Marketing: Historical Perspectives (Encyclopedia of Business and Finance)
This article is an introduction to the historical development of marketing, one of the major functional areas of a business firm. First, marketing is described and defined. Then, the evolution of marketing in the United States is described, touching on several major eras, including the simple trade era, the production era, the sales era, the marketing department era, the marketing company era, and the relationship marketing era.
WHAT IS MARKETING?
"Marketing is advertising, like those false or deceptive ads on television that try to get you to buy something that you don't really want."
"Marketing is like those pushy car salespeople, or those salespeople that come to our front doors selling overpriced vacuum cleaners."
"I hate those rude telemarketers calling at all times of the day and night."
Some individuals think that marketing involves deceptive, high-pressure tactics to get people to buy something they don't really want. Those individuals are incorrect. While marketing usually involves advertising or personal selling, marketing (practiced correctly) should not try to get people to buy things they don't want, nor should marketers use deceptive or pushy tactics to get people to buy. In fact, marketing is really the process of developing products to satisfy customers through proper pricing, promotion, and distribution.
The basic goal behind marketing is to satisfy the customer. Satisfied customers are much more valuable than customers who have been deceived into buying something. For example, satisfied customers are more likely to buy your product again. Furthermore, satisfied customers are more likely to speak well of the product to friends and acquaintances, which can increase the possibility that they, in turn, will buy the firm's product. Indeed, marketing is really the process of developing and maintaining long-term exchange relationships. However, companies have not always practiced this philosophy. The remainder of this article describes how company beliefs have changed over time.
THE SIX STAGES OF MARKETING EVOLUTION
Marketing as it exists today is a relatively recent phenomenon, even though its roots reach back into the nineteenth century. In the early nineteenth century a woman who wanted a new dress had two choices: to make her own or to hire someone to make one for her. If she decided to hire someone, she would pick out the fabric and get measured, and the dress would be custom-made for her. There were no standard sizes as there are today. Standard sizes are the result of modern mass-manufacturing processes.
The Simple Trade Era Prior to the Industrial Revolution, people made most of what they consumed. Any excess household production could be brought to town and sold or traded for other goods. This type of economy is commonly referred to as a pure subsistence economy. In a pure subsistence economy, there is little need for marketing (to facilitate exchanges), since each household produces what it consumes.
However, with the advent of the Industrial Revolution, businesses rather than households became the producers of many types of goods. When the producers of products are not also the consumers of those products, exchanges must
take place. Thus serious thinking about the exchange processhat is, marketingegan in the wake of the Industrial Revolution. The evolution of marketing into the most important business function in many firms was first recognized by Robert Keith (1960), an executive at Pillsbury, and was substantiated by other business leaders at other firms. According to Keith, marketing evolved into its present-day prominence within Pillsbury during four distinct periods beginning after the simple trade era in American history. Keith called these periods the production era, the sales era, the marketing era, and the marketing company era.
The Production Era The production era is so named because many companies' main priority was the reduction of the cost of production. Companies felt that exchanges could be facilitated merely by lowering manufacturing costs and, in turn, passing along the cost savings to customers in the form of lower prices.
This focus on production (which lasted from just after the Civil War until the 1920s) was fueled by such milestones as Henry Ford's invention of the assembly line and the more efficient work principles advanced by Fredrick W. Taylor's scientific management movement (Haber, 1964). These two innovations made business managers aware that mass production resulted in steeply declining unit costs of production. In turn, the declining unit costs of production made profit possibilities look fabulous.
The rationale for mass production seemed sound at the time. According to Michael Porter(1980), reduced production costs can lead to reduced selling prices, which appeal to the largest segment of customers. Unfortunately, turbulent economic conditions associated with the late 1920s through the 1940s caused many companies to fail even though they had adopted this production-oriented philosophy. As a result, companies looked for other ways to facilitate the exchange process.
The Sales Era The next era of marketing evolution is called the sales era because many companies' main priority was to move their products out of the factory using a variety of selling techniques. During The sales era, companies felt that they could enhance their sales by using a variety of promotional techniques designed to inform potential customers about and/or persuade them to buy their products. This type of thinking was initiated by the economic climate of the time.
When Herbert Hoover was elected president in 1928, the mood of the general public was one of optimism and confidence in the U.S. economy. Few people had any reason to believe that prosperity would not continue. In his acceptance speech for the Republican presidential nomination, Hoover said: "We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poor-house is vanishing from among us."
However October 29, 1929Black Tuesday"arked the beginning of the Great Depression. This was the single most devastating financial day in the history of the New York Stock Exchange. Within the first few hours that the stock market was open, prices fell so far as to wipe out all the gains that had been made in the previous year. Since the stock market was viewed as the chief indicator of the American economy, public confidence was shattered. Between October 29 and November 13 (when stock prices hit their lowest point), more than $30 billion disappeared from the American economycomparable to the total amount the United States had spent on its involvement in World War I (Schultz, 1999).
The amount of disposable and discretionary income that consumers had to spend on necessities and luxuries also decreased dramatically as the unemployment rate approached 25 percent. Companies found that they could no longer sell all the products that they produced, even though prices had been lowered via mass production. Firms now had to get rid of their excess products in order to convert those products into cash. In order to get rid of products, many firms developed sales forces and relied on personal selling, advertising signs, and singing commercials on the radio to "move" the product. Theodore Levitt(1960), a prominent marketing scholar, has noted that these firms were not necessarily concerned with satisfying the customer, but rather with selling the product. This sales orientation dominated business practice through the 1930s until World War II, when most firms' manufacturing facilities were adapted to making machinery and equipment for the war effort. Of course, the war dramatically changed the environment within which business was conducted. This also changed companies' philosophies of doing business.
The Marketing Department Era The manufacturing capability of most industrialized countriesxcept the United Statesad been destroyed during World War II. Therefore U.S. firms once again found it relatively easy to sell the products they manufactured because there was little competition from abroad. Armed with sales concepts developed during the sales era, as well as new manufacturing capabilities and large research and development (R & D) departments developed during the war, firms realized that they could produce hundreds of new and different products.
Firms realized that they needed a set of criteria to determine which products would be manufactured and which would not, as well as a new management function that would incorporate many related functions such as procurement, advertising, and sales into one department, the marketing department. It was also at this time that many firms realized that the company's purpose was no longer to manufacture a variety of products, but to satisfy their customers.
The change in company thinking or purpose from that of manufacturing products to that of satisfying customers was truly revolutionary and had many implications. Firms that see themselves as manufacturers of products use selling techniques that are preoccupied with converting products into cash. Firms that see themselves as marketers focus on satisfying the needs of buyers through the products that are sold, as well as all those functions associated with developing the product, delivering the product, and consuming the product. In short, selling focuses on the needs of the seller; marketing focuses on the needs of the buyer.
Theodore Levitt (1960) has pointed out that Henry Ford's development of the assembly line illustrates the difference between firms that focus on production (a production orientation) and those that focus on customers (a customer orientation). Ford is widely known as a production genius for developing the assembly line. Many incorrectly believe that the reduced manufacturing cost made possible by the assembly line allowed Ford to sell millions of $500 cars (a production orientation). However, Ford's thinking was actually the reverse. He invented the assembly line because he concluded that millions of buyers would be willing to pay $500 for an automobile (a customer orientation). His main task was to reduce manufacturing costs (in whatever way possible) so that he could sell cars at $500 and still make a profit. The assembly line was the result, not the cause, of his low price. As Ford himself put it:
We first reduce the price to the point where we believe that more sales will result. Then we go ahead and try to make the prices. We do not bother about the costs. The new price forces the cost down because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which an article can be sold? But more to the point is the fact that, although one may calculate what a cost is, and of course all of our costs are carefully calculated, no one knows what a cost ought to be. One way of discovering is to name a price so low as to force everybody in the place to the highest point of efficiency. (Ford, 1923)
In short, during the marketing department era, many companies changed their thinking or purpose from that of manufacturing products to that of satisfying customers. Firms with a customer orientation attempt to create satisfying products that customers will want to buy. Beginning in the 1960's some firms had implemented this customer-oriented philosophy to the point where the marketing department set the agenda for the entire company. These types of firms are referred to as marketing companies.
The Marketing Company Era Firms that have moved from simply having a marketing department that follows a customer orientation to having the marketing department guide the company's direction are called marketing companies. In marketing companies, the marketing department sets company operating policy, including technical research, procurement, production, advertising, and sales. A press release from Two-Ten News Network (1998) exemplifies the strategy of a marketing-driven firm:
AtlantaGCO Corporation, a leading worldwide designer, manufacturer and distributor of agricultural equipment, today announced management appointments to strengthen and expand its global marketing and sales functions. According to Robert J. Ratliff, Chairman of the Board and Chief Executive Officer of AGCO, "These appointments will strengthen AGCO's position as a marketing-driven company. Marketing is the key function that has been the basis of AGCO's worldwide profitable growth. AGCO's strategy is to vigorously expand our sales and marketing strength around the world while implementing aggressive reductions to manufacturing costs to adjust to industry conditions. These appointments reflect AGCO's commitment to further expand AGCO's market leadership around the world and to maintain profitability."
As can be seen with AGCO, marketing is the basic motivating force for all activities within the corporation, from finance to sales to production, with the objective of satisfying the needs of the customer. Firms that practice this philosophy of bringing all departments together with the objective of satisfying their customers are practicing the marketing concept.
The marketing concept states that if all of the organization's functions are focused on customer needs, profits can be achieved by satisfying those needs. The satisfaction of customer needs can be accomplished through product changes, pricing adjustments, increased customer service, distribution changes, and the like.
Today, some firms take the marketing concept one step further by establishing long-term relationships with their customers, as discussed in the next section.
The Relationship Marketing Era Relationship marketing is the process whereby a firm builds long-term satisfying relations with its customers in order to retain the customers' loyalty in buying the firm's products. Philip Kotler (1997), a noted author of several books on marketing, has pointed out that the need for customer retention is demonstrated by the fact that the cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy.
One example of a firm that practices relationship marketing to retain customer loyalty is Saturn. Saturn has been able to retain 60 percent of their customerseaning that 60 percent are repeat buyers. Melissa Herron (1996) explained that Saturn accomplishes relationship marketing by taking a different view of what it sells. Traditionally, car manufacturers have sold cars, but Saturn expanded its product to include the entire experiencehe shopping experience, the buying experience, and the ownership experience. Even if its cars were no better than competitors', the company decided, the entire buying and consumption experience would be better.
This philosophy is made clear in the company's values and mission statement. Saturn's values include commitment to customer enthusiasm, commitment to excel, teamwork, trust and respect to the individual, and continuous improvement. Their mission statement also supports their relationship building philosophy:
"Earn the loyalty of Saturn owners and grow our family by developing and marketing U.S. manufactured vehicles that are world leaders in quality, cost and customer enthusiasm through the integration of people, technology and business systems."
This relationship-oriented strategy is most obvious in the company's advertising and in its pricing philosophy. For example, most car ads highlight the car's features: it's sexy and it's fast or it's comfortable and it's safe. In Saturn ads however, the car is secondary. Greg Martin, a Saturn official, explained that most car companies zero in on the four wheels and the engine, while Saturn's ads tell you you're going to get a good car and you're going to get treated well. The company-customer relationship is enhanced through trust, respect, and quality products (Herron, 1996).
In summary, relationship marketing takes the marketing concept one step further by establishing long-term, trusting, win-win relations with customers in order to satisfy the customer, foster customer loyalty and encourage repeat buying.
This article has presented a historical overview of the evolution of marketing in the United States, from just after the Civil War until the present. In general, companies have determined that, in order to be successful, they must become less internally focused and more externally focused (on the customer). This trend in company thought has extended to the point where many firms now see themselves as long-term partners with their customers. As information technology becomes more advanced, marketers will be able to become more acutely aware of their customers' needs and more quickly able to provide goods and services to satisfy those needs.
Ford, Henry. (1923). My Life and My Work. New York: Doubleday, Page and Company.
Haber, Samuel. (1964). Efficiency and Uplift. Chicago: University of Chicago Press.
Herron, Melissa. "Masters of Marketing; Saturn: Enthusiasm Sells." Builder Online. . September 1996.
Keith, Robert J. (1960). "The Marketing Revolution." Journal of Marketing 24:35-38.
Kinnear, Thomas C., Bernhardt, Kenneth L., and Krentler, Kathleen A. (1995). Principles of Marketing, 4th ed. New York: Harper Collins.
Kotler, Philip. (1997). Marketing Management: Analysis, Planning, Implementation, and Control, 9th ed. Upper Saddle River, NJ: Prentice-Hall.
Levitt, Theodore. (1960). "Marketing Myopia." Harvard Business Review July-August: 45-56.
Porter, Michael. (1980). Competitive Strategy. New York: Free Press.
Schultz, Stanley K. The Crash and the Great Depression. . 1999.
Two-Ten News Network. . September 22, 1998.