Marketing is the process of planning and carrying out exchanges between buyers and sellers. Planning and implementing such exchanges is not always simple, but it is generally based on the use of just a few basic marketing concepts. The purpose of this introductory note is briefly to define and describe these concepts and suggest ways to use them to solve marketing problems and plan marketing programs. Many of the concepts are intuitively obvious once stated. But the development and refining of these concepts represents a great deal of effort on the part of many marketing theorists and practitioners over the past several decades.
Learning to use the concepts well is not just a matter of memorizing definitions or applications made by others. Rather, it requires trial and error experience. They need to be discussed, applied to case situations in the classroom, and then applied to real world problems. This complex learning process is necessary because there are no precise rules for combining and using the basic concepts.
With this in mind let's turn to the seven key sets of concepts that drive good marketing programs:
2. Market Segmentation, Targeting and Positioning.
3. Purchase Processes and the Marketing Mix.
4.The Product Life Cycle and Market Share.
5. Contribution and Breakeven Analysis as Measures of Plans and Results.
6. Consumer Behavior and Market Research as the Basis for Marketing Action.
1. The Marketing Concept and the Concept of Marketing as Exchange.
The marketing concept states that it is generally better, easier and more profitable to understand consumers and meet wants and needs than to persuade or coerce consumers – industrial or individual – to buy something they don’t really want, simply because you can make or market it.
There is sometimes a period of shortage – a "seller's market" – in which customers must accept what sellers offer. But most of the time the world is a "buyer’s market" in which you must give customers what they want. At times they may not know what they want – until it is offered. That provides opportunity to define and offer new products that, in effect, create demand.
Reflecting the marketing concept, the basic way in which goods and services are allocated in a free society is through free exchange among individuals and organizations. Each party freely decides what to offer and what to accept in return. No one controls either supply or demand. Every buyer and seller competes to offer money, goods or services in exchange for the resources of others. Prices reflect this freedom.
Most exchanges involve more than just swapping money for an object or a service. They also involve developing relationships and trust. Trust develops over time as each party concludes that they are making an exchange with a reliable person or organization; that the quality of the goods and services can be relied upon; that the price and terms of the exchange are reasonable and competitive; that the availability, location, and logistics connected with the exchange are acceptable; and that a more favorable exchange with another exchange partner is not readily available – at least not without significant additional search cost. The need to be satisfied on each of these issues creates opportunity for creative marketing efforts.
Many exchanges also involve more parties than just the two people or teams that make the fina1 deal. Consumers seek the advice of friends, family, experts, or retailers. Purchasing agents seek the inputs of engineers and other managers. It is important to understand each of these intermediate exchanges and to take it into account in designing a marketing program.
The marketing concept and the concept of free exchange go a long way to describe the way in which a free society actually works. Free societies tend to use exchanges to allocate resources and potential risks across many aspects of life. In the U.S. we use market-type exchanges of various to set wages and working conditions, determine who works and who is unemployed, and regulate swings in the economy and even to elect officials. To ensure the working of free markets we place constraints on the abuse of power to control exchanges. Other societies differ in the extent to which they promote or curtail the use of exchange as the basic mechanism of allocation of goods, services and power, but basic marketing concepts turn out to be very useful in planning and managing exchanges even in these situations.
2. Market Segmentation, Targeting and Positioning..
The single most important contribution of marketing thought is the concept of market segmentation. This concept states the marketer's basic belief that neither buyers nor sellers are homogenous. That is, different buyers want different combinations of product attributes or have different purchase processes than others, and some sellers can more readily offer certain combinations of product attributes and exchange conditions than others. As a result, certain buyers match-up better with certain sellers. These well-matched exchanges are more effective and more efficient than others.
Every seller should begin by seeking these easy sales. Then the marketer can look around for ways to serve additional segments with similar wants and need – before seeking to serve those who are very different. Marketers divide potential customers into segments – groups of buyers with similar wants and needs – as the basis for deciding which of them to serve or target.
By targeting a collection of segments with similar needs or wants, marketers enlarge their market potential enough to offer a range of products, achieve good economies of scale and have the potential to earn larger profits. However, when it appears necessary to serve segments that are too differentiated, marketers may have to offer so many products, or employ so many marketing approaches that it becomes very expensive. This can only be profitable if it creates high customer loyalty and a willingness to pay high prices to offset the extra costs. With experience, marketers learn to properly assemble segments into viable targets.
Segmentation as a two step process: First, differentiate prospective customers from non-prospects: Then divide prospects into well-defined groups each of which is homogenous, reachable, and large enough to be profitable. The first step is often overlooked. This can be a serious blunder. For example, families living in apartments without fireplaces are not likely to be interested in the quality or price of chimney-sweep services so they should be excluded from the segmentation. Often it is also helpful to divide heavy-users from light-users, or to divide very experienced buyers from relatively inexperienced buyers, and to build separate segmentation schemes for each of these groups.
Once target segments have been selected, marketers position products and services to serve them. They design and offer products that meet the special needs and wants of the target segments and by develop delivery systems that inform segment members of these product attributes and delivery system advantages. This process is based on the concept that products and services occupy positions in product space. This is a useful way to think about positioning as it focuses attention on the key characteristics or attributes that make a product succeed with each targeted segment.
If a product or service has just two key attributes that are important to users – say "ease of use" and "durability" – it is easy to visualize it in a positioning map, like that shown as Exhibit 1. A product positioned in the upper right hand quadrant of this map would have high levels of each of the two key attributes and would have strong appeal for customers who want these features. If most customers have wants and needs that cluster in this quadrant, most competitors will tend to offer products that are high on these two attributes. Thus most products or services will also cluster close to major segments.
Some sellers choose to serve a single segment. Some provide multiple products and services to reach multiple segments. Still others focus at the center of the array and try to attract customers from multiple quadrants. A good positioning decision depends on careful analysis of the customers and competitors in each quadrant – seeking opportunity to get high segment market share by positioning the product very close to large groups of users, thereby serving these segments particularly well and attracting a very high share of their business.
It is easy to visualize segmentation in two, or even three, attribute dimensions. Beyond that, it is harder to visualize more dimensions, but marketers have developed multi-attribute segmentation models that are very useful in defining such market segments, deciding which of them to target, and then positioning products and services to achieve success in these target segments.
Often market segments match closely with the demographic characteristics of consumers. For example, young users may prefer one set of product attributes while older users may prefer another. Thus, demographic characteristics can be excellent guides to segmentation, Demographic segments may be relatively easy to define and reach, making this a very useful approach.
Sometimes demographics are not as important as other segmentation variables. Lifestyle choices, activity preferences, preferences for low prices, and shopping patterns may better define segments. Heavy users – who are the most important customers in most markets – often have different preferences that less experienced light users or new prospects. So marketers also use lifestyles, experience and quantity as segmentation variables. Using such variables they seek to earn significant extra profits by positioning products close to target segments thereby strongly attracting these customers and denying competitors access to them.
Marketers rely heavily on market segmentation. Traditional economic models often treat markets as relatively homogenous. But marketers tend, particularly as markets mature, to push further and further towards segmentation. Thus marketers augment economists market models with segmentation schemes that provide insight into ways to attract segments and gain a preferred supplier status.
The concepts of market segmentation, targeting, and positioning are not limited to consumer and industrial products and services. Ideas offered by politicians, religions, political parties, social programs, ideologies, charities, clubs, and other entities can also be positioned in relevant market space. In fact, the concept and process of segmentation, targeting and positioning is a particularly powerful contribution to improving policy formulation and action in the public and non-profit sectors. Successful organizations in these sectors segment their markets and offer the products, services and ideas their target constituents want. The social service origins of such organizations sometimes makes the adoption of this orientation difficult, particularly when the organizations has been created to promote a pre-selected approach or position. Nonetheless, some politicians, churches, and social-service organizations – such as the March of Dimes which has moved successfully from fighting polio to fighting birth defects – have used this approach well.
3. Purchase Processes and the Marketing Mix.
It is useful to think of buyer behavior as a purchase process, with a beginning, middle and end to each venture into the marketplace. Potential buyers – who have not yet made their first purchase in a category – are inexperienced and need to develop their buying systems. Experienced buyers have established habit patterns and loyalties for that product class. One of the key goals of the marketer is to establish loyalty among purchasers, as they develop their purchase habits, thereby creating barriers to competitors. These barriers may be based on product attributes, other marketing advantages, and trust built up through previous satisfaction, ultimately leading to the formation of brand loyalty.
Loyalty is very important because loyal customers are cheaper to serve and more profitable. Usually they are heavy purchasers and make few extra demands for service – and they are not likely to defect to competitors. So marketers work very hard to build relationships with them and keep them satisfied. This is referred to as relationship marketing.
Beginning in the 1950s, marketing theorists focused on explaining the processes by which customers develop loyalty. Customers move through a series of stages as they become aware of potential purchase options, explore them, make choices, and eventually develop loyalty. In the 1950s and 1960s marketers developed tools for gathering and analyzing field research data to improve and quantify these theories. They developed large proprietary data bases of customer perceptions of the strengths and weaknesses of competitor’s products and services and used them to improve their products and marketing efforts. Some of this work has found its way into the marketing literature. But much of the detailed work has been too valuable to companies to permit publication. These data and analytic models are treated as closely held secrets. Nonetheless, enough has been published to give us a good picture of the usefulness of these approaches.
Successful marketers study the development of brand preference and loyalty. They begin by diagramming the flow of events that make up the basic consumer buying process for their product. Then they look at each step in the process as an opportunity to take action to achieve competitive advantage. Marketing theorists believe that consumers give careful consideration to major purchases. They define alternatives, set criteria for choice, evaluate alternatives against these criteria, select and use a product on a trial basis, and then determine whether to buy it again and perhaps become brand loyal.
Marketers design their activities to parallel these steps. They take marketing actions to influence buyers at each step in the process of moving from interest, to search, choice, loyalty. It is extremely useful to group these marketing actions into four key sets – product; price; place; and promotion – the 4 P’s – that together make up the marketing mix as shown in Exhibit 2.
Product. The most basic marketing decision concerns what product to offer. This product concept is then refined, engineered, and committed to a specific form for production. It is packaged, often with accessories, instructions, and service and warranty information. The key to success in this process is the careful use of segmentation, targeting and positioning process described above.
Services are a special case because they are promises to perform. Unlike other products, an accounting, consulting, or computer programming service does not really exist until it is delivered. So too for ideologies and politicians. In each of these cases, the marketer’s task does not stop until the service has been properly delivered and the next order obtained – restarting the cycle.
Price. Once the product concept has been determined, the product or service must be priced and terms and conditions of sale must be set in order to create an attractive value proposition for customers. Marketers usually try to price low enough to be attractive to a large market, yet high enough to make a reasonable profit. Conversely, for some high quality, prestigious products, however, a high price may be desirable as it suggests the high quality of the product.
This balancing act can include a number of price-related considerations. Credit, or discounts for volume purchases or prompt payment may be offered. If the customer is a retailer, a cash allowances may be offered to offset a portion of the retailer's advertising or promotional efforts. These allowances may also include payments for displays, or other extra effort. Marketers must also consider competitors’ pricing policies. With experience, marketers master the art of pricing.
Place. The product must then be made available or distributed in places where customers want to buy it. Selling may be done by the manufacturer’s own salesforce, directly to end users. Or it may pass through resellers such as wholesalers, agents, brokers, reps, VARs, retailers or catalog firms. In the US, such channels employ about 1 out of every five workers – making distribution and logistics the largest sectors of the economy.
Many products are sold as components that are incorporated it into other products. Thus these components are sold and re-sold a number of times before reaching the final consumer. As a result the total amount of distribution activity in the economy is substantially greater than the amount of final product sales. This helps explain why such a large share of total employment in advanced economies is in physical distribution systems, salesforces, wholesalers and retail businesses
The most important place decision a seller must make is the number of steps, or re-sellings, that will be required for a product to reach an end-user. The most common consumer channel includes three steps: manufacturer-to-wholesaler, wholesaler-to-retailer, and-retailer-to consumer. Most everyday products pass through standard channels such as discount stores and supermarkets. But new, complex, or high value products often require more specialized channels – including dedicated salesforces – that can give them extra attention.
A well designed channel makes the product readily available and provides all the information and service necessary to help customers buy it. But availability usually has a cost. So gaining widespread distribution of a new product, or a low volume product, may be difficult and expensive. Often it is necessary to settle for narrower distribution and to use other means to induce purchase. Nonetheless place-related costs make up a significant part of the price consumers ultimately pay for most products. For standard items requiring little special sales effort, distribution may cost 15% to 25% of sales. For new, specialty items, distribution may cost more than 50% of the total price. To put this in perspective, it is useful to note that most businesses earn profits of just 5% to 8% of sales. So good channels choices are critical to success.
Promotion. Potential customers need to know about a product, and have a favorable opinion about it, before they will buy it. Marketers use promotion – advertising and public relations (PR) – to create this favorable opinion. This is the part of marketing with which many people are most familiar. In fact, when most people talk about marketing, they mean advertising. In our society revenues from advertising are used to pay the major portion of the cost of most media: television, radio, magazines, and newspapers. As a result a significant portion of the total time and space in most entertainment media is devoted to such commercials.
In addition there are purely commercial media such as direct mail, catalogs, tele-marketing and Internet Web-sites. These media are used to provide persuasive information and inform potential customers about opportunities to buy. Many of these media also take on aspects of place as well as promotion as they permit immediate ordering over the phone, by mail or e-mail, or directly from the Web-site.
In designing promotion programs, the key challenges for marketers are to select media that will reach target prospects most efficiently; select messages that will be informative and persuasive; and present these messages so well that they are noticed, attended to, accepted, and acted upon. It is important to make a product or service distinctive and to focus promotion on the unique advantages it offers – its Unique Selling Proposition (USP).
A substantial body of recent research has been directed to the optimization of this set of processes. To help marketers understand this process, communications theory has delved into questions of how individuals learn, and how marketers should select, encode and send their messages. Their insights help ensure that target audiences will notice, correctly decode, believe, and act upon advertisements. Some sophisticated media models permit predicting the reach various mixes of different numbers of ads in any desired combination of media.
Media research has also focused on such issues as whether and when to use more focused, but generally more costly media, and when to buy general purpose media that reach a less-focused audience at relatively low cost per person reached. To compare media, marketers frequently calculate the cost per 1000 target group members reached – CPM – as a consistent measure of efficiency. The CPM for broad mass media often less than $10 as compared with over $100 for more focused and more elite media. CPM for direct mail is often more than $1000.
By way of comparison, tele-marketing may cost $10 per contact – $10,000 CPM. Personal sales calls by experienced salespeople can cost $300 each – $500,000 CPM. Marketers must decide what combination of these media and sales calls to include in their marketing programs.
As they make these decisions, marketers must also consider the number of ads to place in each medium in a given period of time, or how many sales contacts to provide in a given period. This is referred to as frequency. Marketers usually place more than one ad in a medium because a single ad may be missed by some readers or viewers, and repetition is necessary for most types of messages to be learned. In fact, many media researchers believe that at least three repeat viewings of an ad a necessary to achieve maximum effectiveness. In addition to advertisements, promotion also includes special offers of various kinds including price-off coupons and premiums. Most of these offers are directed at consumers or industrial buyers. But some promotion programs are also designed to create loyalty among wholesalers or retailers.
In general the purpose of such promotions is to induce action by providing a special reason – such as a short-term reward – to act immediately on the offer. Thus, the impact of promotions is to stimulate immediate change in behavior – which may be followed by a favorable change in knowledge, opinion and attitude. For example, a premium may be used to induce test-drives of a new car. Like any promotion, such a campaign will only be fully effective if the test-drive turns out to be so satisfying that some drivers elect to buy the car.
Advertising works differently. It seeks to change attitudes first, by providing new information. This information is intended to improve opinions and attitudes toward the product or service so that there will then be changes in behavior – increased purchase of the advertised product or service.
The Marketing Mix. One of the most useful concepts in marketing is the marketing mix – a term coined in the 1950s by Professor Neil Borden. This concept focuses on how product, price, place and promotion combine to create a single marketing program. A well chosen marketing mix is very powerful because its elements work together to support each other. Mix activities appear to be sequential. But once a marketing system is in operation, they are all going on simultaneously and they must be managed in a coordinated way.
The marketing mix is a powerful reminder that there is no single formula by which we combine or compound the elements of marketing. Rather, we make delicate mixes in which the elements add to each other, but do not lose their identities. Often one competitor may choose a blend heavy on product features, another may elect low prices; yet another may focus on broad distribution; and still another may place greater resources behind information, persuasion or triggering immediate action. The marketer’s task is to find its own best balance among these elements. In doing so, marketer’s also work with two additional sets of activities and resources: After-sale-service and people.
After-Sale-Service. After-sale-service is often a key to repeat purchases and loyalty. So marketers must balance the marketing mix to ensure that customers continue to be served well – particularly when products are complex or require periodic upgrading. It is useful to think of after-sale-service as an aspect of product – and to design products that are easy to deliver, maintain and upgrade. A product designed for zero defects, with good instructions, may not need much service. But new, unproven products, subject to unusual operating environments and operating close to the edge of their design capabilities, will need a lot more. Providing this extra service should be part of the marketing plan.
People. Marketers recognize that the development and implementation of good plans requires building a team of expert, dedicated managers. This is so important that people is often referred to as "the Fifth P".
4.The Product Life Cycle and Market Share.
When developing the marketing mix for a particular product or service, the product life cycle (PLC) is a very helpful concept. As shown in Exhibit 3, this concept defines how most new products or services start-out as innovative offering of a single supplier. In this embryonic phase there are virtually no sales. So the primary marketing emphasis is placed on making potential customers aware that these products exist. Early sales are usually made to pioneers who are willing to take the risk of early adoption.
Products then enter an early growth phase. Potential competitors notice the opportunity and enter the market. The product is refined, costs are reduced, and product standards develop. If a product is going to be successful, sales accelerate into a rapid growth phase. During this phase the product becomes highly refined, inter-brand competition becomes intense, and competitors focus on achieving high market share while the market is growing rapidly. Sales increases can still be achieved by attracting new customers rather than by taking customers away from competition.
Total sales volume eventually reaches a level where there are few new prospects left to attract, so market growth stops and most sales are replacement purchases. In this mature phase firms compete on the basis of their established reputations and brand shares, low costs, intensive distribution, heavy communications expenditures, and product specialization targeted to smaller market segments. An older product may be pushed aside by innovative new substitutes and sales may decline. Marketers develop new product or service features to expand buyer interest and offset these tendencies.
Early market leaders sometimes neglect the need to focus on their unique advantages – their USP – and to keep on making product improvements to maintain this advantage. They lose market share to competition. The PLC operates at different levels. At the brand and model level, competitors constantly introduce modest improvements in the search for short-term advantage. At the product class level the PLC focuses on product generations – with each older generation eventually being swept aside by a newer one. Thus the PLC for a product class is generally much longer than for a brand or model. Marketers manage products over the stages of the PLC for each model and they manage the transition from one generation to the next – seeking high market share in the targeted segments in each stage.
There is a great deal of experience that demonstrates the importance of high market share. High share provides the volume necessary to make a market impact and provides significant economies of scale in production, transportation, selling, advertising, promotion, and service. It reinforces the reputation of the brand. The cumulative impact of these scale economies is to make total costs at least 5% to 10% lower than competitors.
Over and above scale economies, larger share firms also have more accumulated experience. They know how to do each part of the process just a little bit better – and they make fewer mistakes – than their less-experienced competitors. This advantage can create an additional cost advantage. Combining these effects, a firm with a larger share of a given market can hope to achieve costs 10% to 20% lower than smaller competitors. This huge cost advantage can then translate into more funds for R&D and Marketing and higher profits. But this result is not automatic. Too often larger firms are complacent and waste this advantage. Good marketers realize that they cannot ever stop improving their products or marketing mix or they will lose market share and profits.
5. Contribution and Breakeven Analysis as Measures of Plans and Results.
Recent studies of the economics of successful new products show that very few breakeven in less than 3 to 5 years. Even then, if sales are growing fast, they continue to soak up new cash, above and beyond profits, to pay for this growth for 8 to 10 years or even longer. Most firms greatly underestimate this time period and are surprised when success creates an outflow of funds, rather than an inflow, for quite a long while. Therefore it is important to plan the economics of each marketing program and make sure that it can be adequately funded.
To do so marketers prepare detailed marketing plans. These plans spell out key activities, estimate the cash flow that will result, and provide the basis for ongoing measurement of progress. Contribution analysis is used to determine the profitability of each sale and breakeven analysis is used to answer this key question: "If I put new money on the table to move ahead on this proposal, what new sales will I need to get my money back?" These techniques can also be used to answer such questions as how many extra units must be sold to make the same profit as before a price cut, or how many ales will be required to justify investing in an advertising campaign.
The basic logic behind these calculations is that every time you sell an item, you incur certain variable costs such as the parts that went into the product, assembly costs, transportation costs, salesperson’s commission. Each of these costs is related directly to the item that is sold: No sale, no cost. Each item sells for more than the sum of these costs: If it sells for $10, and the variable costs total only $6, then $4 is left. This contribution is available to pay the fixed overheads of the operation – including the president's salary, other salaries, rent, heat, light, telephone, and advertising costs – and to make a profit.
Notice that none of these fixed costs relate directly to the sale of a particular item. These fixed costs must be paid whether any sales take place or not. If enough sales take place, the contribution will be great enough to recover all the fixed costs and the project will breakeven If more sales are made, there will be more contribution margin, and this will provide a profit.
In the above example, if overheads were $400 per month, you would have to sell 100 units per month – with a $4 contribution on each unit – to breakeven. If you also want a $200 per month profit, sales will have to be 50 units per month more. Sometimes it is difficult to be sure exactly what costs are fixed and which are variable. Some costs have a fixed portion and a variable portion. But with a little effort these costs can usually be pretty well defined and used as a guide to action. Exhibit 4 is a breakeven chart for the example presented above. It is a visual representation of the analysis and can be used to estimate profit or loss at any sales level.
This breakeven chart can also be utilized as a graphic representation of the marketing plan: The fixed cost area represents the planned level of fixed expenditures for rent, salaries, advertising, etc. The variable cost line represents planned costs per unit – multiplied by sales volume. It represents choices as to quality and cost of variable inputs such as manufacturing, assembly, transportation, and sales commissions. The revenue line represents the choice of price – multiplied by sales volume. A change in pricing strategy would change the slope of this line.
Now comes the hard part – estimating what the sales volume will be at the combination of costs and prices you have selected. This in turn will permit you to determine whether there will be a profit or loss, and how large it will be. Ideally one would like to have low fixed costs, low variable costs, high prices, and high unit sales. But this is a fantasy: One cannot have them all at once. So trade-offs are necessary and the breakeven chart helps in evaluating alternate plans.
6. Consumer Behavior and Market Research as the Basis for Marketing Action.
Virtually all the concepts discussed in this note are based on our current understanding of consumer behavior. Marketing action is predicated on anticipated buyer response. So marketing programs can only be as good as one’s ability to predict customer response. Our knowledge of consumers has three bases: Knowledge of ourselves as buyers, our observation of others, and formal market research. Many people are hesitant to trust the first two of these. But it is equally unwise to totally disregard your own experience. We all know a great deal from our own experience and you should not be afraid to use this knowledge.
Market research can provide broader, more detailed information about the market as a whole and about consumer behavior. The three most common types of consumer research are observation, interviews, and experiments. Observation simply means observing what is actually happening – in this case observing how customers actually shop. It can also include gathering data on grocery and drug stores distribution of many products, measures of market share, shelf price and use of in-store promotions. Some businesses and market research firms collect and sell data on the purchase behavior of panels of shoppers. Such data permit marketers to have a good picture of what is happening in the marketplace – but these data do not explain why it is happening. To understand motivation it is important to talk directly with customers.
Customer interviews take various forms. Most of you have answered pollsters' questions and read polls. Marketers conduct similar polls to learn how consumers and industrial buyers actually make purchase decisions. These interviews can be thought of as conversations with consumers, directed at determining what each consumer wants and how he or she will respond to possible future exchange offers. Interviews utilize questionnaires designed to collect information in a systematic way. This information is then used to report behavioral norms, analyze segments, and simulate the marketplace in order to predict market trends, market shares or evaluate product attributes services, advertisement, ideas, channels, prices, appeals, or media choices.
Although it is not easy to write a perfect questionnaire, a great deal of very useful information can often be obtained with a quite imperfect one. Many consumers are willing to respond and they can provide a great deal of useful insight into their past and future behavior. Respondents are not always aware, however, of all their motives or future responses. So a lot of interpretation is required to get the most out of these data. Market researchers develop skill in this kind of analysis.
Experiments are used to test hypotheses about customer behavior. They provide sophisticated and powerful tools for understanding consumer behavior. But experiments take time and are often quite expensive. Generally they can only be used to test a few variables at a time. Nonetheless experiments are often the best way to refine decisions about key marketing variables.
Marketers have also learned to treat the real world as if it were an experiment, and thereby get very specific, highly reliable information by carefully tracking what has happened in the past. For example, sales records can be used to determine how long various products various stayed in each phase of the life cycle, whether price-off offers produce large sales increases, whether sales vary with the demographics of various territories, or whether advertising and promotion campaigns produced expected results. Cost records also show economies of scale and experience. Marketers are becoming more aware of the value of using the real world as an experiment. They try out a new ad campaign in one region before going national. They distribute via a different channel in one region as a test, or use a new pricing approach in one area before rolling it out nationally. The design and analysis of such experiments is usually managed jointly by marketing managers and the market research department.
Most large companies have in-house market research departments. These departments do proprietary studies and they purchase multi-client studies from research firms that collect and sell data in standard formats. Most of these syndicated services can be bought at reasonable prices and vendors are very helpful in demonstrating how to use them. Some provide on-line, or data-base versions of their services. Where more detailed or product-specific or brand-specific data are required, one can hire a research firm to collect and process the data. In most consumer products companies there is already a large library of general market studies and studies of specific problem or issues. Such studies are less common in industrial products firms or wholesalers. So if you work for an industrial marketer you may have to build your own data base of such information over time.
Existing studies are an excellent place to start. Usually they provide data on key trends in market size, market share, product attributes, customer segmentation, and customer needs, wants, and responses to specific offers, events or appeals. If new data are needed, or if old trend data need to be kept up to date, then choices of supplier, data, approach, and presentation will have to be made. The marketing managers job includes determining precisely what facts are needed to help plan, evaluate, implement and control marketing problems, and to work with in-house or outside suppliers to obtain this information.
This note began by stating that good marketing practice is best built on the basis of the marketing concept – the concept that it is best to serve the consumer rather than trying to force the consumer to serve you. Through observation, interviewing, and experimentation, you can obtain the data to make this concept, and the other concepts in this note, workable.
7. Marketing Management and Product Management.
Many firms think of marketing as selling. Thus, they tend to overlook many of the opportunities provided by the rest of the marketing mix. Well managed firms capitalize on these opportunities at three levels: Corporate strategy: market planning, and marketing implementation.
At the corporate strategy level marketing management uses marketing concepts – particularly market segmentation and the marketing mix – to select products that are well-designed to meet the needs of high potential segments and to ensure that the mix of effort and funding provided to back these products makes sense. Top management should not be concerned with every detail of each item of the mix. But it can usefully focus on rough allocations of effort and investment, and the likely impact and success of these allocations.
At the marketing planning level, marketing managers use these ideas to ensure that its plans are well developed, fully thought through, and likely to work. Each major product or product line has its own product manager who develops the marketing plan and works with the sales and distribution team to implement it. He or she may be assisted by a team of marketing and advertising specialists.
Line marketing managers actually direct and manage day-to-day marketing activities. Once a marketing plan has been developed and set in motion, many decisions flow quite naturally from it. But it is easy to forget precisely why a particular program has been instituted, or what balance among elements has been set. When this occurs, actions meander from the desired marketing mix and eventually become ineffective and inefficient. To prevent this, marketing managers explain their marketing plan down the line so that all key people throughout the organization are working toward the same goals, using the same basic strategy and tactics. Marketing managers also establish systems of checkpoints and targets against which activity and results are monitored. They then act to correct deviations from plan.
Product managers are responsible for coordinating the efforts of all the dedicated and shared functions used by a particular product. For example: Product improvements may come from a central R&D department; manufacturing may be housed in a central assembly plant with its own centralized procurement and inventory control systems; distribution may be through an internal or external salesforce that carries numerous other products; and after-sale-service may be provided through a system of franchised service centers. At the extreme, the only dedicated function serving just the one product line may be the product manager and his or her staff.
The product manager is responsible for serving as the dedicated focal point for managing the product. He or she must coordinate and lead all the diverse contributors to its success. In this way the product manager ensures that each product has a well-developed plan and gets its fair-share of needed corporate resources to achieve its sales and profit potential. Not every firm will choose to utilize a product management approach. If not, some other technique must be employed to ensure that the marketing management functions outlined above are carried out well.
Marketing Strategies and Plans.
The seven sets of concepts discussed above provide the basic underpinnings for understanding marketing and designing, implementing, and evaluating marketing programs. Using them, you can critique and enhance marketing ideas developed by others and advance marketing ideas of your own. More sophisticated ideas and rules can be added. But these seven sets of concepts, combined with experience, provide the core elements for successful marketing management and for building marketing strategies. As you become more experienced in using these concepts you will find that you can build combinations of these elements that optimize the allocation of marketing resources – people and money – and present them in the form of effective, economic marketing plans. As shown in Exhibit 5, these plans sum up all the decisions discussed above. Such plans are critical to implementation and control and are the working tools of marketing managers that you will learn more about in marketing strategy courses.
