Marketing Management Chapter 1

Chapter One
An Overview of Marketing and Marketing Management

Chapter Objectives
At the end of this chapter you will be able to:
 Define what marketing is and what marketing management is
 Identify what might be marketed by marketers
 Differentiate between marketers and prospects
 Discuss the different states of demand in marketing products
 Discuss the different philosophies of marketing
 Explain the fundamental concepts of marketing
 Describe the shifts in marketing management
 Explain the tasks involved in marketing management
 Describe the different utilities created by marketing

1.1 The Scope of Marketing

To prepare to study marketing or to be a marketer, we need to

understand what marketing is, how it works, what is marketed, and who
does the marketing, the following discussion deals with these issues.

What Is Marketing?

Marketing deals with identifying and meeting human and social needs.
One of the shortest definitions of marketing is "meeting needs profitably."

The American Marketing Association also offers the following formal

definition: Marketing is an organizational function and a set of processes
for creating, communicating, and delivering value to customers and for
managing customer relationships in ways that benefit the organization
and its stake holders. Coping with exchange processes calls for a
considerable amount of work and skill. Marketing management takes
place when at least one party to a potential exchange thinks about the
means of achieving desired responses from other parties. We see
marketing management as the art and science of choosing target
markets and getting, keeping, and growing customers through creating,
delivering, and communicating superior customer value.

We can distinguish between a social and a managerial definition of

marketing. A social definition shows the role marketing plays in society.
One marketer said that marketing's role is to "deliver a higher standard
of living." Here is a social definition that serves our purpose: Marketing is
a societal process by which individuals and groups obtain what they need

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and want through creating, offering, and freely exchanging products and
services of value with others. For a managerial definition, marketing has
often been described as "the art of selling products," but people are
surprised when they hear that the most important part of marketing is
not selling! Selling is only the tip of the marketing iceberg. Peter Drucker,
a leading management theorist, puts it this way:

There will always, one can assume, the need for some selling. But the
aim of marketing is to make selling superfluous. The aim of marketing is
to know and understand the customer so well that the product or service
fits him/her and sells itself. Ideally, marketing should result in a
customer who is ready to buy. All that should be needed then is to make
the product or service available.

What Is Marketed?

Marketing people are involved in marketing 10 types of entities: goods,

services, experiences, events, persons, places, properties, organizations,
information, and ideas.

Goods Physical goods constitute the bulk of most countries' production

and marketing effort.

Services As economies advance, a growing proportion of their activities

is focused on the production of services. Services include the work of
airlines, hotels, car rented firms, barbers and beauticians, maintenance
and repair people, as well as professionals working within or for
companies, such as accountants, bankers, lawyers, engineers, doctors,
software programmers, and management consultants. Many market
offerings consist of a variable mix of goods and services. At a fast-food
restaurant, for example, the customer consumes both a product and a
service.

Events Marketers promote time-based events, such as major trade

shows, artistic performances, and company anniversaries. Global
sporting events such as the Olympics or World Cup are promoted
aggressively to both companies and fans. There is a whole profession of
meeting planners who work out the details of an event and make sure it
comes off perfectly.

Experiences By orchestrating several services and goods, a firm can

create, stage, and market experiences.

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Persons Celebrity marketing is a major business. These days, athletes,

artists, musicians, and other professionals are getting help from celebrity
marketers.

Places Cities, states, regions, and whole nations compete actively to

attract tourists, factories, company headquarters, and new residents.
Place marketers include economic development specialists, real estate
agents, commercial banks, local business associations, and advertising
and public relations agencies.

Properties Properties are intangible rights of ownership of either real

property (real estate) or financial property (stocks and bonds). Properties
are bought and sold, and this requires marketing. Real estate agents
work for property owners or sellers or buy residential or commercial real
estate. Investment companies and banks are involved in marketing secu-
rities to both institutional and individual investors.

Organizations Organizations actively work to build a strong, favorable,

and unique image in the minds of their target publics. Companies spend
money on corporate identity ads. Universities, museums, performing arts
organizations, and non-profits all use marketing to boost their public
images and to compete for audiences and funds.

Information Information can be produced and marketed as a product.

This is essentially what schools and universities produce and distribute
at a price to parents, students, and communities. Encyclopedias and
most nonfiction books market information.
Ideas Every market offering includes a basic idea.

Who Markets?

Marketers and Prospects: A marketer is someone who seeks a response

(attention, a purchase, a vote, a donation) from another party, called the
prospect. If two parties are seeking to sell something to each other, we
call them both marketers.

Marketers are skilled in stimulating demand for a company's products,

but this is too limited view of the tasks they perform. Just as production
and logistics professionals are responsible for supply management,
marketers are responsible for demand management. Marketing managers
seek to influence the level, timing, and composition of demand to meet
the organization's objectives. Eight demand states are possible:

1. Negative demand - Consumers dislike the product and may even

pay a price to avoid it.

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2. Nonexistent demand - Consumers may be unaware or uninterested

in the product.
3. Latent demand - Consumers may share a strong need that cannot
be satisfied by an existing product.
4. Declining demand - Consumers begin to buy the product less
frequently or not at all.
5. Irregular demand - Consumer purchases vary on a seasonal,
monthly, weekly, daily, or even hourly basis.
6. Full demand - Consumers are adequately buying all products put
into the marketplace.
7. Overfull demand - More consumers would like to buy the product
than can be satisfied.

In each case, marketers must identify the underlying cause (s) of the
demand state and then determine a plan for action to shift the demand
to a more desired state.

1.2 Marketing Management Philosophies

Marketing activities should be carried out under some philosophy. There

are five competing concepts under which organizations conduct their
marketing activity.

1. The Production Concept

The Production Concept is one of the oldest concepts in business. It holds
that consumers will favor products that are available and highly
affordable. Managers of Production oriented businesses concentrate on
achieving high production efficiency, low cost and mass distribution.

This concept is appropriate in two types of situations:

 When demand is higher than supply; and
 When improved productivity is needed to bring high costs
down.

2. The Product Concept

The Product Concept holds that consumers will favor products that offer
the most quality, performance, and features. Managers in these
organizations focus on making superior products and improving them
over time.

3. The Selling Concept

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The Selling Concept holds that consumers will not buy enough of the
organization's products unless the organization undertakes a large
selling and promotion effort.
The selling concept is practiced most aggressively with unsought goods,
goods that buyers normally do not think of buying, such as insurance

4. The Marketing Concept

The marketing concept emerged in the mid-1950s. Instead of a product-
centered, “make-and-sell” philosophy, business shifted to a customer-
centered, “sense-and-respond” philosophy. The job is not to find the right
customers to your products, but the right products for your customers.

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.
This concept focuses on the buyer rather than the seller. The marketing
concept is practiced more in consumer goods comprise than in
industrial- goods companies and more in large companies than in
smaller companies.

5. The Holistic Marketing Concept

The holistic marketing concept is based on the development, design, and
implementation of marketing programs, processes and activities that
recognizes their breadth and interdependencies. Holistic marketing
recognizes that “everything matters” with marketing and that a broad,
integrated perspective is often necessary. Four components of holistic
marketing are:

i. Relationship Marketing
Relationship marketing has the aim of building mutually satisfying long-
term relationship with key parties – customers, suppliers, distributors,
and other marketing partners.

ii. Integrated Marketing

The marketer’s task is to devise marketing actvities and assemble fully
integrated marketing programs to create, communicate and deliver value
for consumer. Therefore, the aim of integrated marketing is integrating
the marketing mix elements so as to create, communicate and deliver the
needed value for customers.

iii. Internal Marketing

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Internal marketing ensures that everyone in the organization adopts

appropriate marketing principles and the top management should see it
happen. This is the management task of hiring, training & motivating the
employees to serve the customers well. Smart & successful companies
understand that there is as much activity outside the company as inside.
For it makes no sense to promise excellent services before the company’s
service staff is ready to provide.

Internal marketing requires that everyone in the organization buy into

the concepts & goals of marketing, and engage themselves in selecting,
creating, communicating & delivering customer value. Only when all the
employees realize that their jobs are to create, serve & satisfy the
customers does the company become an effective marketer.

iv. Social Responsibility Marketing

Holistic marketing incorporates social responsibility marketing. This
involves broader concerns of the society at large, like social, legal, ethical
& environmental in the context of marketing activities. Companies
operate in a society, and so do their customers and hence they should
never forget its contribution to the company. It requires that marketers
carefully consider the role they are playing in terms of social welfare.
Companies need to evaluate whether they are truly practicing ethical &
socially responsible marketing. 

1.3 Fundamental Marketing Concepts, Trends, and Tasks

1.3.1 Fundamental Concepts in Marketing

Needs
The most basic concept underlying marketing is that of human needs. A
human need is a state of felt deprivation in a person. Human lane many
complex needs. They include basic physical needs for food, clothing,
warmth and safety; social needs for belonging and affections and
individual needs for knowledge and self-expression.

Wants
A Second basic concept in marketing is that of human wants, which are
the form human needs take as shaped by culture and individual
personality. Wants are described in terms of objects that will satisfy a
need. As society develops, the wants of its members expand.

Demands

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People have almost unlimited wants but limited resources. They

therefore choose products that produce the most satisfaction for their
many. When backed by buying power, wants become demands.

Exchange and Transactions

A person can obtain a product in one of four ways. One can self-produce
the product or service, as when one hunts, fishes, or gathers fruit. One
can use force to get a product, as in a holdup or burglary. One can beg,
as happens when a homeless person asks for food; or one can offer a
product, a service, or money in exchange for something he or she
desires.

Exchange, which is the core concept of marketing, is the process of

obtaining a desired product from someone by offering something in
return. For exchange potential to exist, five conditions must be satisfied:
1. There are at least two parties.
2. Each party has something that might be of value to the other party.
3. Each party is capable of communication and delivery.
4. Each party is free to accept or reject the exchange offer.
5. Each party believes it is appropriate or desirable to deal with the other
party.

Whether exchange actually takes place depends on whether the two

parties can agree on terms that will leave them both better off (or at least
not worse off) than before. Exchange is a value-creating process because
it normally leaves both parties better off.

Two parties are engaged in exchange if they are negotiating—trying to

arrive at mutually agreeable terms. When an agreement is reached, we
say that a transaction takes place. A transaction is a trade of values
between two or more parties: A gives X to B and receives Y in return.
Abera sells Demeke a television set and Demeke pays Birr 400 to Abera.
This is a classic monetary transaction; but transactions do not require
money as one of the traded values. A barter transaction involves trading
goods or services for other goods or services.

A transaction involves several dimensions: at least two things of value,

agreed-upon conditions, a time of agreement, and a place of agreement.
A legal system supports and enforces compliance on the part of the
transactors. Without a law of contracts, people would approach
transactions with some distrust, and everyone would lose.

Target Markets, Positioning, And Segmentation

A marketer can rarely satisfy everyone in a market. Not everyone likes
the same cereal, hotel room, restaurant, automobile, college, or movie.

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Therefore, marketers start by dividing up the market into segments. They

identify and profile distinct groups of buyers who might prefer or require
varying product and services mixes by examining demographic,
psychographic, and behavioral differences among buyers. The marketer
then decides which segments present the greatest opportunity-which are
its target markets. For each chosen target market, the firm develops a
market offering. The offering is positioned in the minds of the target
buyers as delivering some central benefit(s). Companies do best when
they choose their target market(s) carefully and prepare tailored
marketing programs.

Offerings and Brands

Companies address needs by putting forth a value proposition, a set of
benefits they offer to customers to satisfy their needs. The intangible
value proposition is made physical by an offering, which can be a
combination of products, services, information, and experiences.

A brand is an offering from a known source. A brand name can carry

many associations in the minds of people. These associations make up
the brand image. All companies strive to build brand strength-that is, a
strong, favorable, and unique brand image.

Value and Satisfaction

The offering will be successful if it delivers value and satisfaction to the
target buyer. The buyer chooses between different offerings on the basis
of which is perceived to deliver the most value. Value reflects the
perceived tangible and intangible benefits and costs to customers. Value
can be seen as primarily a combination of quality, service, and price
(qsp), called the "customer value triad."

Value is a central marketing concept. Marketing can be seen as the

identification, creation, communication, delivery, and monitoring of
customer value. Satisfaction reflects a person's comparative judgments
resulting from a product's perceived performance (or outcome) in relation
to his or her expectations- If the performance falls short of expectations,
the customer is dissatisfied and disappointed. If the performance
matches the expectations, the customer is satisfied. If the performance
exceeds expectations, the customer is highly satisfied or delighted.

Marketing Channels
To reach a target market, the marketer uses three kinds of marketing
channels. Communication channels deliver and receive messages from
target buyers, and include newspapers, magazines, radio, television,
mail, telephone, billboards, posters, fliers, CDs, audiotapes, and the
Internet. Beyond these, communications are conveyed by facial

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expressions and clothing, the look of retail stores, and many other
media. Marketers are increasingly adding dialogue channels (e-mail and
toll-free numbers) to counterbalance the more normal monologue
channels (such as ads).

The marketer uses distribution channels to display, sell, or deliver the

physical product or service(s) to the buyer or user. They include
distributors, wholesalers, retailers, and agents.

The marketer also uses service channels to carry out transactions with
potential buyers. Service channels include warehouses, transportation
companies, banks, and insurance companies that facilitate transactions.
Marketers clearly face a design problem in choosing the best mix of
communication, distribution, and service channels for their offerings.

Supply Chain
Whereas marketing channels connect the marketer to the target buyers,
the supply chain describes a longer channel stretching from raw
materials to components to final products that are carried to final
buyers. The supply chain represents a value delivery system. Each
company captures only a certain percentage of the total value generated
by the supply chain. When a company acquires competitors or moves
upstream or downstream, its aim is to capture a higher percentage of
supply chain value.

Competition
Competition includes all the actual and potential rival offerings and
substitutes that a buyer might consider.

Marketing Environment
Competition represents only one force in the environment in which the
marketer operates. The marketing environment consists of the task
environment and the broad environment.

The task environment includes the immediate actors involved in

producing, distributing, and promoting the offering. The main actors are
the company, suppliers, distributors, dealers, and the target customers.
Included in the supplier group are material suppliers and service
suppliers such as marketing research agencies, advertising agencies,
banking and insurance companies, transportation companies, and
telecommunications companies. Included with distributors and dealers
are agents, brokers, manufacturer representatives, and others who
facilitate finding and selling to customers.

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The broad environment consists of six components; demographic

environment, economic environment, physical environment,
technological environment, political-legal environment, and social-
cultural environment. These environments contain forces that can have a
major impact on the actors in the task environment. Market actors must
pay close attention to the trends and developments in these
environments and make timely adjustments to their marketing
strategies. (This topic will be discussed in the second chapter of this
course)

Marketing Planning
In practice, there is a logical process that marketing follows. The
marketing planning process consists of analyzing marketing
opportunities; selecting target markets; designing marketing strategies;
developing marketing programs; and managing the marketing effort.

1.3.2 Shifts/Current Trends in Marketing Management

A number of important trends and forces are eliciting a new set of beliefs
and practices on the part of business firms. Marketers are fundamentally
rethinking their philosophies, concepts, and tools. Here are 14 major
shifts in marketing management that smart companies have been
making in the twenty-first century. Successful companies will be those
who can keep their marketing changing with the changes in their
marketplace.

From Marketing Does the Marketing to Everyone Does the

Marketing
Companies generally establish a marketing department to be responsible
for creating and delivering customer value. But Companies these days
know that marketing is not done only by marketing, sales, and customer
support personnel; every employee has an impact on the customer and
must see the customer as the source of the company's prosperity.
Consequently, companies are beginning to emphasize interdepartmental
teamwork to manage key processes. More emphasis is also being placed
on the smooth management of core business processes, such as new-
product realization, customer acquisition and retention, and order
fulfillment.

From Organizing By Product Units to Organizing By Customer

Segments
Some companies are now switching from being solely product -centered
with product managers and product divisions to manage them to being
more customer-segment -centered.

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From Making Everything to Buying More Goods and Services From

Outside
More companies are choosing to own brands rather than physical assets.
Companies are also increasingly subcontracting activities to outsourcing
firms. Their saying: Outsource those activities that others can do more
cheaply and better, but retain core activities.

From Using Many Suppliers to Working with Fewer Suppliers in a

Partnership
Companies are deepening partnering arrangements with key suppliers
and distributors. Such companies have shifted from thinking of
intermediaries as customers to treating them as partners in delivering
value to final customers.

From Relying On Old Market Positions to Uncovering New Ones

In highly competitive marketplaces, companies must always be moving
forward with marketing programs, innovating products and services, and
staying in touch with customer needs. Companies must always be
seeking new advantages rather than just relying on their past strengths.

From Emphasizing Tangible Assets to Emphasizing Intangible Assets

Companies are recognizing that much of their market value comes from
intangible assets, particularly their brands, customer base, employees,
distributor and supplier relations, and intellectual capital.

From Building Brands through Advertising to Building Brands

through Performance and Integrated Communications
Marketers are moving from an over reliance on one communication tool
such as advertising or sales force to blending several tools to deliver a
consistent brand image to customers at every brand contact.

From Attracting Customers through Stores and Salespeople to

Making Products Available Online
Consumers can access pictures of products, read the specs, shop among
online vendors for the best prices and terms, and click to order and pay.
Business-to-business purchasing is growing fast on the Internet.
Personal selling can increasingly be conducted electronically, with buyer
and seller seeing each other on their computer screens in real time.

From Selling To Everyone to Trying To Be the Best Firm Serving

Well Defined Target Markets
Target marketing is being facilitated by the proliferation of special-
interest magazines, TV channels, and Internet newsgroups. Companies
are also making substantial investments in information systems as the
key to lowering costs and gaining a competitive edge. They are

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assembling information about individual customers' purchases,

preferences, demographics, and profitability.
From Focusing On Profitable Transactions to Focusing On
Customer Lifetime Value
Companies normally would aim to make a profit on each transaction.
Now companies are focusing on their most profitable customers,
products, and channels. They estimate individual customer lifetime
value and design market offerings and prices to make a profit over the
customer's lifetime. Companies now are placing much more emphasis
on customer retention, Attracting a new customer may cost five times
as much as doing a good job to retain existing customers.
From A Focus on Gaining Market Share to a Focus on Building
Customer Share
A bank aims to increase its share of the customer's wallet; the super
market aims to capture a larger share of the customer's "stomach."
Companies build customer share by offering a larger variety of goods to
existing customers. They train their employees in cross-selling and up-
selling.
From Being Local to Being "Glocal"-Both Global and Local
Firms are adopting a combination of centralization and
decentralization to better balance local adaptation and global
standardization. The goal is to encourage more initiative and
"entrepreneurship" at the local level, while preserving the necessary
global guidelines and standards.
From Focusing On the Financial Scorecard to Focusing On the
Marketing Scorecard
Top management is going beyond sales revenue alone to examine the
marketing scorecard to interpret what is happening to market share,
customer loss rate, customer satisfaction, product quality, and other
measures. They know that changes in marketing indicators predict
changes in financial results.
From Focusing On Shareholders to Focusing On Stakeholders
Top management respects the importance of creating co-prosperity
among all business partners and customers. These managers develop
policies and strategies to balance the returns to all the key stakeholders.
1.3.3 Marketing Management Tasks
The core concepts discussed above and others provide the input for a set
of tasks that make-up successful marketing management. The set of
tasks necessary for successful marketing management includes the
following:
 Developing Marketing Strategies and plans- involves identifying a
firm’s potential long-run opportunities and developing concrete

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marketing plans that specify the marketing strategy and tactics

going forward.
 Capturing Marketing Insights- Involves understanding what is
happening inside and outside the organization through reliable
marketing information system and closely monitoring the
marketing environment.
 Connecting the Customers-This involves considering how to best
create value for a firm’s chosen target market and developing
strong, profitable, long-term relationship with customers.
 Building Strong Brands-
 Shaping the market offerings - At the heart of the marketing
program is the product- the firm’s tangible offerings to the market,
which includes the product quality, design, features, and
packaging.
 Delivering Value- This involves determining the how to properly
deliver value embodied by the products and services to the target
market.
 Communicating value- This involves adequately communicating
the value embodied by a firm’s products and services to the target
market.
 Creating Long-term Growth- This involves taking a long-term view
of a firm’s products and brands and how profits should be grown.

1.4 Creating economic utilities

Economic utilities are created through the interrelated processes of
production and marketing.

"Utility" can be defined as the ability (power) of a product to satisfy

consumer's needs. Four basic types of utilities can be created:
1) Form Utility
Form Utility is associated basically with production, i.e. the
physical or chemical changes that make a product more valuable
and need satisfying.
2) Time Utility
Time Utility is created by making the product available when the
customer wants it.
3) Place Utility
Place Utility is created when a product is readily accessible to
potential customers. Place utility is provided by having the
product where the customer wants it.
4) Possession Utility

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Possession Utility is created when a customer buys the product.

When a customer pays money and transfer the product to himself,
possession utility is said to the established.

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