What Is Marketing?
Objective 11-1 Explain the concept of marketing and identify the five forces that constitute the external marketing environment.
As consumers, we are influenced by the marketing activities of people like Michelle Phan and by companies like L’Oreal, Apple, and Pizza Hut that want us to buy their products rather than those of their competitors. Being consumers makes us the essential ingredients in the marketing process. Every day, we express needs for such essentials as food, clothing, and shelter and wants for such nonessentials as entertainment and leisure activities. Our needs and wants are major forces that drive marketing.
What comes to mind when you think of marketing? Most of us think of marketing as advertisements for products like fast foods, movies, soft drinks, and cars. Marketing, however, actually encompasses a much wider range of activities. The American Marketing Association defines marketing as “activities, a set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”2 To see this definition in action, we’ll continue this chapter by looking at some marketing basics, including the ways marketers build relationships with customers. We’ll then examine forces that constitute the external marketing environment, followed by marketing strategy, the marketing plan, and the components of the marketing mix. We’ll then discuss market segmentation and how it is used in target marketing. Next, we’ll examine marketing research, followed by a look at key factors that influence the buying processes of consumers and industrial buyers. Finally, we’ll consider the marketing mix for small business and then go beyond domestic borders to explore the international marketing mix.
Delivering Value
What causes buyers to purchase one product instead of another? Although our desires for the wide variety of available goods and services may be almost limitless, in most cases our financial resources are not and so we have to be selective. Accordingly, customers usually try to buy products that offer the best value when it comes to meeting their needs and wants.
Value and Benefits
The value of a product refers to its comparative benefits versus costs. Benefits, in turn, include not only the functions of the product but also the emotional satisfaction associated with owning, experiencing, or possessing it. For instance, a pair of $40 basketball shoes from Walmart may be perfectly adequate for most recreational players but many people still spend much more for the latest version of Jordan, LeBron, Durant, or Kyrie endorsed shoes because of their style or cache. But every product also has costs, including the sales price, the buyer’s time finding the product, and even the emotional costs of making a purchase decision (such as deciding which pair of basketball shoes to buy). A satisfied customer perceives the benefits derived from the purchase to be greater than its costs. Thus, the simple but important ratio for value is derived as follows:
The marketing strategies of leading firms focus on increasing value for customers. Marketing resources are deployed to add benefits and/or decrease costs of products to provide greater value. To satisfy customers, a company may do the following:
Develop an entirely new product that performs better (provides greater performance benefits) than existing products.
Keep a store open longer hours during a busy season (adding the benefit of greater shopping convenience).
Offer price reductions (the benefit of lower costs).
Offer information that explains how a product can be used in new ways (the benefit of new uses at no added cost).
Value and Utility
To understand how marketing creates value for customers, we need to know the kind of benefits that buyers get from a firm’s goods or services. As we discussed in Chapter 7 , t hose benefits provide customers with utility, the ability of a product to satisfy a person’s wants or needs. Think about the competitive marketing efforts for Microsoft’s Xbox series and those for Sony’s competing PlayStation game consoles. In both companies, marketing strives to provide four kinds of utility in the following ways:
Form utility. Marketing has a voice in designing products with features that customers want. Microsoft’s Xbox One features Kinect technology (voice- and motion-detecting software) and can record a video of your game. Sony’s newest Playstation 4 (PS 4) touts a controller with a six-axis sensor.
Time utility. Marketing creates a time utility by providing products when customers will want them. Both Sony and Microsoft create Internet buzz and rumors among gamers by hinting at upcoming release dates without mentioning specifics.
Place utility. Marketing creates a place utility by making products easily accessible—by making products available where customers will want them. Xbox One and PS 4 are available online at Amazon.com and at many brick-and-mortar retailers such as Best Buy and Target. Both also offer online networks as well.
Possession utility. Marketing creates a possession utility by transferring product ownership to customers by setting selling prices, setting terms for customer credit payments, if needed, and providing ownership documents. Hints about prices from both companies have fueled rumors: Xbox One sells for around $350, while the PS 4 runs about $400.
As you can imagine, marketing responsibilities at Microsoft and Sony are extremely challenging in such a competitive arena, and the stakes are high. Because they determine product features, and the timing, place, and terms of sale that provide utility and add value for customers, marketers must anticipate customers’ wants and needs well in advance of actual product launches. And in today’s rapidly changing environment, businesses must also be prepared to quickly adapt to fads and shifting wants and needs. Marketing methods for creating utility are described in this and the following two chapters.
Goods, Services, and Ideas
As consumers, we encounter the marketing of tangible goods virtually everywhere we look—on social media and other online sites, on television, in magazines, along the highways and roadsides, on store fronts, in sports arenas, and in our mailboxes. Marketing actually applies to two types of customers: those who buy consumer goods and those who buy industrial goods. In a department store, a salesperson may ask if you’d like to try a new cologne. On your social media account, a popup ad may promote a new sports drink. A television ad from a pharmaceutical company may proclaim the virtues of its new cold medicine. Your local auto dealer may offer an economy car at a discounted price. These products are all consumer goods, tangible goods that you, the consumer, may buy for personal use. Firms that sell goods to consumers for personal consumption are engaged in consumer marketing, also known as business-to-consumer (B2C) marketing.
Marketing also applies to industrial goods, physical items used by companies to produce other products. Surgical instruments and bulldozers are industrial goods, as are machine components and parts and raw materials such as integrated circuits, steel beams, coffee beans, and plastic tubing. Firms that sell goods to other companies are engaged in industrial marketing, also known as business-to-business (B2B) marketing.
But marketing techniques are also applied to services, products with intangible (nonphysical) features, such as professional advice, timely information for decisions, or arrangements for a vacation. Service marketing, the application of marketing for services, continues to be a major growth area in the United States. Insurance companies, airlines, public accountants, and health clinics all engage in service marketing, both to individuals (consumer markets) and to other companies (industrial markets). Thus, the terms consumer marketing and industrial marketing include services as well as goods.
Finally, marketers also promote ideas, such as “inspirational values” as seen in “Encouragement, Pass It On,” on YouTube and in popular television commercials. Ads in theaters warn us against copyright infringement and piracy. Other marketing campaigns may stress the advantages of avoiding fast foods, texting while driving, or quitting smoking, or they may promote a political party or candidate.
Relationship Marketing and Customer Relationship Management
Although marketing often focuses on single transactions for products, services, or ideas, marketers also take a longer-term perspective. Thus, relationship marketing is a type of marketing that emphasizes building lasting relationships with customers and suppliers. Stronger relationships, including stronger economic and social ties, can result in greater long-term satisfaction, customer loyalty, and customer retention.3 Michelle Phan has used relationship marketing very successfully. Similarly, Starbucks’s Rewards attracts return customers with free coffee refills and other extras. Likewise, commercial banks offer economic incentives to encourage longer-lasting relationships. Longtime customers who use a certain number of the bank’s products (for example, checking accounts, savings accounts, and loans) accumulate credits toward free or reduced-price products or services, such as free investment advice or reduced checking account fees.
Like many other marketing areas, the ways that marketers go about building relationships with customers have changed dramatically. Customer relationship management (CRM) is an organized method that an enterprise uses to build better information connections with clients, so that managers can develop stronger enterprise–client relationships.
The power of online communications coupled with the ability to gather and assemble information on customer preferences allows marketers to better predict what clients will want and buy. Viking Cruises, for instance, communicates with people who have booked future cruises months in advance of departures with e-mails containing onboard restaurant menus and food recipes from countries that vacationers will be visiting. Viking also encourages social networking among booked passengers to establish pre-voyage friendships, which can lead to faster face-to-face acquaintanceships once they board Viking ships.
Compiling and storing customers’ data, known as data warehousing, provides the “raw materials” from which marketers can extract information that enables them to find new clients and identify their best customers. Marketers can then inform these priority clients about upcoming new products and post-purchase service reminders. Data mining automates the massive analysis of data by using computer software to sift, sort, and search for previously undiscovered clues about what customers look at and react to and how they might be influenced. Marketers use these tools to get a clearer picture about how knowing a client’s preferences can satisfy those particular needs, thereby building closer, stronger relationships with those customers.4
Toronto-based Fairmont Resort Hotels, for example, first used data mining to rebuild its customer-relations package by finding out what kinds of vacations their customers prefer and then placing ads where they were more likely to reach those customers. When data mining revealed the worldwide destinations of Fairmont customers, it helped determine Fairmont’s decision to buy their customers’ number-one preference, the Savoy in London.5 Fairmont’s enhanced CRM has attracted new guests and strengthened relationships and loyalty among existing clients through Web-based promotions and incentives. Using profiles of guest information, Fairmont identifies target traveler segments and supplies travelers with personalized price discounts and special hotel services.6 We’ll discuss data warehousing and data mining in more detail in Chapter 14.
The Marketing Environment
Marketing plans and strategies are not determined unilaterally by any business—rather, they are strongly influenced by powerful outside forces. As you see in Figure 11.1, every marketing program must recognize the factors in a company’s external environment, which is everything outside an organization’s boundaries that might affect it. In this section, we’ll discuss how these external forces affect the marketing environment in particular.
Figure 11-1
The External Marketing Environment
Political-Legal Environment
The political-legal environment, both global and domestic, has profound effects on marketing. For example, environmental legislation has determined the destinies of entire industries. The political push for alternative energy sources is creating new markets and products for emerging companies such as India’s Suzlon Energy Limited (large wind turbines), wind-powered electric generators by Germany’s Nordex AG, and wind farms and power plants by Spain’s Gamesa Corporation. Marketing managers try to maintain favorable political and legal environments in several ways. To gain public support for products and activities, marketers use ad campaigns to raise public awareness of important issues. Companies contribute to political candidates and frequently support the activities of political action committees (PACs) maintained by their respective industries.
Sociocultural Environment
The sociocultural environment also impacts marketing. Changing social values force companies to develop and promote new products, such as poultry and meat without antibiotics and growth hormones, for both individual consumers and industrial customers. Just a few years ago, organic foods were available only in specialty food stores such as Whole Foods. Today, in response to a growing demand for healthy foods, Target’s Archer Farms product line brings affordable organic food to a much larger audience. Grocers like Kroger and H-E-B also have set aside large areas in their stores where consumers can find organic and/or natural products. In addition, new industrial products reflect changing social values: A growing number of wellness programs are available to companies for improving employees’ health. Quest Diagnostics, for example, a B2B company, supplies a “Blueprint for Wellness” service that assesses employee healthcare risks in client companies and recommends programs for reducing those risks. This and other trends reflect the values, beliefs, and ideas that shape society. In similar fashion, businesses strive to distance themselves from people and products that are potentially offensive. For instance, when Donald Trump announced his bid for the presidency of the United States in 2015 he made several controversial remarks about undocumented immigrants from Mexico. In quick response NBC dropped plans to televise the Miss Universe pageant owned by Trump and Macy’s discontinued its line of Trump-endorsed men’s wear.
Technological Environment
The technological environment creates new goods and services. New products make existing products obsolete, and many products change our values and lifestyles. In turn, lifestyle changes often stimulate new products not directly related to the new technologies themselves. Mobile devices, the availability of a vast array of apps, and social media, for example, facilitate business communication just as prepackaged meals provide convenience for busy household cooks. Both kinds of products also free up time for recreation and leisure.
Marketing strategies are strongly influenced by powerful outside forces. For example, new technologies create new products, such as the cell phone “gas station” shown here. These recharging stations enable customers to recharge their mobile devices just as they would refuel their cars. The screens at the stations also provide marketers with a new way to display ads to waiting customers.
John Locher/AP Images
Economic Environment
Because economic conditions determine spending patterns by consumers, businesses, and governments, the economic environment influences marketing plans for product offerings, pricing, and promotional strategies. Marketers are concerned with such economic variables as inflation, interest rates, and recession. Thus, they monitor the general business cycle and specific economic patterns and projections to anticipate trends in consumer and business spending.
Competitive Environment
In a competitive environment, marketers try to convince buyers that they should purchase their company’s products rather than another’s. Because both consumers and commercial buyers have limited resources, every dollar spent on one product means one dollar less available for other purchases. Each marketing program, therefore, seeks to make its product the most attractive. Expressed in business terms, a failed program loses the buyer’s dollar forever (or at least until it is time for the next purchase decision).
To promote products effectively, marketers must first understand which of three types of competition they face:
Substitute products may not look alike or they may seem different from one another, but they can fulfill the same need. For example, your cholesterol level may be controlled with either of two competing products: a physical fitness program or a drug regimen. The fitness program and the drugs compete as substitute products. Similarly, online video streaming services like Netflix provide substitute products for conventional television programming. A Royal Caribbean cruise, a Colorado ski resort, and a Disney theme park provide substitute products for a family looking for a spring break vacation.
Brand competition occurs between similar products and is based on buyers’ perceptions of the benefits of products offered by particular companies. For online searches, do you turn to Google, Bing, or Dogpile? Brand competition is based on users’ perceptions of the benefits offered by each product.
International competition matches the products of domestic marketers against those of foreign competitors. As we saw back in Chapter 4, m any businesses today compete in global markets. Ford and General Motors (U.S. firms) compete with BMW and Volkswagen (German firms) and Toyota and Nissan (Japanese firms) in every global automobile market. Apple (a U.S. company) competes with Samsung (a Korean company). Sony (a Japanese company) competes with LG (a Korean company). And in each case, these businesses compete in their home countries, the home countries of their international competitors, and in many neutral countries as well. Take Coca-Cola for example. In the United States, Coke clearly promotes itself as a traditional, mainstream American product. In other countries, Coke is also recognized as an American icon. But the company presents itself as more of a global brand than as an American brand. Indeed, Coca-Cola sponsors more than 100 different national Olympic teams around the world.