribution chain are owned and operated by the manufacturer. For example, some larger companies elect to own their trucks, the stores in which their goods are sold, and perhaps even the raw resources used to manufacture their goods.
Decisions about promotion, the third marketing mix decision area, relate to sales, advertising, public relations, and other activities that communicate information intended to influence consumer behavior. Often promotions are also necessary to influence the behavior of retailers and others who resell or distribute the product. Three major types of promotion typically integrated into a market strategy are personal selling, mass selling, and sales promotions. Personal selling, which refers to face-to-face or telephone sales, usually provides immediate feedback for the company about the product and instills greater confidence in customers. Mass selling encompasses advertising on mass media, such as television, radio, direct mail, and newspapers, and is beneficial because of its broad scope. A relatively new means of promotion involves the Internet, which combines features of mass media with a unique opportunity for interactive communication with customers. Publicity entails the use of free media, such as feature articles about a company or product in a magazine or related interviews on television talk shows, to spread the word to the target audience. Finally, sales promotion efforts include free samples, coupons, contests, rebates, and other miscellaneous marketing tactics.
Determination of price, the fourth major activity related to target marketing, entails the use of discounts and long-term pricing goals, as well as the consideration of demographic and geographic influences. The price of a product or service generally must at least meet some minimum level that will cover a company's cost of producing and delivering its offering. Also a firm would logically price a product at the level that would maximize profits. The price that a company selects for its products, however, will vary according to its long-term marketing strategy. For example, a company may underprice its product in the hopes of increasing market share and ensuring its competitive presence, or simply to generate a desired level of cash flow. Another producer may price a good extremely high in the hopes of eventually conveying to the consumer that it is a premium product. Another reason a firm might offer a product at a very high price is to discount the good slowly in an effort to maximize the dollars available from consumers willing to pay different prices for the good. In any case, price is used as a tool to achieve comprehensive marketing goals.
Often times, decisions about product, place, promotion, and price will be dictated by the competitive stance that a firm assumes in its target market. According to Michael Porter's classic book Competitive Strategy, the three most common competitive strategies are low-cost supplier, differentiation, and niche. Companies that adopt a low-cost supplier strategy are usually characterized by a vigorous pursuit of efficiency and cost controls. A company that manufactures a low-tech or commodity product, such as wood paneling, would likely adopt this approach. Such firms compete by offering a better value than their competitors, accumulating market share, and focusing on high-volume and fast inventory turnover.
Companies that adhere to a differentiation strategy achieve market success by offering a unique product or service. They often rely on brand loyalty, specialized distribution channels or service offerings, or patent protection to insulate them from competitors. Because of their uniqueness, they are able to achieve higher-than-average profit margins, making them less reliant on high sales volume and extreme efficiency. For example, a company that markets proprietary medical devices would likely assume a differentiation strategy.
Firms that pursue a niche market strategy succeed by focusing all of their efforts on a very narrow segment of an overall target market. They strive to prosper by dominating their selected niche. Such companies are able to overcome competition by aggressively protecting market share and by orienting every action and decision toward the service of its select group. An example of a company that might employ a niche strategy would be a firm that produced floor coverings only for extremely upscale commercial applications.
BUSINESS VERSUS CONSUMER MARKETS
An important micro-marketing delineation is that between industrial and consumer markets. Marketing strategies and activities related to transferring goods and services to industrial and business customers are generally very different from those used to lure other consumers. The industrial, or intermediate, market is made up of buyers who purchase for the purpose of creating other goods and services. Thus, their needs are different from general consumers. Buyers in this group include manufacturers and service firms, wholesalers and retailers, governments, and nonprofit organizations.
In many ways, it is often easier to market to a target group of intermediate customers. They typically have clearly defined needs and are buying the product for a very specific purpose. They are also usually less sensitive to price and are more willing to take the time to absorb information about goods that may help them do their job better. On the other hand, marketing to industrial customers can be complicated. For instance, members of an organization usually must purchase goods through a multi-step process involving several decision makers. Importantly, business buyers will often be extremely cautious about trying a new product or a new company because they do not want to be responsible for supporting what could be construed as a poor decision if the good or service does not live up to the organization's expectations.
A chief difference between marketing to intermediate and consumer markets is that members of the latter are typically considering purchasing goods and services that they might enjoy but are not absolutely necessary. As a result, they are more difficult to sell to than are business buyers. Consumers are generally less sophisticated than intermediate buyers, are less willing to spend time absorbing individual marketing messages of interest to them, and are more sensitive to the price of a good or service. Consumers typically make a buying decision on their own, however (or, for larger purchases, with the help of a friend or family member), and are much more likely to buy on impulse than are industrial customers.
Despite the differences, a dominant similarity between marketing to intermediate buyers and consumers is that both groups ultimately make purchases based on personal needs. Consumers typically act on their desires to belong, have security, feel high selfesteem, and enjoy freedom and status. Business and industrial consumers react more strongly to motivators such as fear of loss, fear of the unknown, the desire to avoid stress or hardship, and security in their organizational role.
A discussion of marketing would not be complete without mentioning the emerging field of Internet marketing. Increasingly, small businesses have sought to take advantage of the global reach of the World Wide Web and the huge number of potential customers available online. Although it may seem like a completely new field, Internet marketing actually combines many of the basic elements of traditional marketing. "Internet marketing employs the same methods and theory as traditional public relations and integrated marketinghe basic tools for any campaign," Maria Duggan and John Deveney wrote in Communication World.
In their article, Duggan and Deveney outline five steps for marketing managers to follow in putting together an Internet marketing campaign. Whether the campaign is intended to increase awareness of an existing brand, draw visitors to a Web site, or promote a new product offering, the first step involves identifying the target market. As is the case with any other type of marketing campaign, the small business must conduct market research in order to define the target audience for the campaign, and then use the information gathered to determine how best to reach them.
The next step is to develop a strategy for the campaign. This involves setting concrete and measurable goals and tying the campaign into the organization's traditional marketing efforts. The third step is to present the strategy to key decision makers in the small business. It is important at this stage to develop a timeline and budget, and also to be prepared to encounter resistance among colleagues not familiar with cyberspace. The fourth step is to implement the Internet marketing campaign. The final step, evaluation, should be conducted throughout the process. Online surveys of customers are one source of potential feedback.
MARKETING FOR SMALL BUSINESSES
In the early stages of forming a small business, a business plan is a vital tool to help an entrepreneur chart the future direction of the enterprise. A well-prepared business plan should include an extensive marketing component that explores the needs of the target market and lays out a marketing program to meet them. In fact, some experts claim that entrepreneurs should actually design their organizations in a way that gives the marketing function prominence. Once the needs of the target customers have been identified, these experts say, every aspect of the company's marketing program, as well as the basic image that the company develops, should be oriented toward satisfying these needs. For example, the company's selection of advertising, channels of distribution, packaging, price, and even vehicles and dress codes should all be coordinated to appeal to the target market.
As a small business grows, it may be helpful to create a separate marketing plan. While similar in format to the general business plan, a marketing plan focuses on expanding a certain product line or service rather than on the overall business. According to the Entrepreneur Magazine Small Business Advisor, creating a marketing plan helps a small business to define its markets, review its competitive position, develop goals and objectives, and determine the marketing tactics and financial resources needed to achieve its goals.
A number of resources are available to assist small businesses in marketing their products and services. It may be prudent to seek legal advice before implementing a marketing plan, for example. A firm with experience in consumer law could review the small business's product, packaging, labeling, advertising, sales agreements, and price policies to be sure that they meet all relevant regulations to prevent problems from arising later. In addition, many advertising agencies and market research firms offer a variety of means of testing the individual elements of marketing programs. Although such testing can be expensive, it can significantly increase the effectiveness of a company's marketing efforts.
Duggan, Maria, and John Deveney. "How to Make Internet Marketing Simple." Communication World. April 2000.
The Entrepreneur Magazine Small Business Advisor. Wiley, 1995.
Homburg, Christian, John P. Workman, Jr., and Harley Krohmer. "Marketing's Influence within the Firm." Journal of Marketing. April 1999.
McCarthy, E. Jerome and William D. Perreault, Jr. Basic Marketing. Irwin, 1990.
Moorman, Christine, and Roland T. Rust. "The Role of Marketing." Journal of Marketing. December 1999.
Porter, Michael E. Competitive Strategy. Free Press, 1980.
Simkin, Lyndon. "Marketing Is Marketingaybe!" Marketing Intelligence and Planning. March 2000.
Stevens, Mark. The Macmillan Small Business Handbook. Macmillan, 1988.
Tracy, Joe. Web Marketing Applied: Web Marketing Strategies for the New Millennium. Advanstar Communications, 2000.
Zyman, Sergio. "Put the Petal to the Metal: Marketing and the Internet." Brandweek. October 2, 2000.
Marketing (Encyclopedia of Business)
- THE TARGET MARKETING CONCEPT
- COMPETITIVE STRATEGIES
- MICRO-MARKETING CASE STUDIES
- MULTINATIONAL MARKETING
Marketing is a very general term that refers to the commercial functions involved in transferring goods and services from a producer to a consumer. It is commonly associated with endeavors such as branding, selling, and advertising, but it also encompasses activities and processes related to production, product development, distribution, and many other functions. Furthermore, on a less tangible level, marketing facilitates the distribution of goods and services within a society, particularly in free markets. Evidence of the pivotal role that marketing plays in free markets is the vast amount of resources it consumes: about 50 percent of all consumer dollars, in fact, pay for marketing-related activities.
This text recognizes a chief delineation of the subject of marketing, micro- and macro-marketing. The latter pertains to the flow of goods and services within and between societies. Micro-marketing, in contrast, encompasses specific activities performed by an organization as it attempts to transfer its particular offerings to consumers, primarily through targeted marketing techniques. Case studies and a discussion of multinational marketing nuances complement the very basic review of micro and macro principles.
Marketing, as a means of transferring goods and services from suppliers to consumers, predates recorded history. It was born by the transition from a purely subsistence-based society, in which families and tribes produced their own consumables, to more specialized and cooperative societal forms. The simple act of trading a piece of meat for a tool, for example, entails some degree of marketing. The term "marketing," of course, derives from the word "market," a group of sellers and buyers that cooperate to exchange goods and services. The term "marketing" in the modem business sense is believed to have come into use during the first decade of the 20th century.
ERAS OF MARKETING.
Some scholars and marketing texts have divided the history of marketing into three and sometimes four distinct eras corresponding to the main emphases and practices of those times. Periods commonly cited include, in chronological order, the production era, the sales era, the marketing era, and in some cases, the relationship era.
The production era refers to the period leading up to the 1930s or, more broadly, the pre-World War II period, when emphasis was placed on simply producing a satisfactory product and informing potential customers about it through catalogs, brochures, and advertising. In the sales era, corresponding roughly to the decade or so after the war, companies reportedly recruited customers more actively by trying to develop persuasive arguments or pitches to encourage customers to choose their products. By the late 1950s and early 1960s this evolved further, the theory goes, into the marketing era, when companies grew increasingly sensitive and responsive to consumer preferences and to exactly what motivated purchasing decisions. Finally, in the 1980s, some argue that the notion of relationship marketing began to take hold as a guiding tenet, where companies moved away from courting simple transactions and toward facilitating more complex long term relationships with customers. The concept of relationship marketing is still quite popular today.
Although such era distinctions derive from classic marketing texts from as early as the 1960s, some observers believe the differences are overstated because of the particular marketing fads and vocabulary of more recent times, when there has been a wish by some corporate marketers to "reinvent" how they approach their craft and demonstrate that their newer practices are a departure from the past. These scholars argue that while the specific tools and vehicles of marketing have evolved over time, there has in fact been greater continuity in the historical approaches to marketing (at least within the 20th century) than these era designations suggest. In particular, several scholars have concluded that cultivating enduring relationships, purportedly the newest phase in marketing, has existed as a priority at large companies since at least the 1920s.
Macro-marketing refers to the social process that directs the flow of goods and services from producer to consumern economic system that determines what and how much is to be produced and distributed by whom, when, and to whom. Economists and marketing scholars often identify three broad macromarketing spheres and eight functions within them that make up the economic process:
- 1. Buying refers to consumers seeking and evaluating goods and services.
- 2. Selling involves promoting the offering.
Distribution and Logistics
- 3. Transporting refers to the movement of goods from one place to another.
- 4. Storing involves holding goods until customers need them.
Support and Facilitation
- 5. Standardization and grading entails sorting products according to uses, markets, and other shared attributes.
- 6. Financing delivers the cash and credit needed to perform the first five functions.
- 7. Risk-taking involves bearing the uncertainties that are part of the marketing process.
- 8. Market information refers to the gathering, analyzing, and distributing of the data necessary to execute the other marketing functions.
All of the eight basic macro-marketing functions exist in some form in both command economies and in free markets. In both systems, in fact, consumers have different needs, preferences, and patterns of resource allocation. Similarly, producers have different resources, goals, and capabilities. Although virtually every society has some sort of marketing system that serves to match this heterogeneous supply and demand, the success of any macro-marketing system is judged by its ability to accomplish the society's objectives, whether the chief goal is equality of wealth, as in a command economy, or the greatest good for the greatest number regardless of equal distribution, as is the case in a free market system.
In a command economy, government planners perform most of the marketing function for society. The planners tell producers what and how much to provide and at what price. The goal of the producers is primarily to meet government quotas. Such a system may work well in a small and simple economic system or during a crisis like a war. In a larger economy, however, the process of matching supply and demand tends to become so extraordinarily complex that planners are simply overwhelmed. The complicated dynamics of consumer demands and the capabilities of suppliers elude planners, the result being that many consumer needs are left unfulfilled. Nevertheless, the marketing function may still achieve a primary goal, such as equal distribution of wealth.
In a free-market economy the marketing function is carried out by individual consumers and producers who essentially act as economic planners by means of numerous day-to-day decisions. In most modem economies, consumers register their purchasing decisions with dollars. Providers of goods and services respond primarily to consumer input in determining what and how much to provide, and at what price. They are motivated by competition rather than incentives to meet government quotas.
The marketing function of free market economies also tends to be characterized by a greater emphasis on middlemen, or parties that specialize in trade rather than production. They bring buyers and sellers together and charge a fee or commission for their services. Likewise, facilitators serve free market economies by providing producers with adjunct services. Examples of facilitators include advertising agencies, transportation firms, banks and other financial institutions, and market research companies.
Although the marketing function in a free economy is generally effective when judged by its ability to provide the greatest good for the greatest number, it may fail to achieve other goals. For example, some members of society may fail to compete effectively, thus reducing their dollar "vote" in the economy and diminishing their ability to acquire basic necessities. As another example, some producers may profit by providing goods and services, such as addictive drugs, that are detrimental to society as a whole.
Critics of free market systems cite several other flaws. Advertising, for instance, can be used to promote products that are unhealthy, bad for the environment, or cause consumers to make unwise decisions by clouding the facts. Also, the extreme emphasis on promotion consumes vast amounts of resources that are not put to any tangible consumer use. Furthermore, some people believe that the marketing function in a free economy leads to materialism, or an emphasis on things rather than social values.
To overcome some of the negative effects that may result from purely free market economies, most societies without a command economy adopt a market-directed economy that reflects a compromise between the two systems. Market-directed economies use government constraints to temper free markets. In the United States, for example, the federal government sets interest rates, creates import and export rules, regulates advertising medium, mandates safety and quality controls, and even limits wages and prices in some instances.
Micro-marketing is the formal term for marketing activities in specific businesses; it is what most people mean when they use the word "marketing." Micro-marketing refers to the activities performed by the providers of goods and services within a macromarketing system. Those organizations use various marketing techniques to accomplish objectives related to profits, market share, cash flow, and other economic factors that can enhance the organization's well being and position in the marketplace. The micro-marketing function within an entity is commonly referred to as marketing management. Marketing managers strive to get their organizations to anticipate and accurately determine the needs and wants of customer groups. Afterward they seek to effectively respond with a flow of need satisfying goods and services. They are typically charged with planning, implementing, and then measuring the effectiveness of all marketing activities.
Academic discussions of the marketing management function are often presented within the context of behaviorist Abraham Maslow's famous hierarchy of needs. Maslow (1908-1970) posited that all peopled respond first to vital physical needs, such as food and shelter. Only after those needs have been met, he argued, do people strive to meet social and emotional needs that are important to their psychological well-being. Examples of those needs are security, belonging, and self-esteem. It is these basic biological needs that shape the buying behavior of all consumers.
Because the way that people choose to satisfy their needs can be shaped by past experiences, different groups and individuals may have different "wants" to satisfy the same need. Comprehension of this basic tenet of human behavior reveals an important aspect of the micro-marketing functionhat producers are not capable of creating or shaping basic needs, but rather achieve marketing success by influencing wants. In other words, a chief goal of a marketing manager's job is to stimulate customers' "wants" for a product or service by persuading the consumer that the offering can help them better satisfy one or more of their needs.
An implication of Maslow's theory for marketing managers is that customers view products and benefits differently; customers don't buy products (services), they buy the benefits that they believe they will get from them. For instance, when trying to get a consumer to purchase an automobile, marketers must remember that they are selling an image. Car buyers with strong needs for social acceptance might seek a prestigious looking automobile, for example, or be willing to pay more for a particular name brand. This product-versus-benefit element is best evidenced by the strategic marketing of relatively homogenous goods, such as fruit juices, which are differentiated from competing products in the marketplace almost solely on the basis of perceived benefits attached to the product through advertising and promotion.
THE TARGET MARKETING CONCEPT
Micro-marketing encompasses a profusion of related activities and responsibilities. Marketing managers must carefully design their marketing plans to ensure that they complement related production, distribution, and financial constraints. They must also allow for constant adaptation to changing markets and economic conditions. Perhaps the core function of a marketing manager, however, is to identify a specific market, or group of consumers, and then deliver products and promotions that ultimately maximize the profit potential of that targeted market. Often, it is only by carefully selecting and wooing a specific group that an organization can attain profit margins sufficient to allow it to continue to compete in the marketplace.
For instance, a manufacturer of fishing equipment would not randomly market its product to the entire U.S. population. Instead, it would likely conduct research to determine which customers would be most likely to purchase its offerings. It could then more efficiently spend its limited resources in an effort to persuade members of its target group(s). Perhaps it would target males in the Midwest between the ages of 18 and 35. The company may even strive to further maximize the profitability of its target market through market segmentation, whereby the group is further broken down by age, income, zip code, or other factors indicative of buying patterns. Advertisements and promotions could then be tailored for each segment of the target market.
There are infinite ways to satisfy the wants, and subsequently the needs, of a target market. For example, in the case of a product the packaging can be designed in different sizes and colors, or the product itself can be altered to appeal to different personality types or age groups. Producers can also alter the warranty or durability of the good or provide different levels of follow-up service. Other influences, such as distribution and sales methods, licensing strategies, and advertising media may also play an important role. It is the responsibility of the marketing manager to take all of these factors into account and to devise a cohesive marketing program that will appeal to the customer.
THE FOUR Ps
The different elements of micro-marketing strategy can be divided into four basic decision areas that marketing managers may use to devise an overall marketing strategy for a single product or a line of products, often dubbed the "four Ps":
- product (concept and attributes)
- place (distribution)
These four decision groups represent all of the variables that a company can control. But those decisions must be made within the context of outside variables that are not entirely under the control of the company, such as competition, economic and technological changes, the political and legal environment, and cultural and social factors.
Marketing decisions related to the product (or service) involve conceiving of and realizing the right product for the selected target group. This typically encompasses market research and data analysis to determine how well the product meets the wants and needs of the target group. Numerous determinants factor into the final choice of a product and its presentation. A completely new product, for example, will entail much higher promotional costs, whereas a product that is simply an improved version of an existing item likely will make use of its predecessor's image. A pivotal consideration in product planning and development is branding, whereby the good or service is positioned in the market according to its brand name. Other important elements of the complex product planning and management process may include selection of features, warranty, related product lines, and post-sale service levels.
Considerations about place, the second major functional group, relate to actually getting the good or service to the target market through the right channels, at the right time, and in the proper quantity. Strategies related to place may utilize middlemen and facilitators with expertise in joining buyers and sellers, and they may also encompass various distribution channels, including retail, wholesale, catalog, and others. Marketing managers must also devise a means of transporting the goods to the selected sales channels. Decisions related to place typically play an important role in determining the degree of vertical integration in a company or how many activities in the distribution chain are owned and operated by the manufacturer. For example, some companies elect to own their trucks, the stores in which their goods are sold, and perhaps even the raw resources used to manufacture their goods. On the other hand, the company may determine that its strengths are not in physical distribution, and it may contract other firms to perform all distribution-related activities.
Decisions about promotion, the third target market functional area, relate to sales, advertising, public relations and other activities that communicate information intended to influence consumer behavior. Often promotions are also necessary to influence the behavior of retailers and others who resell or distribute the product. Three major types of promotion typically integrated into a target market strategy are personal selling, mass selling, and sales promotions. Personal selling, which refers to face-to-face or telephone sales, usually provides immediate feedback for the company about the product and instills greater confidence in customers. Mass selling encompasses advertising on traditional mass media, such as television, radio, direct mail, and newspapers, and is beneficial because of its broad scope. It also entails the use of unpaid media exposure, known as publicity, such as feature articles about a company or product in a magazine or related interviews on television talk shows. Finally, sales promotion efforts include free samples, coupons, contests, and other miscellaneous marketing tactics. These approaches are used to stimulate interest in products, encourage first-time trials, or help build brand loyalty, among other objectives. While such tactics have generally been shown effective at increasing unit sales, their overall impact is debatable because they can be seen as needlessly subsidizing or rewarding customers who would have bought the product anyway.
Determining price, the fourth major marketing activity, entails using discounts and long-term pricing goals, as well as considering competitive, demographic, and geographic influences. From the buyer's perspective, the price must be within certain boundaries (especially the upper limit) and must be commensurate with the perceived value of the item. For the producer, the price of a product or service generally must at least meet some minimum level that will cover a company's cost of producing and delivering its offering; however, even if a company were to price its items exactly at the break-even point on a unit basis, there is no guarantee there will be sufficient demand at that price. The break-even price at the aggregate level will, of course, vary with how many units are sold when the sum of fixed and variable costs for production and overhead are considered. Thus, pricing is an implicit (and sometimes explicit) negotiation between supplier and customer, with competition as an intervening factor that colors the nature of this negotiation.
A firm would logically price a product at the level that maximizes profits. While this seems obvious, it is often difficult for companies to determine the profit-maximizing price because they can't be certain how strong the demand is for their products at a given price level or how a competitor will respond to a price change. Cutting prices to stimulate sales volume, for example, can simply be a "race to the bottom" if competitors respond in kind, diminishing profits for both without improving either's competitive position. In general, depending on the exact nature of demand, such as whether it is relatively elastic (fickle) or inelastic (constant), and the availability of substitute products (competition), profits can be maximized either by (1) pricing the product high and moving fewer units, or (2) pricing the product lower and selling more units. In rare cases, such as for certain perceived luxury goods, increased prices can actually lead to higher unit volume, but this is usually regarded as an exception to the norm.
Still, there are a number of other factors that influence pricing, both financial and nonfinancial. In a few cases pricing decisions may be largely out of a firm's control, such as when government controls are in effect or when items (usually raw materials and agricultural commodities) are sold through a competitive bidding system. In most cases, though, a company has a high degree of control over its pricing, at least in a formal sense; in practice it will still be confined by market forces, as it can't set a price that no one will pay.
The price that a company selects for its products will generally vary according to its long-term marketing strategy. For example, a company may underprice its product in the hopes of building market share and ensuring its competitive presence, or simply to generate a desired level of cash flow (however, in some cases extreme underpricing can be illegal, especially in international trading settings). Another producer may price its goods extremely high in the hopes of conveying to the consumer that it is offering a premium product. Another reason a firm might offer a product at a very high price is to discount the good slowly in an effort to maximize the dollars available from consumers willing to pay different prices for the good, a practice known as market skimming. In any case, price is used as a tool to achieve comprehensive marketing goals.
Often times, decisions about product, place, promotion, and price will be dictated by the competitive stance that a firm assumes in its target market. According to Michael Porter's well-received book Competitive Strategy (1980), the three most common competitive strategies are
- low-cost supplier
- niche development
Porter believed that the strategy a company chooses is shaped in large part by its current position within its industry and by the industry's current stage of development. Competitors in mature industries, for example, are more likely to find market advantages through niche strategies because the broad markets are already tapped out.
Companies that adopt a low-cost supplier strategy are usually characterized by a vigorous pursuit of efficiency and cost controls. A company that manufactures a low-tech or commodity product, such as wood paneling, would likely adopt this approach. Such firms compete by offering a better value than their competitors, accumulating market share, and focusing on high-volume and fast inventory turnover.
Companies that adhere to a differentiation strategy achieve market success by offering a unique product or service. They often rely on brand loyalty, specialized distribution channels or service offerings, or patent protection to insulate them from competitors. Because of their uniqueness, they are able to achieve higher-than-average profit margins, making them less reliant on high sales volume and extreme efficiency. A company that markets proprietary medical devices would likely assume a differentiation strategy.
Firms that pursue a niche market strategy succeed by focusing all of their efforts on a very narrow segment of an overall target market. They strive to prosper by dominating their selected niche. Such companies are able to overcome competition by aggressively protecting market share and by orienting every action and decision toward the service of its select group. An example of a company that might employ a niche strategy would be a firm that produced floor coverings only for extremely upscale commercial applications.
BUSINESS VERSUS CONSUMER MARKETS
An important micro-marketing delineation is that between industrial and consumer markets. Marketing strategies and activities related to transferring goods and services to industrial and business customers are generally very different from those used to lure other consumers. The industrial, or intermediate, market is made up of buyers who purchase for the purpose of creating other goods and services. Thus, their needs are different from those of general consumers. Buyers in this group include manufacturers and service firms, wholesalers and retailers, governments, and nonprofit organizations.
In many ways, it is often easier to market to a target group of intermediate or industrial customers. They typically have clearly defined needs and are buying the product for a very specific purpose. They are also usually less sensitive to price and are more willing to take the time to absorb information about goods that may help them do their job better. Nonetheless, marketing to industrial customers can be complicated. For instance, members of an organization usually must purchase goods through a multi-step process involving several decision makers. Importantly, business buyers will often be extremely cautious about trying a new product or a new company because they don't want to be responsible for supporting what could be construed as a poor decision if the good or service does not live up to the organization's expectations.
A chief difference between marketing to intermediate and consumer markets is that consumers are typically considering purchasing goods and services that they might enjoy but don't really need. As a result, they are more difficult to sell to than are business buyers. Consumers are generally
- less sophisticated than intermediate buyers
- less willing to spend time absorbing individual marketing messages of interest to them
- more sensitive to the price of a good or service
However, consumers typically make a buying decision on their own, or at least through an informal decision-making process involving family members or friends, and are much more likely to buy on impulse than are industrial customers.
Despite the differences, a dominant similarity between marketing to both intermediate buyers and consumers is that both groups ultimately make purchases based on personal needs, as described earlier. Consumers tend to react strongly to a desire to belong, have security, feel high self-esteem, and enjoy freedom and status. Similarly, business and industrial consumers react more strongly to motivators such as fear of loss, fear of the unknown, the desire to avoid stress or hardship, and security in their organizational role.
MICRO-MARKETING CASE STUDIES
An example of micro-marketing that demonstrates the importance of the marketing function in relation to other business functions, such as production and distribution, is Rubbermaid, Inc.'s strategy. Rubbermaid continued to produce and sell a line of plastic home products for several decades in an industry characterized as undynamic and even stagnant. Nevertheless, Rubbermaid's savvy marketing strategy allowed it to post continuous gains in sales and market share during the 1980s when the company's sales rocketed more than six-fold. The company achieved its stellar gains by focusing on new product introductions and by tailoring its existing products to meet new consumer wants and needs. While it amassed market share, Rubbermaid managed to post strong profit margins by charging high prices. It commanded premium prices because it had positioned its products as unique and high in quality in comparison to competing products. An emphasis on a field sales force and a high level of service to its retailers augmented Rubbermaid's overall stratagem.
The success of Domino's Pizza, Inc. during the 1980s shows how a company that targets a particular market and is sensitive to its customer's needs can achieve success in the marketplace. Tom S. Monaghan opened his first store in 1960 with $500 and grew his tiny enterprise to a chain of four stores by 1965. Strong competition and the lack of a cohesive marketing strategy, however, forced him into bankruptcy. Monaghan researched pizza consumers and entered the pizza business again in 1971. He decided to target residential customers between the ages of 18 and 34 who preferred to have pizzas delivered to their door. He found that consumers were generally dissatisfied with the taste and reliability of delivery available from other pizza shops. As a result, Monaghan developed a pizza that his customers liked and then promised delivery within 30 minutes from the time the order was placed. His restaurants were strictly delivery and carry-out. By the 1990s, the chain had expanded internationally with thousands of outlets worldwide and sales in the billions of dollars.
One of the most dynamic and telling of all marketing case studies is the U.S. "cola wars." Those battles, which have been waged by major soft-drink manufacturers since World War II, demonstrate the effects of competition on marketing strategies in a free market. Although numerous soft-drink makers competed during the 1950s and 1960s, by the late 1980s the industry had consolidated to just six companies that controlled more than 80 percent of the entire market. The two fiercest competitors, Coca Cola Co. and PepsiCo, Inc. each spend hundreds of millions of dollars each year to promote their products and to avoid loss of market share. Pepsi bludgeoned Coke during the early 1980s with a taste-test promotion. It challenged consumers to taste both colas, which were not labeled, and select the one they believed tasted better. Despite the taste test, both companies have emphasized an emotional appeal to consumers, touting their drinks as fun, youth-oriented, or "American," for example.
Marketing efforts at General Electric (GE) exhibit some of the differences between marketing to industrial and consumer markets. Although GE is generally associated with its production of consumer goods, particularly appliances, only about 25 percent of GE's sales are garnered from consumer markets. Most of its profits come from sales of power generation, heavy industrial, and aerospace equipment. The general public still views GE as a provider of appliances, however, because the company's marketing strategy entails promoting that image in the mass media and through various consumer promotions. In contrast, GE markets its core industrial and technical products primarily through a direct sales force, which consists mostly of highly trained technical sales engineers. GE's marketing program also stresses an extensive lobbying effort at the federal level to secure government contracts and influence policies related to defense spending.
Despite a company's best attempts to research and devise effective marketing plans, even the largest and most astute marketing divisions sometimes commit serious marketing mistakes that fail to lure customers and ultimately cost their companies millions of dollars. Such flops illustrate the subjective and complex nature of the micro-marketing process and often show how influences outside of the company's control can play an integral role in the success of any marketing endeavor.
One well-known marketing failure occurred at the Korvette chain of discount department stores. Started in 1948 by Eugene Ferkauf, Korvette grew during the mid-20th century by undercutting department store prices by 10 to 40 percent on appliances and other heavy goods. Ferkauf, who grew Korvette to more than $700 million in revenues by 1965, is credited with revolutionizing merchandising and retail marketing techniques and paving the way for mass discount merchandisers like Kmart and Wal-Mart. But Ferkauf began to change the market position of his stores in the mid-1960s. He tried to upgrade the image of the chain by bringing in higher-priced merchandise, food, and clothing. The new products did not complement Korvette's existing distribution and management infrastructure, however, causing the profitability of the stores to lag. At the same time, moreover, Korvette failed to respond to increased competition in the discount industry. By the late 1960s, Korvette's market presence was quickly fading and Ferkauf was forced out of his management position.
The failure of the Burger Chef hamburger chain to mimic the success achieved by McDonald's exemplifies the importance of a comprehensive and well-executed marketing plan. General Foods purchased the 700-store Burger Chef chain in 1967 with the intent of growing it into a national fast-food powerhouse. By 1969 General Foods had added nearly 600 stores to the chain, primarily through franchising. Unfortunately, the rapid expansion only exacerbated underlying problems that plagued the chain.
Burger Chef developed a red and yellow sign and a menu that was a near clone of its leading competitor. Despite Burger Chef's attempt to copy the vastly successful McDonald's, it lacked key marketing elements that had made McDonald's so successful. Its sign, for example, lacked the distinction of McDonald's golden arches, and its chain of restaurants lacked uniformity, thus reflecting an image of inconsistency to consumers. Furthermore, Burger Chef had failed to concentrate enough restaurants in a single area, which would have allowed them to increase the efficiency of local promotions. Most importantly, McDonald's had centered its marketing efforts on a creed of quality, service, and cleanliness, three virtues that Burger Chef failed to adequately imitate. In fewer than four years, General Foods amassed a loss of $83 million from its Burger Chef operations. Many of its stores soon closed.
Perhaps the most widely identified marketing flop was Coca-Cola Co.'s introduction of New Coke in the mid-1980s, an effort to diminish gains made by its arch rival, Pepsi, in the youth market. Coke changed its long-revered cola recipe in an attempt to boost interest in its product and to appeal to younger soft-drink consumers who were seeking a sweeter drink. Coca-Cola, long known for its canny marketing prowess, seemingly misread public reaction to the modification. Outraged at the company's tinkering with what they viewed as an American icon, many consumers rejected the change. Fewer than three months after embarking on its new version, Coca-Cola decided to bring back its old "Classic" Coke, which was soon outselling New Coke by a margin of 10 to 1. Coca-Cola apparently failed to comprehend both the historical value of, and consumer loyalty to, Coke, both of which it had spent millions of dollars trying to cultivate during much of the 20th century. Still, some marketing specialists have advanced the alternative view that the New Coke episode did in fact help significantly revitalize the brand because it drew intense scrutiny to the product and made consumers more conscious of its uniqueness and their loyalty to it.
As the rapid growth experienced by the U.S. economy during the post World War II boom years faded during and after the 1970s, many companies began to focus on overseas markets for continued growth. While the basic goals of global marketing are the same as marketing a product or service domestically, important differences exist. For example, a product that sells well in the United States may require an entirely different marketing plan to achieve success in another country. General Motors Corp. discovered this when it tried to sell its Nova model in Mexico, where the company learned that the word "Nova" in Spanish is similar to "no go."
Besides obvious language barriers, cultural subtleties in a country or region can easily thwart a marketing program that has achieved success elsewhere. Other risks associated with global marketing include currency fluctuations, political instability, and unforeseen legal ramifications. Furthermore, the lack of existing market research in many countries and the lack of means to gather information poses a serious roadblock for many would-be competitors. Nevertheless, rampant market growth in emerging countries, as well as relatively untapped markets in established economies, often provide great incentives for U.S. marketers to risk overseas ventures.
Marketers may utilize several different approaches to market their goods to foreign target groups. A common, relatively low-risk strategy is exporting goods through distributors and importers. This technique reduces the company's participation in a foreign country and essentially limits marketing initiatives to various middlemen and their buyers. Retailers and wholesalers in the host country can then select appropriate marketing media, utilize established distribution channels, set prices, and handle other localized marketing endeavors. A second marketing strategy is licensing and franchising, whereby a company sells the right to manufacture or sell its products to a foreign producer. Although this involves a minimal commitment, the company often maintains limited control over the company that purchases the license.
Joint ventures with enterprises in the host country, a third method of overseas marketing, entail a greater commitment on the part of the company trying to sells its goods. Joint ventures reduce political and cultural risks, however, and may help the company compete against local producers. Finally, some manufacturers choose to produce and market their products independently through a wholly owned subsidiary in another country. Although this last method exposes the organization to greater risk and represents a significant commitment to business in the country or region, it allows more control over operations and provides greater profit opportunities should the venture succeed.
Regardless of the ways a company selects to market its products or services abroad, once it makes the decision to go global it typically must establish two separate marketing strategies. First of all, it needs a global strategy that will direct the organization's overall goals abroado establish a market presence in Scandinavia, for example, or to control X percent of the East Asian market within five years. Secondly, the company usually devises a separate marketing program tailored to each country or region in which it becomes active strategy that is sensitive to the marketing nuances of that particular locale.
Aside from market research, pricing, distribution, advertising, and other marketing activities, the three primary product options available to a company active in overseas markets are: (1) marketing a single "global" product to all countries in which it is active; (2) adapting its product to reflect local markets within a region, such as Asia or Europe; or, (3) changing the product to suit individual countries and locales within each country.
SEE ALSO: Database Marketing; International Marketing; Market Research; MaxiMarketing; Multilevel Marketing; Telemarketing
[Dave Mote and
Kotler, Philip. Marketing Management: Analysis, Planning, Implementation, and Control. 9th ed. Englewood Cliffs, NJ: Prentice Hall, 1996.
Levitt, Theodore. The Marketing Imagination. New York: Simon & Schuster, 1986.
Petrof, John V. "Relationship Marketing: The Wheel Reinvented." Business Horizons, November-December 1997.
Porter, Michael E. Competitive Strategy. New York: Free Press, 1980.
Taylor, James W. Marketing Planning: A Step-by-Step Guide. New York: Simon & Schuster, 1996.