The purpose of business is to create a customer.

Peter Drucker

In a nutshell

Marketing is about value as it is perceived by the customer. Every organisation has a customer because no organisation exists for long without demand for what it does. If demand changes, so must the organisation. In the eyes of your customer ‘value’ is not just about economics or functional needs, it is a connection to psychological desires and emotions, too.

In fact, some would even say that marketing is an all-encompassing philosophy of business. Marketing faculty at business schools tend to agree.

In this chapter you will:

• trace the history and development of marketing
• identify various marketing strategies available to organisations
• define brand and examine the importance of relationships with customers
• highlight how marketing happens between businesses

The value proposition

Marketing is the first MBA subject that explicitly moves between the internal and external environments of an organisation. Every organisation, whether multinational business, giant public institution, local charity or small start-up, will find marketing is the relevant perspective for setting levels of quality, service and price – the main components of the value proposition. This means that marketing is concerned first with identifying perceptions of value in the marketplace and then with the development, production and distribution of goods and services.

The tactical, practical and day-to-day business of marketing involves the implementation of projects and plans linked to the sale or advertising of what an organisation does. This is the domain of marketing as process and functional specialism. But the manager (and MBA student) should take a broader, strategic view that goes well beyond the marketing department.

Marketing is attuned to the way that the world – and the nature of competition – is changing. This makes it an exciting field of study with many stories and variants of application, but also a difficult one to define or keep completely up to date with.

A (very) brief history of marketing

The Chartered Institute of Marketing gives its definition of marketing as:

the management process responsible for identifying, anticipating and satisfying customer requirements profitably.¹

In 1960 a former executive of Pillsbury (a fast-moving consumer goods (FMCG) company), Robert Keith, summed up the development of marketing management in three ages:²

1. The production era: Following an explosion of mass production techniques (the Ford Model T assembly line is the archetypal example), the marketing task was to find ways to produce as much as possible as cheaply as possible. The focus was on profit from volume. Some have characterised this as the period before marketing, though this is not representative. Companies have engaged with their markets for centuries.
2. The sales era; ‘selling what we can make’: In the boom years after the Second World War, there was a change. Supply began to outstrip demand and as competitors were able to apply the same production techniques, marketing shifted to finding innovative ways of persuading customers to buy the surplus of goods being produced.
3. The marketing era; ‘making what we can sell’: From the 1960s on, companies switched to first understanding what the customer wants, then satisfying those needs (profitably). This may seem obvious, and some argue that it was like this all along, but it was not sophisticated, and big business had grown physically and psychologically away from the end-user. In this era, money was poured into finding new customers. The focus was now on market research to collect information about consumers and competition, and processes for constant innovation for value creation.

Competitive advantage

The assumption of the marketing era is that others will try to be in the same space as you and will compete for market share by meeting the demands of your customers. This gives customers choice, which our economic system firmly believes to be a good thing, and has led to organisations becoming very, very interested in what strategies competitors are using. From this we get to the concept of competitive advantage, which is an idea proposed most firmly by Michael Porter in the 1980s that you should look at which resources and abilities within your organisation lead to performance at a higher level than your competitors (more about this in Chapter 7).³ This has proved to be a powerful idea in shaping corporate behaviour.

Porter’s view has found some opposition. First, there is the argument that marketing has only ever had one era – that of putting the customer first. Second, that this is a rather narrow model that does not match the complexity of the post-internet world. No one can argue that much has changed since the 1980s and 1990s and there’s now a fourth marketing phase:

4	The relationship era: This wants the whole organisation to have a market orientation, where market research is aligned to the internal functions (including relationships with suppliers) and all levels of management are asked to embrace marketing principles across the organisation. There are two specific things that have helped define this new marketing:
	(a)	a strategic focus on customer retention
	(b)	the internet has led to a redefining of consumer power and a fragmenting of traditional marketing domains.

Digital marketing, in particular, has challenged many organisations to think again. In fact, social media has already had an enormous impact on marketers and digital marketing may one day need a whole chapter in its own right. Maintaining a consistent message is a much greater challenge in an age where users can generate their own content on, for example, YouTube or Facebook.

Marketing in business schools has been dominated by one name: Philip Kotler. His book, Marketing Management, has been a mainstay on MBA courses for many years.⁴ With an emphasis on the societal role of marketing, it is a comprehensive overview of a transformation from the marketing orientation to the relationship era. Kotler’s work has highlighted the various ways of looking at marketing in terms of strategy.

Marketing strategies

A market orientation is meaningless without a coordinated strategy behind it. Michael Porter, again, has been influential in this regard by outlining three generic strategies for competitive advantage, each with roots in a different era in marketing:

1. Cost leadership: By minimising your costs you are able either to lower price or boost margin, so this is a strategy aimed at profitability. There are now links to Chapter 3 and how operations are organised, and to Chapter 5 and how financing is managed. There are strategic decisions required to have a lower cost base than your competitors because the scale needed to achieve this may require considerable capital investment.
2. Differentiation: This can be achieved only in the mind of the customer and it assumes access to the right information to know, or think they know. Differentiation may be real in the sense of features unique to your offering, or the result of careful promotion and branding.
3. Focus: This means finding a niche and concentrating only on that (at least to begin with). The niche may be a particular need or segment, and the growth of the internet has made it possible to reach previously difficult-to-get-to areas.

Porter’s influence is slowly fading, partly because the business world he was describing has become more fragmented. Let’s examine how someone else has perceived this. The six markets framework was devised by Adrian Payne at Cranfield University and is an example of an analytical tool for market orientation (see Figure 6.1). Keeping the ‘classic’ customer in the centre of things, it extends marketing to other domains, such as suppliers (this is sometimes called reverse marketing), recruiters of talent, and the potential contained in referrals from existing customers and agents or other intermediaries. An analysis is then made of any gaps or changes between past, current and future focus in the organisation.

FIGURE 6.1 Six markets model
Source: Payne, A., Ballantyne, D. and Christopher, M. (2005) ‘A stakeholder approach to relationship marketing strategy: The development and use of the “six markets’ model”’, European Journal of Marketing, 39(7/8): 855–871. Reproduced with permission of Emerald Group Publishing Ltd.

This still leaves plenty of open questions, and opportunities. What is the market definition of what you do? Is it better to lead or follow others in the market? What are the things under the control of the organisation and what are the things outside (remember SWOT)? What are you doing with the direct contact you now have with your customers?

Segmentation, targeting and positioning

Limited resources and competitors in the same space mean organisations have to identify groups of customers with similar needs and similar expectations of a value proposition. This is called segmentation, but there are many ways of slicing up a potential market. Below are a few examples:

• geographic: by particular region or district, urban versus rural, or populations living in different climates
• demographic: by gender, age group, income bracket, educational level
• psychographic: by social class, social aspirations, values, behaviours, lifestyle choices and attitudes to value.

An attractive segment for a company is one that:

• is in line with the long-term objectives of the organisation
• is within reach using resources available
• has the potential to grow and be of a size that will sustain a profitable return.

Thorough identification of all the segments in the market will allow selection of those worth targeting. Targeting may also be sub-divided into various decisions between differentiation and concentration within the segment. The ultimate goal for an organisation is to target customers one to one, and in some markets this sort of bespoke service is possible. Most companies, however, need to think carefully about the third step, positioning, where a detailed understanding of emotion, attitude and beliefs as drivers of value perception becomes crucial. Positioning statements connect the resources in an organisation to the segment it is targeting. They are expressions of how you want to be seen through the eyes of your customers. For example, Austrian energy drink company Red Bull⁵ has employed ‘wings’ as a word and theme in its advertising for more than 25 years. This is a tactical and, by now, strategic choice.

The link to the tactical: from the four to the seven Ps

The four Ps of marketing developed by E. Jerome McCarthy in the 1960s have now attained seminal status in marketing management.⁶ For the record, they are:

• Product: Different eras have developed the idea of the product from ‘what we make’ to ‘what needs making’. In theory, this is a constantly shifting issue and few organisations can keep on making the same thing without adjustments, innovation or reinvention. The customer has to be able to see the value for them of what your company does and this is the core benefit.
• Price: For you, price is revenue, not cost (all other marketing Ps entail cost). To your customer your price is a cost of their time, effort or money. A market orientation equates the value of a thing with what the customer is willing to pay for it. There are many considerations behind what price to set and profit is only one of them. Price, for example, may also establish your value position vis à vis your competitors. How you identify the features of your product as benefits for your customers may also be important.
• Place: This used to be a very obvious matter of naming channels and locations for purchase. Availability in an increasingly interconnected and online world, even for tangible goods and traditional services, is more complex. The logistics of delivering and displaying your offering are critical to your customer’s perception of value to them, and if they see a better alternative, unless you have a strong brand loyalty they will move.
• Promotion: Communication with your customers (which, by the way, is also communication with your competitors) includes branding, advertising, public relations and gaining the attention of others with a consistent message. Increasingly, these channels are now set up as a form of two-way communication and collection of market data.

Academics and thinkers find it hard to resist alliteration, and the original four have since been expanded to reflect the importance in globalised economies of service industries:

• People: Chapter 4 highlighted the crucial role that human resources play in the success of any organisation, and contact points with customers will almost certainly include a personal element (or will need one when things don’t go well). By including people in the marketing mix, you are saying that training, attitude and consistent service or support are as important as any other element.
• Process: Many processes are not designed with the customer in mind, so this P is often overlooked. It is added in recognition that the customer experience of any process that delivers your offering is crucial to retention and reputation. Having to wait, not being kept informed and not being treated with respect – all can have a devastating effect on the bottom line (in Chapter 11 we look at this again as reputation).
• Physical evidence: Making the intangible service feel more tangible is incredibly important for marketers. In some ways this relates to ‘place’, above, but extends to include, for example, word-of-mouth testimonials of others, awards and certificates of excellence, and pre-purchase access to others who are already customers.

This palette in the marketing mix is an attractive framework to organise basic ideas, but is under severe pressure when you try to use it to keep up with the fragmented and rapidly changing consumer environment. How easily can you apply these to Google, iTunes or Facebook without presenting their business models as simplistic, or – in theory – wrong?

The shift from product to brand

The placement of a financial value of a company’s brand (often found in financial statements) is probably a double-edged sword for marketing. On the one hand it raises the status and profile of the marketing function and enables budget allocation of funds to marketing activities, but on the other it remains very difficult to know the effect of marketing spend on the bottom line. In a business or organisation with few physical assets, value is also derived from the perceived reputation, of which the brand is usually the major component. The Coca-Cola Company owns relatively few tangible assets (other than production of the all-important concentrate) and it is estimated that at least 50 per cent of its market capitalisation is derived just from the premium of the brand name and bottling contracts. For McDonald’s, the comparable figure is 70 per cent.⁷

I can recall attending a conference in Budapest in the mid-1990s, where I watched the CEO of Saatchi and Saatchi worldwide, Kevin Roberts, deliver a presentation about our relationship with brands. He traced a development from a commodity to a product, and from a product to a brand, and then proposed an idea beyond a brand: the lovemark. This is a product or provider that delivers beyond your expectations and somehow creates a connection to heart as well as head.

Brands present us with choices. We like to believe these are individual, but they also communicate something about us to others. Take a look at what a major brewing company has to say on this subject in the case study.

The product life cycle

A product, according to Philip Kotler, is ‘anything that can be offered to a market to satisfy a want or need’.¹¹ The term includes not just tangible goods but services, too. An experience, a cause, a person or even an idea, all these are potentially viable offerings as long as there is a market for them. Traditionally the focus in marketing has been on how to present features of an offering in terms of benefits for a customer. Perceptions of benefits and the value they present change over time, something that the product life cycle expresses (see Figure 6.2). Popularity grows, peaks and then eventually wanes. In fact, a product is defined by this time-based phenomenon of shifting tastes and demand.

A successful product has phases. From development and introduction to market, to sales growth and then a plateau of maturity, before eventual decline. This is the background to many of the functional areas we looked at in Part Two (planning for delivery of a good or service, management of cash flows and investment, and proper management of the people involved). For those involved in marketing, this cycle is also a guide for where and what to do tactically and strategically for the replacement or extension of products. Communication around this concept is therefore a two-way necessity between all departments in an organisation.

FIGURE 6.2 The product life cycle model

Relationship marketing: customer retention

The scope of modern marketing is being extended through a combination of the internet and the pressure on organisations to grow by maintaining profitable margins. Gaining customers is one thing, but retaining them is now seen as the best route to margin and the best way to do that is through what is known as relationship marketing (RM).

Aside from customer retention, RM has the following characteristics:

• Quality is a concern for everyone (highlighted already in Chapter 3 but now driven by feedback from the end-user).
• Standards of service in points of contact with the customer, measured against expectation and against competitors.
• A long-term and personal relationship with the customer, and attempt at alignment with their values.
• Measurable returns in terms of net present value (highlighted in Chapter 5) in excess of transactional marketing tactics.

Customer relationship marketing (CRM) is a further refinement of this, often in the form of investment in IT and database management. CRM is supposed to be under the control of general management rather than just a feature of the marketing department. However, the disadvantage of it being under general control is that it tends to monetise the relationship with the customer. Short time horizons in many companies make the customer relationship one of short-term targets in order to achieve returns on any investment. Long-term benefits may be more important but are harder to show on paper. Even when a company is fully committed to CRM, it’s not easy to get right. For example, making bold customer care promises that are then not kept is very destructive, and even a genuine wish to engage with the customer can easily be translated into a kind of ‘stalking’ (e.g. follow-up surveys after every transaction).

Business-to-business marketing (B2B)

Millions of businesses are suppliers to other businesses, and of course millions more are themselves customers for innumerable products and services from other suppliers. It’s likely that many of you reading this book are employed in organisations that rely – in one way or another – on relationships and transactions with other organisations. Business-to-business marketing shares many similarities with business-to-consumer (B2C), but there are some important differences. In B2B:

• Buyer behaviour is reportedly driven more by logic than by emotion, though values are often key to setting the boundaries for what is and what is not acceptable (Chapter 11 will discuss some of these issues). B2B may involve a buy decision that involves many individuals (some of whom may, of course, be people with emotions!).
• Both parties need to pay attention to the value propositions of the other. Aligning yourself to meeting the needs of your customer’s customer creates a strong value proposition in its own right.
• The cost of a sale is generally much higher than in B2C and so is the complexity of the buyer–seller relationship.

Players in a supply chain tend to be conservative and they prefer more permanent relationships with each other (unless they find reasons not to). For a corporation, relationships with end-users are much harder to fix. In contrast, consumers face less risk and have more choice in their purchases and will easily switch (unless they find reasons not to).

Putting it together: not a question of life or death – marketing is much more important than that

Marketing is tied closely to behaviour because it’s what organisations do, as perceived by their customers. Customers care about the ‘ends’, which are the products they experience, but increasingly they care also about the ‘means’, or the practices used to make and deliver those products. It’s easy to see how trust could be built or destroyed by refusal to act ethically and in line with the law or with generally accepted norms. There is plenty of room for grey areas, though. All the 7Ps of marketing have ethical dimensions. For example, where does a company draw the line between a strategy of price differentiation (e.g. creating opportunities for consumers to pay a lower price for the same product) and price discrimination (e.g. some customers having no choice but to pay a different price)?

When you define value exclusively as ‘what the customer says it is’, you risk taking a viewpoint that ignores other stakeholders, not least the shareholders, founders or owners of the business. Marketing is an exciting, engaging activity, but it is not only tactical. It is the outward, creative expression of strategic creativity. For middle and senior managers, there are still plenty of unanswered questions:

1. Tactical: as a function of business, what direction will marketing take next? What innovations to practice will emerge, especially in the digital environment? How can it be managed in such a dynamic environment?
2. Strategic: as a business philosophy, is marketing an end or a means to a different end? What will be the role of marketing in the bigger picture of management?

There is little evidence of a major shift in our thinking about marketing. Change seems to be more incremental than revolutionary, and for all its creativity, marketing is following, not leading, the strategic discussion. The critic argues that we are still looking for tactical ways to reinvent the wheel, and strategic ways of making that wheel bigger. But it’s still a wheel. It usually takes some kind of trauma to kick-start a period of deep reflection and re-evaluation (similar to an aspect of personal development in Chapter 2).

The term marketing – when used strategically as a whole-business philosophy – includes not only the relationships with customers but that with competitors, too. Without customers you have no business. Without competitors you have no identity. Between these is now, as there has always been, a whole range of influencers (one of the six in the six markets framework). Perhaps it is this rich set of interactions that makes marketing so fluid and unpredictable.

Further reading

A classic text:	Marketing Management by Philip Kotler et al. (2nd Edition, 2012), Pearson. A hefty book with a hefty price tag, but not much escapes its breadth of content.
Going deeper:	Purple Cow: Transform your business by being remarkable by Seth Godin (2010), Portfolio.
	A Very Short, Fairly Interesting and Reasonably Cheap Book About Studying Marketing by Jim Blythe (2006), Sage Books. A personal and readable account by an experienced author in marketing.
Watch these:	‘David Ogilvy: the essentials’, a short montage of clips about advertising legend David Ogilvy. Get some big ideas! http://youtu.be/yj9rokSeack
	‘The most boring ad ever made?’ Leica challenges you to watch 45 minutes of careful polishing, and makes its point about the brand: http://youtu.be/PpSMW5H7FPQ

Notes

1 www.cim.co.uk/files/7ps.pdf

2 Keith, R.J. (1960) ‘The marketing revolution’, Journal of Marketing, 24(3): 35–38.

3 Porter, M.E. (2004) Competitive Advantage, New Edition, Free Press.

4 Kotler, P., Lane, K., Brady, M., Goodman, M. and Hansen, T. (2012) Marketing Management, 2nd Edition, Pearson.

5 http://energydrink.redbull.com/commercial#video/2470339735001

6 McCarthy, J.E. (1960) Basic Marketing: A managerial approach, Richard D. Irwin.

7 www.hrexaminer.com/the-fair-market-value-of-employees/

8 www.ab-inbev.com/go/media/annual_report_2013, Anheuser-Busch InBev. Extract reproduced with permission.

9 http://www.ab-inbev.com/go/brands/brand_strategy, Anheuser-Busch InBev. Extract reproduced with permission.

10 http://digiday.com/brands/inside-anheuser-buschs-digital-strategy/

11 Kotler, P. et al. (2012) Marketing Management, European Edition, Pearson, p. 574.