Chapter one: Overview of Marketing

Introduction (scope of marketing)

Many large and small organizations seek success. A myriad of factors contribute to making a
business successful - strategy, dedicated employees, good information systems, excellent
implementation. However, today's successful companies at all levels have one thing in common
- like Nike they are strongly customer-focused and heavily committed to marketing. They
motivate everyone in the organization to deliver high quality and superior value for their
customers, leading to high levels of customer satisfaction. These organizations know that if they
take care of their customers, market share and profits will follow. Marketing, more than any
other business function, deals with customers. Creating customer value and satisfaction are at the
very heart of modern marketing thinking and practice. Marketing is the delivery of customer
satisfaction at a profit. The goal of marketing is to attract new customers by promising superior
value, and to keep current customers by delivering satisfaction. Many people think that only
large companies operating in highly developed economies use marketing, but some marketing is
critical to the success of every organization, whether large or small, domestic or global. In the
business sector, marketing first spread most rapidly in consumer packaged-goods companies,
consumer durables companies and industrial equipment companies. Within the past few
decades, however, consumer service firms, especially airline, insurance and financial services
companies have also adopted modern marketing practices. You already know a lot about
marketing - it's all around you. You see the results of marketing in the abundance of products
that line the store shelves in your nearby shopping mall. You see marketing in the
advertisements that fill your TV screen, magazines and mailbox. At home, at school, where you
work, where you play - you are exposed to marketing in almost everything you do. Yet, there is
much more to marketing than meets the consumer's casual eye. Behind it all is a massive
network of people and activities competing for your attention and money

1.2. Marketing Defined

What does the term marketing mean? Marketing must be understood not in the old sense of
making a sale - 'selling' - but in the new sense of satisfying customer needs. Selling and
advertising are only the tip of the marketing iceberg. They are only two of many marketing
functions, and often not the most important ones.

If the marketer does a good job of identifying customer needs, develops products that provide
superior value, distributes and promotes them effectively, these goods will sell very easily.
Marketing is a process by which companies create value for customers and build strong customer
relationships to capture value from customers in return. Marketing is the Process by which
individuals and groups obtain what they need and want through creating and exchanging
products and value with others. We define marketing as: a social and managerial process by
which individuals and groups obtain n what they need and want through creating and

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exchanging products and value with others: More simply: Marketing is the delivery of customer
satisfaction at a profit.

Understanding the Marketplace and Customer Needs

As a first step, marketers need to understand customer’s needs and wants and the marketplace
within which they operate. We now examine five core customer and marketplace concepts: (1)
Customer needs, wants, and demands; (2) Market offerings (products, services, and experiences);
(3) Value and satisfaction; (4) Exchanges and relationships and (5) Markets

Customer Needs, Wants, and Demands

Needs: The most basic concept underlying marketing is that of human needs. A human need is a
state of felt deprivation. Marketers do not invent these needs; they are a basic part of the human
make-up. When a need is not satisfied, a person will do one of two things: look for an object that
will satisfy it; or try to reduce the need. People in industrial societies may try to find or develop
objects that will satisfy their desires. People in less developed societies may try to reduce their
desires and satisfy them with what is available.

Wants: Human wants are the form taken by human needs as they are shaped by culture and
individual personality. A hungry person in Bahrain may want a mango chutney and avocado. A
hungry person in Ethiopia may want ‘injera’. Wants are described in terms of objects that will
satisfy needs. As a society evolves, the wants of its members expand. As people are exposed to
more objects that arouse their interest and desire, producers try to provide more want-satisfying
products and services.

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Demands: When backed by an ability to pay - that are, buying power - wants become demands.
Consumers view products as bundles of benefits and choose products that give them the best
bundle for their money. Given their wants and resources, people demand products with the
benefits that add up to the most satisfaction. Understanding customer needs, wants and demands
in detail provides important input for designing marketing strategies.

Types of demand

1. Negative demand: A market is in a state of negative demand if major part of the market
dislikes the product and may even pay a price to avoid it. The marketing task, in such market
situation, is to analyze why the market dislikes the product and then try to change the attitude of
customers. This kind of marketing strategy is referred to as Conversion marketing as it involve
changing attitude of customers towards the product.

2. No demand: Target consumer may be unaware of or uninterested in the product. So, in such
circumstances, the marketing task must be to find ways to connect the benefits of the product
with the person's natural needs and interests. This kind of marketing is called Simulative
marketing as it involve stimulating customers to buy the product by making them aware of the
benefits of the product.

3. Latent demand: Many consumers may share a strong need that cannot be satisfied by an
existing product. This is a kind of good opportunity for companies. Thus, a demand state is said
to be latent (hidden) if there are no products in the market satisfying the existing need and want
of customers. In such circumstances, the marketing task is to identify and measure the size of the
potential market, examine the profitability of the market and then develop effective products that
would satisfy the demand and this strategy is called developmental marketing as it is directed to
developing a new product that can satisfy the unfulfilled needs of customers.

4. Declining demand: Every organization, sooner or later, faces declining demand for one or
more of its products. Private colleges have seen their applications fall. The marketer must
analyze the causes of market decline and determine whether demand can be re-stimulated by
finding new target markets, changing the products features, or developing more effective
communication. The marketing task is to reverse the declining demand through creative
remarking strategy of the product.

5. Irregular demand: Many organizations face demand that varies on a seasonal, daily, or even
hourly basis, causing problems of idle or overworked capacity. In cinema halls much of the seats
are idle during week days and may be insufficient during weekend days. In such circumstance,
we may see companies trying to stimulate customers to visit their facilities during the week’s
working days by using different incentives such as decreasing price, providing additional offers
etc on the working days. In the same way, they may pose some barriers in the weekend days in
order to decrease the number of arrivals so that the number of arrivals will be compatible to their
capacity such as higher prices on weekend days. Such kind of marketing task is called syncro-

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marketing, which calls to find ways to alter the pattern of demand through flexible pricing,
promotion, and other incentives. A good example might be the recently opened Cinema Hall in
Addis Ababa, Ednamol. Initially they charged relatively higher prices on all the days of the week
but after some time they learnt that the number of customers arriving to the hall on the week day
lags so much behind the number of customers arriving on the weekend days. Hence, recently
they started to systematically influence the customers’ arrival by encouraging customers arriving
on the week’s working days by charging lower prices compared to the higher price they charge
on the weekend days.

6. Full demand: Organizations face full demand when they are pleased with their volume of
business. The marketing task is to maintain the current level of demand in the face of changing
consumer preferences and increasing competition. The organization must maintain or improve
its quality and continually measure consumer satisfaction to make sure it is doing a good job
through the so-called maintenance marketing.

7. Over full demand: Some organizations face a demand level that is higher than they can or
want to handle. The marketing task, called demarkating, requires finding ways to reduce the
demand temporarily or permanently. General demarketing seeks to discourage overall demand
and consists of such steps as raising prices and reducing promotion and service. For e.g. we may
see some hotels and bars that are always overcrowded beyond their capacity increasing the price
of their service to discourage price sensitive customers in their effort to balance their demand
with their capacity

8. Unwholesome demand: Unwholesome products are a kind of products that are considered to
be harmful by major part of the society. Hence, such products will attract organized efforts to
discourage their consumption. In such cases, the marketing task is to find out ways by which the
company can cope up with such actions. The marketing strategy is called counter marketing. For
e.g. in an effort to prevent youngsters from using tobacco products, the coalition of Japanese
Tobacco producers has recently introduced an automatic machine that distribute tobacco
products only to matured individuals (greater than 20 years).

Market offerings (Product and services)

Market offerings are some combination of products, services, information, or experiences offered
to a market to satisfy a need or want. A product is anything that can be offered to a market to
satisfy a need or want. Usually, the word product suggests a physical object, such as a car, a
television set or a bar of soap. However, the concept of product is not limited to physical objects
- anything capable of satisfying a need can be called a product. In addition to tangible goods,
products include services, which are activities or benefits offered for sale that are essentially
intangible and do not result in the ownership of anything. Many sellers make the mistake of
paying more attention to the physical products they offer than to the benefits produced by these
products. They see themselves as selling a product rather than providing a solution to a need.

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Marketing myopia is focusing only on existing wants and losing sight of underlying consumer
needs.

Value, Satisfaction and Quality

How do they choose among these many products? Consumers usually face a broad array of
products and services that might satisfy a given need. Consumers make buying choices based on
their perceptions of the value that various products and services deliver. The guiding concept is
customer value. Customer value is the difference between the values the customer gains from
owning and using a product and the costs of obtaining the product. Customers often do not judge
product values and costs accurately or objectively. They act on perceived value. Customers
perceive the firm to provide faster, more reliable delivery and are hence prepared to pay the
higher prices. Customer satisfaction depends on –a product's perceived performance in
delivering value relative to a buyer's expectations. If the product's performance falls short of the
customer’s expectations, the buyer is dissatisfied. If performance matches expectations, the
buyer is satisfied. If performance exceeds expectations, the buyer is delighted. Outstanding
marketing companies go out of their way to keep their customers satisfied. Satisfied customers
make repeat purchases, and they tell others about their good experiences with the product. The
key is to match customer expectations with company performance. Smart companies aim to
delight customers by promising only what they can deliver, then delivering more than they do
promise. Customer satisfaction is closely linked to quality. In recent years, many companies have
adopted total quality management (TQM) programmes, designed constantly to improve the
quality of their products, services and marketing processes. Quality has a direct impact on
product performance, and hence on customer satisfaction In the narrowest sense, quality can be
defined as 'freedom from defects'. But most customer-centered companies go beyond this narrow
definition of quality. Instead, they define quality in terms of customer satisfaction. 'Quality has to
do something for the customer ... Our definition of a defect is "if the customer doesn't like it, it's
a defect".' Customer-focused definitions of quality suggest that a company has achieved total
quality only when its products or services meet or exceed customer expectations. Thus, the
fundamental aim of today's total quality movement has become total customer satisfaction.
Quality begins with customer needs and ends with customer satisfaction.

Exchange, Transactions and Relationships

Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is
the act of obtaining a desired object from someone by offering something in return. Exchange is
only one of many ways people can obtain a desired object. Exchange is the core concept of
marketing. For an exchange to take place, several conditions must be satisfied.

i. Of course, at least two parties must participate and each must have something of
value to offer the other.

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 ii. Each party must also want to deal with the other party and each must be free to
accept or reject the other's offer.

iii. Finally, each party must be able to communicate and deliver

These conditions simply make exchange possible. Whether exchange actually takes place
depends on the parties coming to an agreement. If they agree, we must conclude that the act of
exchange has left both of them better off or, at least, not worse off.

Who purchases goods and services? Market

Market is buyers who share a particular need or want that can be satisfied by a company’s
products or services. A market is the set of actual and potential buyers of a product. Marketing
means managing markets to bring about profitable relationships. However, creating these
relationships takes work. Sellers must search for buyers identify their needs, design good market
offerings, set prices for them, promote them, and store and deliver them. Activities such as
product development, research, communication, distribution, pricing, and service are core
marketing activities.

Designing a customer-driven marketing strategy

Once it fully understands consumers and market place, marketing management can design a
customer driven marketing strategy. Marketing management is the art and science of choosing
target markets and building profitable relationships with them. The marketing manager’s aim is
to find, attract, keep, and grow target customers by creating, delivering, and communicating
superior customer. To design a winning marketing strategy, the marketing manager must answer
two important questions:

1. What customers will we serve (what's our target market)?

2. How can we serve these customers best (what's our value proposition)?

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Selecting customers to serve: The Company must first decide who it will serve. It does it by
this by dividing the market into segments of customers (market segmentation) and selecting
which segments it will go after (target marketing). Some people think of marketing management
as finding as many customers as possible and increasing demand. But marketing managers know
that they cannot serve all customers in every way. By trying to serve all customers, they may not
serve any customers well. Instead, the company wants to select only customers that it can serve
well and profitably. Some marketers may even seek fewer customers and reduced demand. Thus
marketing managers must decide which customers they want to target and the level, timing, and
nature of their demand. Simply put, marketing management is customer management and
demand management.

Choosing a value proposition; The Company must also decide how it will serve targeted
customers, i.e. how it will differentiate and position itself in the market place. A company's value
proposition is the set of benefits or value it promises to deliver to consumers to satisfy their
needs.

Marketing Management Orientations

Marketing management wants to design strategies that will build profitable relationships with
target consumers. But what philosophy should guide these marketing strategies? What weight
should be given to the interests of customers, the organization, and society? Often, these interests
conflict. There are five alternative concepts under which organizations design and carry out their
marketing strategies. These are production concept, product concept, selling concept, marketing
and societal concept.

The Production Concept:

The production concept holds that consumers will favor products that are available and highly
affordable, and that management should therefore focus on improving production and
distribution efficiency. This concept is one of the oldest philosophies that guide sellers. The
production concept is a useful philosophy in two types of situation. The first occurs when the
demand for a product exceeds the supply. Here, management should look for ways to increase
production. The second situation occurs when the product's cost is too high and improved
productivity is needed to bring it down

The Product Concept

Another important concept guiding sellers, the product concept, holds that consumers will favour
products that offer the most quality, performance and innovative features, and that an
organization should thus devote energy to making continuous product improvements. The
product concept also can lead to 'marketing myopia'.

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The Selling Concept: Holds that consumer will not buy enough of the organization's products
unless it undertakes a large-scale selling and promotion effort. The concept is typically practiced
with unsought goods - those that buyers do not normally think of buying, such as encyclopedias
and funeral plots. These industries must be good at tracking down prospects and convincing
them of product benefits. The selling concept is also practiced in the non-profit area. Most firms
practice the selling concept when they have overcapacity. Their aim is to sell what they make
rather than make what the market wants. Thus marketing based on hard selling carries high risks.
It focuses on short-term results -creating sales transactions - rather than on building long-term,
profitable relationships with customers. It assumes that customers who are coaxed into buying
the product will like it. Or, if they don't like it, they may forget their disappointment and buy it
again later. These are usually poor assumptions to make about buyers.

The Marketing Concept

The marketing concept holds that achieving organizational goals depends on determining the
needs and wants of target markets and delivering the desired satisfactions more effectively and
efficiently than competitors do. Surprisingly, this concept is a relatively recent business
philosophy.The selling concept and the marketing concept are frequently confused.

The above figure compares the two concepts. The selling concept takes an inside- out
perspective. It starts with the factory, focuses on the company's existing products and calls for
heavy selling and promotion to obtain profitable sales. It focuses on customer conquest - getting
short-term sales with little concern about who buys or why. In contrast, the marketing concept
takes an outside-in perspective. It starts with a well-defined market, focuses on customer needs,
co-ordinates all the marketing activities affecting customers and makes profits by creating long-
term customer relationships based on customer value and satisfaction. Under marketing concept,
companies produce what consumers want, thereby satisfying consumers and making profits.

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However, the marketing concept does not mean that a company should try to give all consumers
everything they want. Marketers must balance creating more value for customers against making
profits for the company: As one marketing expert notes, 'The purpose of marketing is not to
maximize customer satisfaction. The shortest definition of marketing I know is "meeting needs
profitably". The purpose of marketing is to generate customer value (at a profit]. The truth is
[that the relationship with a customer] will break up if value evaporates. You've got to continue
to generate more value for the consumer but not give away the house. It's a very delicate
balance.'

Comparison of selling and marketing orientation

Selling concept Marketing concept

Emphasis is on the product Emphasis on consumer needs wants.

Company manufactures the product first Company first determines customers’ needs and wants
and then decides out how to deliver a product to satisfy
these wants.
Management is sales volume oriented Management is profit oriented.

Planning is short-run-oriented in terms of today’s Planning is long-run-oriented in today’s products and

terms of new products, tomorrow’s markets and future
products and markets. growth
Stresses needs of seller. Stresses needs and wants of buyers.
Cost determines Price. Consumer determine price, price determines cost.
Selling views customer as a last link in business Marketing views the customer last link in business as the
very purpose of the business
Views business as a good producing process. Views business as consumer producing process
satisfying process.
Emphasis on staying with existing technology and Emphasis on innovation on every existing technology
reducing costs. and reducing every sphere, on providing better costs
value to the customer by adopting a superior
technology.
Different departments work as in a highly separate water All departments of the business integrated manner, the
tight compartments
sole purpose being generation of consumer satisfaction.

Societal Marketing Concept

The societal marketing concept holds that marketing strategy should deliver value to customers
in a way that maintain or improves both the consumers and the society well being. The societal
marketing concept calls upon marketers to balance three considerations in setting their marketing
policies: company profits, consumer wants and society's interests. Originally, most companies

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based their marketing decisions largely on short-run company profit. Eventually, they began to
recognize the long-run importance of satisfying consumer wants, and the marketing concept
emerged. Now many companies are beginning to think of society's interests when making their
marketing decisions. In addition, the company supports many community and employee
programs that benefit its consumers and workers, and the environment

Preparing an integrated marketing plan and program

The company’s marketing strategy outlines which customers the company will serve and how it
will create value for these customers. Next, the marketer develops an integrated marketing
program that will actually deliver the intended value to target customers. The marketing program
builds customer relationships by transforming the marketing strategy into action. It consists of
the firms marketing mix, the set of marketing tools the firm uses to implement its marketing
strategy. The major marketing mix tools are classified in to four broad groups, called the four Ps
of marketing: product, price, place, and promotion. To deliver on its value proposition, the firm
must first create a need satisfying market offering (product). It must decide how much it will
charge for the offer (price). How it will make the offer available to target consumers (place).
Finally, it must communicate with target customers about the offer and persuade them of its
merits (promotion). The firm must blend all of these marketing mix tools in to a comprehensive,
integrated marketing program that communicates and delivers the intended value to chosen
customers.

Building customer relationships

The first three steps in the marketing process

i. Understanding the market place and customers needs

ii. Designing a customer driven marketing strategy, and

iii. constructing marketing programs (all lead up to the fourth and most
important step

iv. Building profitable customer relationships

v. Capturing value from customers

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Customer relationships management

The most important concept of modern marketing is customer relationships management.

Customer relationship management is the over all process of building and maintaining profitable
customer relations by delivering superior customer value and satisfaction.

Relationships building blocks

The key to building lasting customer relationships is

i. Customer value

ii. satisfaction

Customer value: A customer buys from the firm that offers the highest customer perceived
value. Customer perceived value is the customer’s evaluation of the difference between all the
benefits and all the costs of a market offering relative to those of competing offers. Customers
will select the brand that gives them the greatest perceived value. Customers often do not judge
product values and costs accurately or objectively, because they act on perceived value.

Customer satisfaction

Customer satisfaction is the extent to which a products perceived performance matches a buyers
expectation. If the products performance falls short of expectations, the customer is dissatisfied.
If performance matches expectations, the customer is satisfied. If performance exceeds
expectations the customer is delighted. Outstanding marketing companies go out of their way to
keep important customers satisfied.

Capturing value from customers

The final step involves capturing value in return, in the form of current and future sales, market
share, and profits. By creating superior customer value, the firm creates highly satisfied
customers who stay loyal and buy more. This, in turn, means greater long run returns for the
firm. Outcomes of creating customer value

i. Customer loyalty and retention

ii. Share of market and share of customer and

iii. Customer equity

Creating Customer loyalty and retention

Good customer relationship management creates customer delight. Delighted customers remain
loyal and talk favorably to others about the company and its product. The aim of customer
relationship management is to create not just customer satisfaction, but customer delight.

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Companies are realizing that losing a customer means losing more than a single sale. It means
losing the entire stream of purchases that the customer would make over a lifetime of patronage.
Customer lifetime value: the value of the entire stream of purchases that a customer would make
over a lifetime of the patronage.

Growing share of customer

Beyond simply retaining good customers to capture customer lifetime value, good customer
relationship management can help marketers to increase their share of customer. Share of
customer: the portion of customers purchasing that a company gets in its product categories.

Building customer equity

Companies want to not only to create profitable customers, but to “own” them for life, capture
their customer lifetime value, and earn a greater share of their purchases. The ultimate aim of
customer’s relationship management is to produce high customer equity. Customer equity is the
combined discounted customer lifetime values of all the company’s current and potential
customers‘. Or customer equity means the total combined customer lifetime values of all the
company’s customers. Clearly, the more loyal the firm’s profitable customer’s, the higher the
firms customer equity. Customer equity may be a better measure of performance that current
sales or market share. Whereas sales and market share reflect the past, customer equity suggests
the future.

Building the right relationships with the right customers

Companies should manage customer equity carefully. They should view customers as assets that
need to be managed and maximized. But not all customers, not even all loyal customers, are
good investments. Surprisingly, some loyal customers can be unprofitable, and some disloyal
customers can be profitable. Which customers should the company acquire and retain? Keep the
consistent big spenders and lose the erratic small spenders, “says one expert” The company can
classify customers according to their potential profitability and manage its relationship with them
accordingly. Customers are classified in to four according to their profitability and projected
loyalty.

i. Strangers

ii. Butterflies

iii. True friends

iv. barnacles

Each group requires different relationship management strategies.

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Strangers: shows low profitability and little projected loyalty. There is little fit between the
company’s offering and their needs. The relationships management strategy for these customers
is simple: don’t invest anything in them.

Butterflies: are profitable but not loyal. There is a good fit between the company’s offering and
their needs. However, like real butterflies, we can enjoy them for only a short while and then
they were gone. Efforts to convert butterflies in to loyal customers are rarely successful. Instead,
the company should enjoy the butterflies for the moment. It should use promotional blitzes to
attract them, create satisfying and profitable transactions with them and then cease investing in
them until the next time round.

True friends: are both profitable and loyal. There is a good fit between their needs and the
company’s offerings. The firm wants to make continuous relationship investment to delight these
customers and nurture, retain, and grow them. It wants to turn true friends in to true believers,
who come back regularly and tell others about their good experiences with the company.

Barnacles: are highly loyal but not very profitable. There is a limited fit between their needs and
the company’s offerings. Barnacles are perhaps the most problematic customers. The company
might be able to improve their profitability by selling them more, raising their fees, or reducing
service to them. However, if they cannot be made profitable, they should be fired. The point here
is an important one: Different types of customers require different relationship management
strategies. The goal is to build the right relationships with the right customers.

The New Marketing Landscape

Major Developments

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