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  • The scope of marketing. Key elements of marketing strategy.

    What is Marketing?

    TEACHER: Hello, Student. We are now beginning our discussion on marketing. And I will begin by giving you the official definition.

    STUDENT: Hi, Teacher. Do you seriously mean that there is an "official" definition of what marketing is?

    TEACHER: Well, at least there is one coming from a very authoritative source, the American Marketing Association (AMA). According to this institution, marketing is "the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals."

    STUDENT: This is a broad definition indeed!

    TEACHER: Certainly it is, because it takes into account all parties involved in the marketing effort:

    * members of the organization that produces goods or services,

    * resellers of the goods and services (such as stores), and

    * customers or clients.

    STUDENT: I am noticing that marketing activities may be carried out by diverse organizations; a car manufacturer, a health insurer, a consumer goods company, and on and on and on.

    TEACHER: This is very true. Of course the way marketing is carried out varies very much according to the type of organization, but basically most if not all organizations implement some type of marketing plan. Commercial firms market specific products, and also often they market the company itself. And this is certainly not limited to commercial firms; non-profit institutions, government agencies and political organizations conduct marketing activities.Figure 1
    Figure 1 shows and ad from Intel that does not refer to any particular product, but is targeted to improve the image of the corporation as a whole.

    Figure 2
    In Figure 2 we see and ad from the government of Bermuda targeted to motivate tourists to visit the country.

    STUDENT: The definition of marketing from the AMA you quoted is quite good to explain what marketing is; but what is marketing about? In other words, what is the objective of marketing?

    TEACHER: If you pay attention to the definition, you will see that the answer to your query is right there. Notice the words "to create exchanges". This is the objective of marketing.

    The objective of marketing is to create exchanges.

    An exchange is a process in which two or more parties voluntarily provide something of value to each other. If you purchase a watch, you get a product you value, and the store and the manufacturer get something they value: money.

    Figure 3
    Vacances en Campagne, the advertiser in Figure 3, hopes consumers with a sophisticated taste (and some money to spend, too) will be willing to exchange some of their money for the pleasure and prestige of a vacation in a rented villa in France. If this actually happens, the marketing effort (and the exchange) has succeeded.

    STUDENT: Nice example, but I am a little envious of those people who vacation in a rented villa in France. I am lucky if I can afford a cheap hotel at a beach a few miles away from my home. Anyway, you made your point. But, when we talk about marketing, we assume there is something called "market". What is a market, exactly?

    What is a market?

    TEACHER: Exchanges take place within a market. In this sense, a market consists of the individuals and organizations with the desire and ability to purchase a particular good or service. Thus, a given market may consist of organizational buyers, consumers, or both.

    Organizational buyers purchase goods and services in order to produce something else to sell. McDonald’s buys meat and bread to make sandwiches, Ford buys steel to produce cars, etc.

    Consumers are individuals who buy goods and services for themselves or their households to use; a TV to watch, a car to drive, a vacation to enjoy, a haircut to look nice.

    Purpose of Marketing

    Successful marketing is customer driven: it addresses customer needs and desires.

    Of course the border between needs and desires is not very clear. Also, a need or a desire can be satisfied in very different ways. If you are hungry you might get a hamburger or a meal at a fancy restaurant. To keep warm in winter you could purchase a cheap coat or an expensive one from a famous fashion house.

    One of the basic tasks of a marketer is to translate a common need into a specific desire, usually the desire to purchase whatever he or she are marketing.

    Figure 4

    Figure 4 shows an ad seeking to translate a general need (owning a bed to sleep on) into the specific desire to own the TEMPUR-PEDIC bed.

    There is no doubt that it is essential that marketing addresses customer’s needs and desires. But in attempting this goal, sometimes marketers make mistakes. A classic example is the famous case of Coca Cola changing the formula of the traditional beverage, based on extensive market research including blind tests by many consumer panels. As a result of these tests, marketers felt that they would better address consumer’s desires with the new formula. The rest is history; outraged consumers forced the company to go back to the old traditional formula.

    STUDENT: Why do you think the consumers rejected the New Coke when so many blind tests with consumer panels showed that people liked the new formula more than the old one?

    TEACHER: Possibly the key mistake was to rely only on customer’s taste buds and not taking into consideration the emotional or psychological factor. People associate traditional Coke with a lot of memories; in blind tests they may have preferred the new formula, but when being aware that they were drinking a beverage different from the one they felt emotionally close to, they rejected it.

    The Quality Approach To Marketing

    Marketers in general are concerned about the quality of the goods and services sold by the organizations they work for. Obviously it is complicated to sell poor quality goods or services; the better the quality, the easier the job of the marketer becomes.

    Many firms have taken their interest in quality a step or two further by embracing total quality management (TQM). "TQM is a organization-wide commitment to satisfying customers by continuously improving every business process involved in delivering goods or services." Instead of merely correcting defects when they are identified, organizations that practice TQM commit employees to continually look for ways to do things better so that problems won't arise in the first place.

    TQM And Customer Satisfaction. At an organization that practices TQM every employee takes the attitude that the people who receive his or her service should be satisfied with them.

    STUDENT: Maybe its an exaggeration, but I heard that some businesses even say that customer satisfaction is not a high enough objective; they say TQM should aim to delight customers

    TEACHER: Since there is a lot of competition in today’s markets, customers who are satisfied with our products or services today may no by so happy a in few months or weeks, when comparing them with our competitor’s improved offerings. This is why satisfying customers (or delighting them if you prefer) requires not only doing one's current job well, but individually and jointly looking for ways to improve work processes.

    STUDENT: Is this what in the jargon of TQM is called "continuous improvement"? Is it true that the Japanese invented it?

    TEACHER: Well, the philosophy underlying continuous improvement is the Japanese notion of kaizen: if you do the little things right, the total gain will be enormous.

    One way in which organizations can encourage continuous improvement is to invite -and use- employee suggestions. For example, teams at Toyota generate almost three million ideas a year and management implements 85 percent of them.

    STUDENT: I know of a least a US company that used this practice as long as 40 years ago. My father used to work for IBM in the and always tells me about how IBM benefited from its employees ideas. And the employees were generously rewarded for their ideas when successfully implemented.

    TEACHER: It is said that actually most innovative Japanese business practices were copied by them from IBM, and much later copied from the Japanese by the rest of the world. And there may be some truth in this belief. Bu let’s go on.

    The "customer" of a particular employee may not be the ultimate customer of the organization . For example, the Information Technology people give information to the company’s employees, not to buyers of the organization's products.

    However, delivering useful information at a reasonable cost helps in the effort to please the organizations customers.

    Thus, when all employees strive for high quality, ultimately the organizations customers should be pleased with the results.

    STUDENT: What you are saying is that TQM is "a system for integrating quality technologies into various functional departments (engineering, production, sales, service) to achieve customer satisfaction."

    TEACHER: Right. Well summarized, Student. Because marketers serve as an important link with the organization's customers (identifying them, learning their wants and needs, communicating how the organization's products can help meet those needs) marketers have an especially important role to play in TQM. For example, they can have an enormous impact on customer satisfaction by seeing that customers' experiences with salespeople are positive and that the specifications developed for the organization's goods and services meet customer demands. When the organization provides services, marketers can see to it that the service providers are well trained in marketing and communications skills that will help them satisfy customers.

    STUDENT: Now, is there real proof that TQM is effective, or is it just another of business world’s fashionable words?

    TEACHER: Total quality management has the potential to improve the performance of the marketing group and the organization as a whole. A study by the U.S. General Accounting Office found that at organizations using TQM, sales per employee increased 8.6 percent, and customer satisfaction rose. Black & Decker credits its TQM effort with improved product performance, more efficient ordering procedures, and major cost savings, among other benefits.

    However, other evidence shows that many organizations are disappointed with their attempts at TQM. Florida Power & Light developed an extensive -and costly- quality program, but its customers saw only minor improvements in the quality of its services. To avoid disappointment, organizations that try using TQM need to remember two important points.

    * First, achieving measurable results from TQM (such as improved sales or profits) takes time. Because TQM is based on continuous improvement, it is an ongoing process, not a quick fix. Organizations that reap benefits from TQM usually do so by advancing gradually, adjusting their strategy as they improve.
    * The second important point about TQM is that marketing and management efforts must focus on the customer, not on the organization itself.

    STUDENT: And how are employees themselves affected by TQM?

    TEACHER: Total quality management extends beyond the product and the marketing of the product: it includes an emphasis on quality people and quality processes as well. For employees to be willing and able to continuously improve what they do, they need more than an annual performance appraisal. They need to be empowered.

    STUDENT: In what sense to you use the word "empower"?

    TEACHER: This means involving employees in decisions about their own workplace, and the organization as a whole. Employees also must have the power to carry out the improvements they see a need for and to take the actions that will satisfy customers.

    STUDENT: But it actually proven that empowering employees is effective?

    TEACHER: Very few, if any, business practices are universally accepted. Some companies have tried empowering employees and did not find it effective. But maybe these firms did not do things right. Advocates of employee empowerment believe that to participate fully in a business, employees at all levels need four things: power, information, knowledge and rewards.

    I had an interesting personal experience. Once I rented a car from Avis and did not notice that the gas tank was not full until I had left the premises. When I returned the car with a full tank I mentioned the problem to the clerk, not expecting any refund but just to help Avis to improve their service. I was surprised when the clerk said: "You don’t have to pay for that gas. I will give you a credit for the gas and for the inconvenience." And so she did; obviously that lady was empowered to take this type of decisions.

    As you can imagine, this experience influenced my car renting decisions from that day on.

    Levels Of Activity

    At times marketers may focus on broad marketing activities. They consider the way an entire marketing system works or should work. At other times marketers are interested in the ways individual organizations carry out marketing and how they can improve these efforts.

    Macromarketing - One level at which marketing activities take place is that of the overall economy of a country or a region.

    STUDENT: Can you give me some examples?

    TEACHER: Gladly. Measuring the overall demand for new cars and trucks is a macromarketing activity. We can also mention the study of aggregate consumption patterns, the evolution of consumers’ tastes, etc.

    In a capitalist economy the macromarketing system is based on a market-driven approach. Buyers "vote with their wallets" to determine which goods and services will be produced simply by purchasing the goods and services that they want. In these type of economies buyers can choose from among many makers and sellers.

    STUDENT: I guess marketers are very happy that this is so; in monopoly situations the need for marketing people is very low.

    TEACHER: Of course. In a "seller’s market", when the seller is a monopoly or when there is a long-term scarcity of a specific good, marketing people are few and not highly paid. Conversely in a "buyers market" where many seller compete and there is ample supply of a product and its substitutes, marketing people are in high demand.

    Micromarketing -Micromarketing is concerned with individual organizations. For example, Unilever´s activities directed to make Knorr soups and Hellmann’s mayonnaise varieties and sauces that appeal to a massive consumer market is micromarketing, which includes product design, distribution channels, advertising, etc.

    STUDENT: Basically then, marketing consists in promoting sales and advertising, right?

    TEACHER: This is a common error. Marketing is much more that that. Depending on the type of business, it may include many other activities such as:

    * Product development
    * Forecasting
    * Selling and
    * Logistics (transporting, storing)

    Target Markets

    The portion of the market to which a firm attempts to sell a specific product is called the target market. As a rather obvious example we can mention that the target market for Procter & Gamble’s disposable diapers are parents with small children. Can you think of some other example yourself?

    STUDENT: I can think of Toshiba considering medium and high level executives the target market of its high end portable computer models.

    TEACHER: Good.

    The Marketing Mix

    A marketing mix is "the mix of controllable marketing variables that a firm uses to pursue the desired level of sales in the target market".

    The marketing mix consists of four elements: product. pricing, channels of distribution (placement), and communication (promotion).

    STUDENT: Yes, I recall that these elements are often called the "four P's" (for product, pricing, placement, and promotion).

    TEACHER: Exactly. Let’s discuss each one of the "P’s".

    * PRODUCT –Includes the physical product (or service) as well as, for the former, the sizes, packaging, and labeling.

    * PRICING -Pricing is the function of setting prices that support the organizations marketing strategy. The price of a product depends partially on production costs, but many other factor intervene: the target market’s personal income level, direct competition of the same or very similar products, indirect competition of substitute products, etc.
    * DISTRIBUTION –A basic duty of marketers is to plan how to get the product to the target market so that it will be convenient to buy. This element of the marketing mix is called channels of distribution (or placement).

    STUDENT: I assume this includes a variety of activities such as transportation, warehousing, and inventory control.

    TEACHER: Right. It is essential that goods and services are readily available to buyers. Distribution is critical to a successful marketing strategy. A firm may have a good product, conveniently priced for the target market, and well promoted; but consumers will not buy it if it isn't readily available to them.

    * PROMOTION – (Communications) Informing target markets about the company and its products is the basic objective of a firm’s communication with the public. Activities included are:
    * Advertising
    * Selling
    * Sales promotions (coupons, special offers)
    * Merchandising (placing the products attractively at the point of sale)

    And now, Student, questions are awaiting you!


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