Marketing
“Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering and freely exchanging products and services of value with others”- Philip Kotler
Marketing is not selling. Selling is only the tip of the marketing iceberg.
The Marketing Process
Under the marketing concept, the firm must find a way to discover unfulfilled customer needs and bring to market products that satisfy those needs. The process of doing so can be modeled in a sequence of steps: the situation is analyzed to identify opportunities, the strategy is formulated for a value proposition, tactical decisions are made, the plan is implemented and the results are monitored.
STEP 1: ANALYZE PRESENT MARKETING SITUATION
1) EXTERNAL ANALYSIS
Market size and growth
Competitors
Market Share
Legal
Political
Technology
Industry Past Performance
Social factors
Opportunities
2) INTERNAL ANALYSIS
Financial Resources
Production Capabilities
Production Capacity
R&D Capabilities
Sales capabilities
Corporate Mission and Objectives
Distribution Capabilities
Costs
VITO management style
STEP 2: IDENTIFYING TARGET MARKETS
Position analysis
Specifically defined market segments
Geographically located
Current Size
Potential growth
Estimated resistance to be encountered
Assess ability to overcome expected resistance
STEP 3: DETERMINE MARKETING OBJECTIVES
Traditional marketing objectives
Increase sales volume
Increase growth rate
Increase market share
Increase market penetration
Maximize return on investment
Promote positive company image
ecisions generally fall into the following four controllable categories:
Product
Price
Place (distribution)
Promotion
The term "marketing mix" became popularized after Neil H. Borden published his 1964 article, The Concept of the Marketing Mix. Borden began using the term in his teaching in the late 1940's after James Culliton had described the marketing manager as a "mixer of ingredients". The ingredients in Borden's marketing mix included product planning, pricing, branding, distribution channels, personal selling, advertising, promotions, packaging, display, servicing, physical handling, and fact finding and analysis. E. Jerome McCarthy later grouped these ingredients into the four categories that today are known as the 4 P's of marketing, depicted below:
These four P's are the parameters that the marketing manager can control, subject to the internal and external constraints of the marketing environment. The goal is to make decisions that center the four P's on the customers in the target market in order to create perceived value and generate a positive response.
Product Decisions
The term "product" refers to tangible, physical products as well as services. Here are some examples of the product decisions to be made:
- Brand name
- Functionality
- Styling
- Quality
- Safety
- Packaging
- Repairs and Support
- Warranty
- Accessories and services
Price Decisions
Some examples of pricing decisions to be made include:
- Pricing strategy (skim, penetration, etc.)
- Suggested retail price
- Volume discounts and wholesale pricing
- Cash and early payment discounts
- Seasonal pricing
- Bundling
- Price flexibility
- Price discrimination
Distribution (Place) Decisions
Distribution is about getting the products to the customer. Some examples of distribution decisions include:
- Distribution channels
- Market coverage (inclusive, selective, or exclusive distribution)
- Specific channel members
- Inventory management
- Warehousing
- Distribution centers
- Order processing
- Transportation
- Reverse logistics
Promotion Decisions
In the context of the marketing mix, promotion represents the various aspects of marketing communication, that is, the communication of information about the product with the goal of generating a positive customer response. Marketing communication decisions include:
- Promotional strategy (push, pull, etc.)
- Advertising
- Personal selling & sales force
- Sales promotions
- Public relations & publicity
- Marketing communications budget
Limitations of the Marketing Mix Framework
The marketing mix framework was particularly useful in the early days of the marketing concept when physical products represented a larger portion of the economy. Today, with marketing more integrated into organizations and with a wider variety of products and markets, some authors have attempted to extend its usefulness by proposing a fifth P, such as packaging, people, process, etc. Today however, the marketing mix most commonly remains based on the 4 P's. Despite its limitations and perhaps because of its simplicity, the use of this framework remains strong and many marketing textbooks have been organized around it.
Market Analysis
The goal of a market analysis is to determine the attractiveness of a market and to understand its evolving opportunities and threats as they relate to the strengths and weaknesses of the firm.
David A. Aaker outlined the following dimensions of a market analysis:
- Market size (current and future)
- Market growth rate
- Market profitability
- Industry cost structure
- Distribution channels
- Market trends
- Key success factors
Market Size
The size of the market can be evaluated based on present sales and on potential sales if the use of the product were expanded. The following are some information sources for determining market size:
- government data
- trade associations
- financial data from major players
- customer surveys
-
Market Growth Rate
A simple means of forecasting the market growth rate is to extrapolate historical data into the future. While this method may provide a first-order estimate, it does not predict important turning points. A better method is to study growth drivers such as demographic information and sales growth in complementary products. Such drivers serve as leading indicators that are more accurate than simply extrapolating historical data.
Important inflection points in the market growth rate sometimes can be predicted by constructing a product diffusion curve. The shape of the curve can be estimated by studying the characteristics of the adoption rate of a similar product in the past.
Ultimately, the maturity and decline stages of the product life cycle will be reached. Some leading indicators of the decline phase include price pressure caused by competition, a decrease in brand loyalty, the emergence of substitute products, market saturation, and the lack of growth drivers.
Market Profitability
While different firms in a market will have different levels of profitability, the average profit potential for a market can be used as a guideline for knowing how difficult it is to make money in the market. Michael Porter devised a useful framework for evaluating the attractiveness of an industry or market. This framework, known as Porter's five forces, identifies five factors that influence the market profitability:
- Buyer power
- Supplier power
- Barriers to entry
- Threat of substitute products
- Rivalry among firms in the industry
Industry Cost Structure
The cost structure is important for identifying key factors for success. To this end, Porter's value chain model is useful for determining where value is added and for isolating the costs.
The cost structure also is helpful for formulating strategies to develop a competitive advantage. For example, in some environments the experience curve effect can be used to develop a cost advantage over competitors.
Distribution Channels
- The following aspects of the distribution system are useful in a market analysis:
- Existing distribution channels - can be described by how direct they are to the customer.
- Trends and emerging channels - new channels can offer the opportunity to develop a competitive advantage.
- Channel power structure - for example, in the case of a product having little brand equity, retailers have negotiating power over manufacturers and can capture more margin.
Market Trends
Changes in the market are important because they often are the source of new opportunities and threats. The relevant trends are industry-dependent, but some examples include changes in price sensitivity, demand for variety, and level of emphasis on service and support. Regional trends also may be relevant.
Key Success Factors
The key success factors are those elements that are necessary in order for the firm to achieve its marketing objectives. A few examples of such factors include:
- Access to essential unique resources
- Ability to achieve economies of scale
- Access to distribution channels
- Technological progress
It is important to consider that key success factors may change over time, especially as the product progresses through its life cycle.
Consumer Behavior
The central focus of marketing is the consumer. To devise good marketing plans, it is necessary to examine consumer attributes and needs, lifestyles, and purchase processes and then make proper marketing-mix decisions. The study of Consumer behavior includes the study of what they buy, why they buy, how they buy, when they buy, from where they buy, and how often they buy. An openminded consumer-oriented approach is imperative in today’s diverse global marketplace so a firm can identify and serve its target market, minimize dissatisfaction, and stay ahead of competitors. Final consumers purchase for personal, family, or household use. Organizational consumers purchase for further production, usage in operating the organization, or resale to other consumers.
Factors affecting consumer behavior
1.Cultural factors: Culture is the most basic cause of a person’s wants and behavior. Growing up, children learn basic values, perception and wants from the family and other important groups. Marketers are always trying to spot “cultural shifts” which might point to new products that might be wanted by customers or to increased demand.
2.Social factors: A customer’s buying behavior is also influenced by social factors, such as
the groups to which the customer belongs and social status.
a)Reference groups:
As a consumer, your decision to purchase and use certain products and services, is influenced not
only by psychological factors, your personality and life- style, but also by the people around you with
whom you interact and the various social groups to which you belong.
b)Family: The family is the most important of all these groups
c)Roles: An individual may participate in many groups. His position within each group can be defined
in terms of the activities he is expected to perform.
d)Status: Each role that a person plays has status, which is the relative prestige accorded by society.
Status is often measured by the degree of influence an individual exerts in the behavior and attitude
of others. People buy and use products that reflect their status.
e)Group norms: Are the norms of a group are the implicit rules of conduct and behavior that are
expected of its member.
3. Personal Factors:
Age and Life cycle Stage: Like the social class the human life cycle can have a significant impact on
consumer behavior.
Occupation And Income:
Life Style:
Personality:
Motivation:
4. Perception:
5. Selective exposure
6. Selective Distortion
7. Selective retention
8. Learning
9. Beliefs & Attitudes
STEPS IN CONSUMER DECISION MAKING PROCESS
STIMULUS: A stimulus can be any of the following:
Social.
Commercial.
Noncommercial.
Physical.
PROBLEM AWARENESS:
INFORMATION SEARCH:
EVALUATION OF ALTERNATIVES
PURCHASE
POST-PURCHASE BEHAVIOR
Organizational Buyer Behavior
Organizational consumers purchase goods and services for further production, use in operations, or resale to others. Organizational consumers are manufacturers, wholesalers, retailers, and government and other nonprofit institutions. When firms deal with organizational consumers, they engage in industrial marketing.
Factors In Organizational Buyer Behavior
Organizational consumer behavior depends on
- Buying objectives
- Buying structure, and
- Purchase constraints.
Buying Objectives
A. Organizational buyers have these several distinct objectives in purchasing goods and services
1. Availability of items—buyer is able to obtain items throughout the year or whenever necessary.
2. Seller reliability—based on fairness to organizational consumers in allocating items in high demand.
3. Consistency of quality—being able to purchase items of proper quality on a regular basis.
4. Delivery goals—minimized and stabilized length of time from order placement to delivery.
5. Price considerations—involve purchase prices and the flexibility of payment terms.
6. Customer service—seller’s ability to meet special requests, answer questions, address problems, and so on.
B. Price is only one of several considerations for organizational consumers. Usually, availability,
quality, service, and so on is more important. Manufacturers stress quality standards and may
want a variety of suppliers. Wholesalers and retailers are interested in salability and exclusive
buying arrangements (to limit competition). Government consumers frequently set exact specifications.
Nonprofit consumers focus on price availability and reliability.
Buying Structure
A. Buying structure refers to the level of formality and specialization used in the purchase process.
B. A firm’s buying structure depends on an organization’s size, resources, diversity, and format.
C. Manufacturers and wholesalers often have purchasing agents.
Constraints On Purchases
A. The major constraint on purchase behavior is derived demand.
B. Availability, ability to pay, financing availability, and risk are other constraints.
C. Government consumers are constrained by the budgeting process.
Market Segmentation
Market segmentation is the identification of portions of the market that are different from one another. Segmentation allows the firm to better satisfy the needs of its potential customers.
The Need for Market Segmentation
The marketing concept calls for understanding customers and satisfying their needs better than the competition. But different customers have different needs, and it rarely is possible to satisfy all customers by treating them alike.
Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. Mass marketing allows economies of scale to be realized through mass production, mass distribution, and mass communication. The drawback of mass marketing is that customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. If firms ignored the differing customer needs, another firm likely would enter the market with a product that serves a specific group, and the incumbent firms would lose those customers.
Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. The first step in target marketing is to identify different market segments and their needs.
Requirements of Market Segments
In addition to having different needs, for segments to be practical they should be evaluated against the following criteria:
Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified.
Accessible: the segments must be reachable through communication and distribution channels.
Substantial: the segments should be sufficiently large to justify the resources required to target them.
Unique needs: to justify separate offerings, the segments must respond differently to the different marketing mixes.
Durable: the segments should be relatively stable to minimize the cost of frequent changes.
A good market segmentation will result in segment members that are internally homogenous and externally heterogeneous; that is, as similar as possible within the segment, and as different as possible between segments.
Bases for Segmentation in Consumer Markets
Consumer markets can be segmented on the following customer characteristics.
- Geographic
- Demographic
- Psychographic
- Behavioralistic
Geographic Segmentation
The following are some examples of geographic variables often used in segmentation.
- Region: by continent, country, state, or even neighborhood
- Size of metropolitan area: segmented according to size of population
- Population density: often classified as urban, suburban, or rural
- Climate: according to weather patterns common to certain geographic regions
Demographic Segmentation
Some demographic segmentation variables include:
- Age
- Gender
- Family size
- Family lifecycle
- Generation: baby-boomers, Generation X, etc.
- Income
- Occupation
- Education
- Ethnicity
- Nationality
- Religion
- Social class
Many of these variables have standard categories for their values. For example, family lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of the children.
Psychographic Segmentation
Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:
- Activities
- Interests
- Opinions
- Attitudes
- Values
Behavioralistic Segmentation
Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variables include:
- Benefits sought
- Usage rate
- Brand loyalty
- User status: potential, first-time, regular, etc.
- Readiness to buy
- Occasions: holidays and events that stimulate purchases
Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation.
Bases for Segmentation in Industrial Markets
In contrast to consumers, industrial customers tend to be fewer in number and purchase larger quantities. They evaluate offerings in more detail, and the decision process usually involves more than one person. These characteristics apply to organizations such as manufacturers and service providers, as well as resellers, governments, and institutions.
Many of the consumer market segmentation variables can be applied to industrial markets. Industrial markets might be segmented on characteristics such as:
- Location
- Company type
- Behavioral characteristics
Location
In industrial markets, customer location may be important in some cases. Shipping costs may be a purchase factor for vendor selection for products having a high bulk to value ratio, so distance from the vendor may be critical. In some industries firms tend to cluster together geographically and therefore may have similar needs within a region.
Company Type
Business customers can be classified according to type as follows:
- Company size
- Industry
- Decision making unit
- Purchase Criteria
Behavioral Characteristics
In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such behavioral characteristics may include:
- Usage rate
- Buying status: potential, first-time, regular, etc.
- Purchase procedure: sealed bids, negotiations, etc.
Target Market Selection
Target marketing tailors a marketing mix for one or more segments identified by market segmentation. Target marketing contrasts with mass marketing, which offers a single product to the entire market.
Two important factors to consider when selecting a target market segment are the attractiveness of the segment and the fit between the segment and the firm's objectives, resources, and capabilities.
Attractiveness of a Market Segment
The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment:
- Size of the segment (number of customers and/or number of units)
- Growth rate of the segment
- Competition in the segment
- Brand loyalty of existing customers in the segment
- Attainable market share given promotional budget and competitors' expenditures
- Required market share to break even
- Sales potential for the firm in the segment
- Expected profit margins in the segment
Suitability of Market Segments to the Firm
Market segments also should be evaluated according to how they fit the firm's objectives, resources, and capabilities. Some aspects of fit include:
- Whether the firm can offer superior value to the customers in the segment
- The impact of serving the segment on the firm's image
- Access to distribution channels required to serve the segment
- The firm's resources vs. capital investment required to serve the segment
Target Market Strategies
There are several different target-market strategies that may be followed. Targeting strategies usually can be categorized as one of the following:
Single-segment strategy - also known as a concentrated strategy. One market segment (not the entire market) is served with one marketing mix. A single-segment approach often is the strategy of choice for smaller companies with limited resources.
Selective specialization- this is a multiple-segment strategy, also known as a differentiated strategy. Different marketing mixes are offered to different segments. The product itself may or may not be different - in many cases only the promotional message or distribution channels vary.
Product specialization- the firm specializes in a particular product and tailors it to different market segments.
Market specialization- the firm specializes in serving a particular market segment and offers that segment an array of different products.
Full market coverage - the firm attempts to serve the entire market. This coverage can be achieved by means of either a mass market strategy in which a single undifferentiated marketing mix is offered to the entire market, or by a differentiated strategy in which a separate marketing mix is offered to each segment.
Positioning
Positioning is defined as the act of designing the company’s offering and image to occupy distinctive
place in the target market’s mind
The main points that you should remember are:
- Positioning is the final part of the SEGMENT - TARGET - POSTION process
- Positioning is undoubtedly one of the simplest and most useful tools to marketers.
- Positioning is all about ‘perception’. As perception differs from person to person, so do the
results of the positioning map
Positioning Strategies
Basically this positioning strategy can provide a focus in the development of an advertising campaign.
The strategy can be conceived and developed in a variety of ways. It can be derive from the object
attributes, competition, specific, application, the types of consumers involved, or the characteristics
of the product class.
I) Using Product characteristics or Customer Benefits
II) Price – Quality Approach or Positioning by Price-Quality
III) Positioning by Use or Application
IV) Positioning by Product Process
V) Positioning by Product Class
VI) Positioning by Cultural Symbols
VII) Positioning by Competitors
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