Key Marketing Concepts

Good marketing has long been recognised as an important contributor to the long-term survival and success of organisations, be they commercial or non-profit-making. Indeed, any analysis of the more successful companies in the world usually confirms their continued use of sound marketing principles. In other organisations, it is also accepted that marketing is something that is often not done particularly well.

Many organisations have experienced the introduction of a rallying cry from their senior management to the effect that ‘… we will now become a marketing-led organisation…’. Turning this statement into reality requires more than just the pronouncement of the principle and the employment of a few people with marketing titles. It requires something much more difficult; the creation of a marketing orientation throughout the whole organisation. It does not mean being literally ‘led’ by the marketing department, but rather that its operations should be guided and influenced by marketing principles.

The marketing mix is the name given to the main demand-influencing variables that are available to an organisation. This is because, when a customer makes a purchase or engages in an exchange, what they are responding to is not just the product, but a whole range of variables which constitute the offer. The classic description of the marketing mix, although something of a simplification, is ‘the four Ps’. The four Ps and the fundamental questions associated with them are:

International marketing, at its simplest, is the performance of the marketing task across national boundaries. The basic approach, therefore, is no different from domestic marketing and the principles involved remain the same. Thus, a supplier organisation has to perform market research, identify a target market, develop appropriate products, adopt a pricing policy, promote sales and so on. In spite of this, whenever organisations begin to operate outside their domestic markets, many otherwise successful enterprises seem to suffer setbacks to their marketing efforts.

The concept of relationship marketing has evolved as a consequence of some of the limitations traditional approaches to marketing are perceived to foster. In terms of relationships, the most important one for Marketing purposes is that between the supplying organisation and its customers. This relationship is managed through the activities involved in delivering the marketing mix. In this, the four Ps are probably the most universally accepted method for structuring the marketing mix. Since the late 1980s, however, both the ideas of a four Ps mix, and customers being the only markets requiring attention, have been questioned. This has lead to the propositions contained within the relationship marketing approach.

In recent years, dissatisfaction has been expressed by increasingly large numbers of people about a society which seems to have consumption as both its means and its end. In the late 1960s and early 1970s, there was a growing consciousness of the problems that the age of mass consumption brought with it. A new awareness of the alternatives that might be possible, indeed necessary, became apparent. Such moves were supported by books like Charles Reich’s The Greening of America, Alvin Toffler’s Future Shock and Theodore Roszak’s The Making of a Counter Culture. The message articulated by these and other writers of the movement was basically a simple one: that people could no longer be thought of as ‘consumers’, as some aggregate variable in the grand design of market planning. They were individuals intent on doing their own bidding.

Consumer markets can be broadly classified into three categories: durables, services and grocery products. Products within each category are marketed indirectly to large numbers of consumers. Thus, the marketing mix for such products needs to address particular market segments in order to be effective. However, since buying a durable product (e.g. a refrigerator) or a service (e.g. a holiday) is fundamentally a different process from shopping in the supermarket for detergents or breakfast cereals, the marketing practices associated with these products will differ significantly. As an illustration, refrigerators and holidays are only bought infrequently and represent a significant household purchase. As a consequence, consumers will seek out information about these products and make careful comparisons of alternatives before commitment. In contrast, goods from the supermarket quickly become accepted or rejected by consumers in their day-to-day buying routines. They are low-cost items and are dependent upon repeat purchase to remain viable in the market.

Whenever an organisation consciously brings marketing into the management of its products, be they services, fast-moving consumer goods or industrial products, the fundamental principles of marketing always apply. Any marketing-orientated organisation will seek an understanding of its customers, the markets of which they are a part, the opportunities which exist within that market, the best ways to compete with its rivals and so on. In spite of these similarities, however, most organisations working in industrial markets instinctively know that the marketing of their products requires a different set of approaches from those required when marketing in a consumer goods environment. To operate effectively in industrial markets, it is therefore important to understand what these differences are since they will highlight those areas on which the organisation must focus its attention within the basic tenets of marketing as a whole.

Service businesses were an increasingly significant sector of most advanced economies throughout the 1980s and will continue to be a dynamic sector into the 1990s and beyond. As an illustration, in 1988, 70.2 per cent of civilian employment in the United States was accounted for by service businesses with the highest European equivalent (The Netherlands) standing at 68.8 per cent. Table 9.1 illustrates the potential range of service activities. At the same time, there has been an accelerating trend to differentiate what were once considered to be simply ‘goods’ by highlighting the service elements of the offer. Together with the deregulation experienced by many professional and government services, these factors have forced organisations to consider whether any differences will be required when marketing services.

Technology is becoming an important competitive tool for many organisations as a means of differentiating themselves from other businesses in the market-place. Where such technology is a significant part of the overall market offering, organisations must consider whether its inclusion requires a particular approach or whether the nature of the technology will have little impact on the way in which the product is marketed.

The terms ‘push’ and ‘pull’ marketing have been widely utilised in the context of promotional marketing activity. Organisational resources may be focused on communicating directly with either the consumer and thereby ‘pulling’ the product through the supply chain, or with intermediaries (customers) in order to ‘push’ the product to the consumer. In reality, both approaches are necessary to promote the product effectively. Over the past twenty years there has been an increasing emphasis on trade marketing, as a way of achieving such ‘push’ strategies, particularly in the marketing of consumer products. Trade marketing is therefore concerned with marketing activities which focus on intermediary customers who link the organisation to the final consumer.

As with any product-based approach to marketing, the marketing of capital goods presents suppliers with some special concerns. These are generated by the nature of the products and the circumstances under which they are bought and sold. Capital goods can be pieces of plant and equipment, such as large machines, boilers or storage facilities, or complete systems such as refineries, telecommunications networks or civil engineering projects.

Decision-making in organisations requires relevant information to be available if the outcomes are not to be based on those often-used management support tools of ‘gut feel’ or rationalised personal preference. Within this, marketing information is of vital importance. Indeed, one of the key roles of marketing professionals should be the supply of market and marketing-performance information, which will enable the rest of the organisation to make decisions about the market-related areas of their responsibilities. As examples, corporate or strategic managers need good market environment and competitor information to be able to set the overall strategic direction of the organisation, and operations managers need to understand the critical success factors associated with the delivery of their product or service, since these should form the basis for the design of their operating systems.

Regardless of who carries out the work involved in a market research project, it is important that a clear brief is produced against which the subsequent work will be undertaken and judged. The research brief, which should be produced in both written and verbal form, is a key document and the starting-point. In its preparation it is important that the following questions are to the fore: What do we want to know?What will we do with the information when we get it? In this way clearly defined objectives can be set and adhered to.

Basically, a marketing audit is the means by which a company can understand how it relates to the environment in which it operates. It is also the means by which a company can identify its own strengths and weaknesses as they relate to external opportunities and threats. It is thus a way of helping management to select a position in that environment based on known factors.

A SWOT analysis, covering an organisation’s strengths, weaknesses, opportunities and threats, is a tool often used as part of an organisation’s policy and decision-making process. A well-constructed SWOT can provide powerful insights into the situation facing an organisation and can demonstrate, in a clear fashion, the direction an organisation needs to take. Poorly constructed SWOTs will, at best, provide only a bland interpretation of an organisation’s position. At worst, they can be misleading and will lead to wrong conclusions and misguided policy. It is, therefore, important for marketing managers to be well-versed in the issues involved in developing a good SWOT, since it is their interpretation of the market and the organisation’s position within it, which will form the basis of a SWOT, whoever in the organisation performs the analysis

A marketing SWOT is derived from a market audit

A SWOT analysis must be derived from a marketing audit. In conducting an audit, it is important to remember that the results will be used to identify points which will appear in the SWOT. In this way, an audit can be given focus, and when the time comes to create the SWOT, the chances of relevant information being absent will be reduced. Poor SWOTs tend to be based on opinion or are constructed without reference to market and marketing information.

Some organisations view marketing as a process which tries to persuade a faceless mass of customers to see things their way. To adopt such an orientation is to misunderstand totally what marketing is all about. Ultimately, to survive and prosper in business in the long run, organisations have to satisfy the needs of customers. Central to this need-satisfying process is what in marketing is known as ‘market segmentation’.

The purpose of any segmentation exercise is to identify groups of purchasers who are sufficiently large, different and reachable to make them worthwhile for the investment of marketing effort. The isolation of a new segment whose needs are poorly served by existing supplies can provide an opportunity to gain significant competitive advantage. Unfortunately, segmentation models in international marketing tend to consist of geographical groups, such as Western Europe, Eastern Europe, North America, ASEAN, Australasia and so on. Such groupings, however, are of very limited value as actionable marketing propositions, since they bear little relationship to actual consumption or usage patterns.

An important aspect of a market which needs to be understood and characterised for the development of marketing policies is the substance and nature of the competition within it. In recent years, the work of Michael Porter, a Harvard Business School professor, has become synonymous with the process of such competitive analysis. His `five forces’ analytical framework provided a systematic method of exploring the competitive context of a market. Good analysis of these forces will help organisations to identify where power lies in the market, who can influence market trends, how the market is likely to develop, where to concentrate when seeking new market opportunities and the basic platforms from which it is possible to compete.

As well as understanding a market in terms of trends, competitors, segments and so on, organisations supplying products or services also need to have an appreciation of the way customers behave when coming to a specific purchase decision. In addition, organisations need to understand how this behaviour varies between different groups of customers in order to ascertain the ways in which markets can be segmented. Without this knowledge, suppliers will find it difficult to choose between the alternative elements of the marketing mix to construct a product offering which will find favour with those customers it has decided to target.

When a business wishes to sell its products to other organisations, rather than to the individuals at the end of the value chain who will consume the final product for their own satisfaction or utility, it faces a rather more complex marketing situation. This complexity is a result of the number of people often involved in the decision to purchase, the situation in which those people operate and the activities which, together, form the stages of the decision-making process. These processes are not entirely dissimilar to those followed by consumer purchasers, but tend to be characterised in different ways as a result of the contexts in which an organisation buys. For example, organisations have more formalised purchasing procedures as a consequence of the need to monitor and control purchasing activities, and they will often appraise a product in more technical terms because of the impact which a wrong purchase may have on the organisation’s operations.

The product life-cycle is a conceptual tool which provides a means of describing the sales patterns of products, be they goods or service products, over their time in a market. If sales are plotted on a cumulative basis, the ideal-type life-cycle approximates to an S-curve. If they are plotted on an absolute basis, the ideal-type will approximate to a normal distribution, although it is usually drawn with a skew to the right (see Figure 22.1). In reality, product life-cycles adopt a number of different shapes and are never smooth. However, a good understanding of the concept, its variations, and the determinants of its shape, can be a powerful aid to the development of marketing strategies.

The shape of the standard product life-cycle implies that purchasers for a new class of product become customers at different times, and at different rates, following its introduction. This has been described as the diffusion of innovation or the adoption process. Adoption is concerned with the way that a consumer becomes a regular customer for a new product concept. Diffusion refers to the way in which the product penetrates its potential market, which, in turn, suggests that there will be different stages of adoption. Variations between the shapes of product life-cycles for different products indicate that the rate of diffusion may also vary from one product to another. Effective marketing requires a good understanding of these processes and the causes of any variations.

The Ansoff Matrix is a two-by-two depiction of the options open to organisations if they wish to improve revenue or profitability. The matrix was first described by Igor Ansoff in ‘Strategies for Diversification’ (Harvard Business Review, September–October 1957, p. 114). It is useful because it provides a simple framework which encapsulates all the strategic directions an organisation can adopt in one analytical tool. Unlike some of the other analytical tools used in marketing, the matrix is not diagnostic; rather it is a method for structuring thinking or a means of classifying objectives.

The Boston Matrix or, as it is sometimes called, the Boston Box is a vehicle for classifying and characterising an organisation’s activities in relation to the markets in which it operates. It can be used to represent strategic business units (SBUs), or product portfolios, which are then located on the matrix for analytical purposes. Such a presentation will enable the strategic management of an organisation to make judgements about how best to manage each business or product group, and to identify gaps or areas which may prove problematic as markets grow, mature or decline.

The Directional Policy Matrix (DPM) is a framework which can be used to classify and categorise an organisation’s business activities in terms of its strengths, capabilities or market position, and the way it perceives markets to be attractive. The basic structure of a DPM is illustrated in Figure 26.1. The purpose of the matrix is to diagnose an organisation’s strategic options in relation to those two composite dimensions; business strengths and market attractiveness. The DPM, therefore, enables organisations to conduct an analysis of their portfolio of products or areas of operation.

A significant proportion of most organisations’ revenue is derived from products introduced in the recent past. However, new products can take many different forms and can be derived from a number of different external and internal sources. Their development or acquisition, however, is costly and there is a great danger of failure. This danger can be reduced if marketing principles and personnel can be involved at every stage of the acquisition, development and launch of new products.

When making a purchase, a customer is influenced by a whole range of factors associated with the complete product offer. One of these may be the product’s brand name. In spite of its intangibility, a well-developed brand can be a powerful influence on both customers and competitors alike and will be a key contributor to the way a product, company, or whatever, is positioned in the market place. It is, therefore, important to understand the scope of branding, including the difference between a major brand and lesser brands, or commodities, which do not command the same power, the specific components of a brand name and the differences between successful and unsuccessful brands.

A customer’s response to an offering from a supplier is affected by all aspects of the marketing mix which constitutes that offer. Amongst these variables, price is always an important feature since it is one of the determinants of a product’s value. Price is thus one of the evaluative criteria utilised by potential customers, as are the costs which will be incurred in both making the purchase and owning or utilising the product. Price and associated costs are, therefore, an important adjunct to positioning.

Any specific pricing decision should always be made in the context of the pricing strategy an organisation has opted to follow. These can vary from a skimming or penetration approach to being the cheapest in the market, or simply following the lead of a major player. Costs are also used as a basis for pricing, but are not usually considered to be a sound basis for setting prices, although prices must, in the end, yield income in excess of total operating expenses. As well as strategy, there are, however, a number of situational factors which will also influence the exact price chosen. Thus, when the occasion arises which requires a pricing decision, an organisation’s pricing strategy will provide the main approach to be adopted, but situational variables will determine the actual price paid.

Advertising is one of the four major communications and promotions activities in which organisations can engage. Of the four, advertising is probably the most glamorous, although the others: sales promotions; public relations, and personal selling, are none the less potent promotional tools. The factors which differentiate advertising from other methods of communication are that it is: any paid form of non-personal presentation in a measured media by an identifiable sponsor. It is also, probably, the most powerful aid to positioning, certainly from within the promotional mix.

As the name suggests, ‘public relations’ as an area of marketing is concerned with an organisation’s relationships with the various groups, or ‘publics’ which can affect its ability to achieve its goals and objectives. The aspects of these relationships which act as a focus for public relations, are the image and information a market holds about an organisation, or in other words, its position in the market. At a simple level, this is achieved through publicity in various print and broadcast media. However, the broader views being encouraged by moves towards relationship marketing, require public relations activities to be more specific in their targeting and objectives. Public relations, therefore, is an important support for both relationship marketing and positioning.

Personal selling is normally seen as part of the communications mix. This is because the key role of the salesperson is to present the organisation’s offer and to engage in two-way communications which negotiate the terms of a sale. However, in order to effect these presentations and negotiations satisfactorily, salespeople have to develop and maintain good relationships with their customers, particularly if repeat purchases are part of the desired outcome. Personal selling is, therefore, also an important aspect of the relationship market approach to business management.

As the importance of managing relationships with customers has increased, organisations have had to pay particular attention to the productivity of one of their scarcest and most expensive resources: the group of individuals who have the greatest amount of direct contact with customers, otherwise known as the sales force. The standard measures of sales force productivity have traditionally included call rates; revenue targets; volume targets, and an increased client base. In more enlightened organisations, results-oriented sales managers have come to recognise that other objectives and productivity yardsticks are also required. In addition, this has led to the understanding that organisations also have to address issues of motivation and training to complement this expanded set of requirements.

A major concern for any producing organisation is how they can best make their products available to the market-place. The options available are many and the wrong choice can have significant consequences for an organisation’s success. In addition, once made, such choices tend to be long term, in that a distribution system takes time to build and make effective and, once established, is not easily changed. The development of a strategy for the channels through which products will be placed on the market is, therefore, an important aspect of marketing.

Having devised a channel strategy, a supplier organisation has to develop appropriate relationships with its intermediaries which will enable it to take good advantage of the opportunities it wishes to address. The major drawbacks to using intermediaries, rather than supplying direct, are the loss of control which intermediaries imply and the lack of access to direct feedback from user markets. Channel management must, therefore, seek to work with intermediaries so that they both complement the suppliers’ marketing objectives and minimise the problems of control and market information. Organisations can achieve this through attention to channel motivation, treating intermediaries as business partners and managing channel conflict.

The term advertising (often referred to as ‘above-the-line expenditure’) can be defined as all non-personal communication in measured media by an identifiable sponsor. This includes television, cinema, radio, print, and outdoor media. Sales promotion, for which the term ‘below-the-line expenditure’ is often used as a synonym, is not so easily defined. For example, Americans use the term to describe all forms of communication, including advertising and personal selling. In Europe, some use the term to describe any non-face-to-face activity concerned with the promotion of sales; some use it to describe any non-media expenditure; while others use it specifically to mean in-store merchandising. Managers concerned with sales promotions must, therefore, be clear about the nature and scope of such activities and how they can best contribute to the organisation’s marketing goals.

Much marketing attention is directed at developing strategies to expand sales through market share dominance; market penetration; finding new markets, and product range expansion. The main reason for concentrating on these options is that size, revenue growth and dominance have been shown to be positively correlated with long-term survival and profitability. Recent work, however, has questioned the universality of the these approaches, arguing that the cost of winning new customers is high and that, for many organisations, it will be more cost-effective to concentrate on retaining existing customers rather than attracting new ones.

Customer service is an increasingly important factor both for competitive advantage and customer retention. Indeed, the service element of many product offerings is sometimes the only aspect which distinguishes one organisation’s marketing efforts from those of another. In addition, once a supplier/customer relationship has been established, customer service provides a significant contribution to the augmented product offering which enhances the value of a purchase and cements relationships. To manage this adequately, in some organisations, customer service is treated as a separate aspect of the marketing mix for which individual plans and strategies are created.

Databases have traditionally been too large and expensive, and their performance too slow, for them to be cost-justifiable. Consequently, many of the marketing information systems in use today are limited to summary sales reporting systems. However, with the increased importance attached to direct marketing, telemarketing and sales performance management (using laptop computers), many companies are actively engaged in building customer databases. These databases are then used to enhance the quality of an organisation’s relationship with its customers. Good databases will enable the personalisation of communications; marketing managers to be alerted to needs automatically; and comprehensive customer records to be available at the ‘touch of a button’. In addition, good databases can allow for micro segmentation based on such criteria as buying patterns, customer-initiated communications, fine-tuned demographics and other, normally difficult-to-discern, characteristics.

The size and complexity of the marketing task in all kinds of enterprise has substantially increased in recent years. The growing diversity of customer needs in a rapidly changing environment has resulted in shorter product life-cycles. Distribution patterns have changed dramatically in most markets, and have been complicated by the geographical dispersion of operations and the growing internationalisation and scale of businesses. In addition, the socio-cultural, legal and political environments in which managers have to operate have become more volatile and the volume of data and information available has mushroomed. Added to this is the ever-present difficulty of measuring the behavioural aspects such as organisational and psychological influences which impact on marketing decisions.

All organisations operate in a complex environment, in which hundreds of external and internal factors interact to affect their ability to achieve their objectives. Managers need some understanding, or view, about how all these variables interact and they must try to be rational about their decisions, no matter how important intuition, feel and experience are as contributory factors in this process of rationality. Most managers accept that some kind of formalised procedure for planning the organisation’s marketing helps to sharpen this rationality so as to reduce the complexity of business operations and add a dimension of realism to the organisation’s hopes for the future.

Although there are many factors which inhibit successful international marketing, inadequate product planning is one of the more significant contributions to poor international marketing performance. This is because the product is at the heart of the marketing mix which constitutes a supplier’s offer, and to which customers and consumers respond. Since trade is about selling products into markets, the product, as the leading edge of the marketing mix, must be as ‘right’ as possible to avoid becoming another example of products which fail once they move outside their home territory. The two key questions that need to be answered to enhance the chances of success are: Which of its product lines should an organisation sell in overseas markets.Does it need to adapt them for those markets?

One of the problems associated with managing marketing in organisations occurs when deciding exactly how marketing should fit within the existing, and developing, structure of the organisation. The first problem concerns whether or not to have a specific marketing department at all. If it is thought that this is the right option, the second decision is judging what scope, or range of activities, it should oversee. Once a department’s overall responsibilities have been determined, the third step is to decide how it should be structured and who should do what job. If it is felt that a discrete marketing department is not appropriate, establishing and maintaining strong marketing orientations and leadership throughout the organisation becomes more than usually important.

One of the most vexing questions for any marketing manager, or indeed, any marketing organisation, is ‘How much, and where, should we spend on marketing?’ The question is difficult because it requires an understanding of what should be included in a marketing budget, the way in which costs are generated and the relationship between marketing expenditure and the results sought. Each of these areas is problematic and often requires sophisticated financial information and analytical tools for the development of effective programmes and budgets.