mm lecture 1 notes

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LECTURE NO. 1

THE MARKETING CONCEPT

MBA-09

NATIONAL UNIVERSITY, ISB

Mon 10th & Wed 12th Aug 2009

MARKETINGMARKETING

MANAGEMENTMANAGEMENT


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MARKETING MANAGEMENTLec no. 1 The Marketing Concept

10th & 12th Aug 2009MBA-09NU, Isb

How did you start your day today?

(a) How did you wake up? By the sound of your cel-phone alarm?

(b) You brushed your teeth. Which toothpaste and which toothbrush did you use?(c) What is the brand of your pair of jeans, your shoes, your wristwatch?

(d) Did you have Nestle milk for breakfast? Nurpur butter, Mitchells jam, Lipton

tea?

Marketing is a part of the daily life of each one of us!! You are seeing and using

one brand of something, one brand of another thing. So at the very beginning of

your day, you had an encounter with Marketing, without even realizing it. You will

have many more encounters today, as you drive in a car that you bought, buy

cigarettes or make-up, and watch TV. There will never be a day in your life that

you will not encounter Marketing.

DIFFERENCE BETWEEN MARKETING & SELLING

What comes to your mind when you think of the term MARKETING?

Selling? Advertising? Salespersons? Retail outlets?

Most peoples, including some very experienced business managers answer to

the question What is Marketing will be that Marketing means Selling or

Advertising. Actually, selling and advertising are part of Marketing, but the true

essence of Marketing goes way beyond these two terms.

SELLING:-

Making a product, then finding a market for it, and developing marketing

techniques like advertising etc. to attract customers to buy the product. The focus

of the SELLING process is the PRODUCT.

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For example, a company manufactures a 1300 cc car, in 10 colors, with

automatic gears, with powered steering, powered windows, cruise control, etc.

Now it starts looking for customers. It designs advertising campaigns to promote

the product. But its focus is the product all along.

MARKETING:-

Starts with the CUSTOMER, what the customerneeds, what the customerwants,

and how he wants it. And the product is made to suit the customer, to meet

customer expectations. So we can say that the focus of the Marketing process

is the customer, whereas the focus of the Selling process is the product.

Broadly speaking,

Marketing is the set of activities undertaken to facilitate and generate an

exchange process that satisfies human or organizational needs and wants.

NEEDS, WANTS, DEMANDS & EXCHANGE

Now we need to discuss some key concepts before we move further:

NEEDS & WANTS: -

Need is something that is a necessity, absolutely essential. Without it one feels

deprived. For example, you needfood and water to live, to survive.

Want is not essential, but a preference. For example, you need food, but you

want a burger, or rice, or chicken. So want is shaped by your desire, and this

desire is shaped by several influences in the external environment (society,

culture, reference groups, companys activities) as well as internal influences

(personality, motivation, learning, perception, lifestyle). Need is basic, Want

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varies. Everyone needs food, whether they live in USA or Pakistan or China. But

to satisfy theirneedof food, a person living in USA wants a pizza, a person in

Pakistan wants roti and daal, and a person in China wants frogs legs.

DEMAND: -

Want becomes Demand when the person wanting something has the

purchasing power to acquire it. So a demandis a wantbacked by buying power.

People expect their demand to fulfil their expectations, to give them value

and satisfaction.

For example, you have to go from one place to another.

Need: To be transported

Options to satisfy need: Walk, bicycle, public transport, motor cycle,

small car, luxury car, plane

Want: Luxury car

When you have the money to buy a luxury car, it becomes your Demand. And

you want that car to satisfy all your expectations, to give you value and

satisfaction. You want speed, comfort, snob-value.

A good and successful marketing effort is one that takes into consideration the

needs, wants and demands of the consumers, and has the capability to make

consumers feel needs earlier unfelt, and convert them into wants. Later on we

will study the issue of Ethics in Marketing, where Marketing and marketers face

severe criticism for misleading and exploiting consumers.

EXCHANGE: -

There are 3 ways to satisfy a need for something: you can make it yourself, or

you can steal it, or you can offer to give something in return for it. This is an

exchange. This something that you are willing to give in return will be something

of value to the other party. This third option is the one involves Marketing.

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Conditions for Exchange:

1. More than one party must be involved (Marketer, Customer)2. Both parties have to be willing to indulge in the exchange

3. Both parties must have something to offer, that is of value to the other

party (Money, barter, product)

4. Both parties must communicate with each other (Promotion or Advertising)

In the exchange process, we use needs and wants interchangeably.

MARKETING:-

According to the American Marketing Association

Marketing is the total system of business activities designed to plan, price,

promote and distribute want-satisfying products to target markets in order

to achieve organizational objectives.

THE EVOLUTION OF MARKETING

The development of Marketing went through 5 stages or eras:

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In some parts of the world, Marketing practices have evolved after passing

through all the above eras and are now well-established with a good consumer-

orientation. In other parts of the world, Marketing is still at one of these stages, or

in its infancy.

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Figure 1

Simple TradeEra / Barter Era

ProductionEra

- Demandexceeds supply- No focus oncustomers

SalesEra

- Demandmatches supply- Sales forceacquired

- Emphasis onproduct features

MarketingDepartment Era

- Supply exceedsdemand- Marketing deptsestablished tomanage allactivities

- Advisory role ofMarketingDepartment withisolated goals

MarketingCompany Era

- Supply exceedsdemand- Intensecompetition- Comprehensive,front-line &

decision-makingrole of Marketing- Integrated effortof all departmentsto meet customerrequirements

EVOLUTION OF MARKETING


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SIMPLE TRADE OR BARTER ERA :-

The simplest and the most primitive form of exchange; you get something you

want and in return, you give something that is of value to the other person. Thissomething is other than money. Families used to grow their own food, e.g.

vegetables, wheat etc. The surplus output was offered to merchants and local

middlemen in return for items of clothing, essential furniture etc. This practice is

still on in some parts of the world.

PRODUCTION ERA :-

In the late 1800s, countries began to be industrialized. Thus began what is

known as the Industrial Revolution. In this era, industries started making

products, just a few products. This era continued till about the 1920s. In this era,

the demand was greater than the supply, hence no serious marketing or sales

effort was needed, no research on consumer needs and wants was conducted,

and no adaptation to any consumer needs was required. The concept was if we

can make it, we can sell it.

SALES ERA :-

By about 1930, the industrialized nations had surplus production capacity. Many

nations were industrialized, so the supply of products increased. Supply equalled

demand. So the issue was not only to produce, but to beat the competitionand

sell. This marked the beginning of the Sales Era. Companies started hiring

salespersons and used some advertising to highlight their product in relation to

their competitors. However, consumer needs, wants, expectations are still not

given much consideration. The focus was still on the product, and the advertising

effort was meant to fit customers expectations to the product.

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MARKETING DEPARTMENT ERA :-

As competition grew, more and more countries and companies started producing

products, so the supply exceeded the demand for the product. So now theproblem was not just selling your product, but it was to steal customers from your

competitor, to convince customers to stop using the competing products and

switch to your product. To achieve this, it became important to promote the idea

that the product will satisfy some need of the customer that the competitors

product is not doing. So now the customer needs get attention. The promotion

was redesigned to feature the attributes that customers miss in the competitors

product, and those features were highlighted in the promotion. So some research

had to be done. But the outcome or impact of this research was limited to

shaping the promotion as per consumer expectations, not shaping the product as

per consumer expectations. Other activities like distribution and shipping had to

be undertaken. So the Sales era was replaced by the Marketing Department era.

Marketing departments were established in companies, and all activities of

research, promotion, distribution, etc. were brought under the control of one

department. However, this department was conducting short-run planning. More

importantly, the role of the Marketing department was only advisory; it could give

suggestions to the top management for product innovation, price change, product

repositioning etc., but the company policies were not driven by the Marketing

function. Also, each department had isolated goals; each department was

pursuing its own objectives. The objectives of one department clashed with those

of another department. This was mainly because the departmental goals were

not integrated toward one objective.customer satisfaction. Production

department was told to reduce production costs, finance department was told to

improve cash-flows, and so on. When the Marketing department wanted a

product innovation, this suggestion was at once rejected by the other

departments, as it was seen to clash with their own objectives.

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MARKETING COMPANY ERA :-

By 1960s, most developed industrialized nations started understanding theimportance of an integrated, long-run marketing planning. The Marketing people

got involved in all aspects of company strategies, from R&D to production to

sales to after sales support. The Marketing era started when the Marketing

people started long-run planning (10 years or more). The entire company effort

was guided by Marketing. It was given the front seat. The top management was

committed to being a customer-oriented company, i.e. to put the customer at the

top. All decisions were dependant upon what the customer wants. The Marketing

Company is one that understands that it is the customer who defines company

policies. Company objectives can only be met if the customers are satisfied. In

order to achieve this, Marketing companies ensure that the role of the Marketing

department is not advisory but decision-making. The top management does not

give isolated goals to various departments; instead, departmental goals are all

derived from the long-term strategic goals of the company, and the strategic

objectives are determined keeping the customer on top. In a Marketing company,

all the departments are partners, not adversaries, and their goal is one: to satisfy

the customer.

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The Marketing concept is a consumer-oriented, market-driven, value-based,

integrated, goal-oriented philosophy for a person or an organization.

A company is adhering to the Marketing Concept if it is studying customer needs

and expectations, it is conscious to them, and it responds to them. Unfortunatelyin many countries including Pakistan, most companies and managers are still

stuck in the production era, or at best, the sales era. They think of the consumers

as being there to buy the companys products, rather than the company being

there to give the consumers what they want. Some firms are following the

Marketing Concept. Their efforts are directed towards knowing the customer and

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Figure 2

MARKETINGCONCEPT

MARKETINGCONCEPT

ConsumerOrientation

ConsumerOrientation

MarketDriven

Approach

MarketDriven

ApproachIntegratedMarketing

IntegratedMarketing

GoalOrientation

GoalOrientation

ValueBased

Philosophy

ValueBased

Philosophy



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satisfying the customer. Any change in customer expectations is at once noted

and required changes in marketing strategy are made. For example, Pakistan

Tobacco Company has a separate Marketing Research Department, headed bya senior executive. It is constantly in touch with the consumers. Similarly, Lever

Brothers has a huge Marketing Research department.

B ASIC IDEAS IN THE MARKETING CONCEPT:-

Consumer Orientation

Focus is on customers. Objective is to satisfy consumer needs, and your

products are the means by which you are going to do that. Whereas in the

Marketing concept, Customer satisfaction guides the whole system. Again, the

consumers are not there for your products, rather your products are there to

satisfy the consumers. You must think in terms ofgiving the consumers what

they need.

Market-Driven Approach

Know the structure of your market, the competitors, the distribution channels.

Value-based Philosophy

The consumers must perceive your product to give them superior value for their

money,` and superior value in relation to the competitors product, e.g. sales

promotion tactics like 20% extra. The customer must be convinced that if he

wants the same benefits from the competitors product, he will have to entail a

greater cost. If he wants 20% extra shampoo of brand X, he will have to pay Rs.

100 more. But with your brand of shampoo, he gets 20% extra for free.

Value is also perceived in terms of what benefits the product gives to the

consumer and how much superior these benefits are to those given by

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MarkDrive


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competing products. For example, the reliability & consistent performance of an

electronic appliance (SONYversus SAMSUNG), the durability of a pair of leather

shoes (HUSH PUPPIES versus BATA), the comfort given by a piece of furniture,and so on. It is important for a marketer to convince the consumer that his

product gives the consumer superior value in relation to the competitors product.

Integrated Marketing Focus

All departments and activities of a company are integrated and coordinated;

finance, production, sales, R&D. We normally see that each department is

isolated, concerned with its own activity; production managers are concerned

with getting products made, accounts managers want to balance the books,

financial managers want the companys cash position to be stable. No one is

concerned with the whole picture, the whole system. Every department, every

activity, every service is integrated to achieve the main objective customer

satisfaction.

Goal Orientation

In addition to customer satisfaction, the other equally important goal of an

organization is to earn a profit. Profit-oriented organizations must remember that

goal. Obviously customers would love it if you give them what they need for free.

But no profit-oriented company does that. So the profit goal has to be kept in

mind. For a non-profit company, the goal will be different, e.g. finding a cure for a

disease, or getting votes for a candidate in an election, or getting education to a

village.

Now we can go back to the definition of Marketing:

The total system of business activities designed to plan, price, promote

and distribute want-satisfying products to target markets in order to

achieve organizational objectives

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So we see that consumer-orientation and organizational objectives have equal

weightage.

HANDOUT

1. 15 points marketing managers must remember to ensure they are

adhering to the Marketing Concept.

The leaders in accepting the Marketing Concept were GENERAL ELECTRICand

the Fast-Moving-Consumer-Goods (FMCG) company PROCTeR & GAMBLE.

Now many service companies have also embraced the marketing concept. For

example:

24-hour banking, ATM machines, internet banking.

Mobile phone companies introducing several Value-Added Services,

facilitating bill payment online, introducing Customer Loyalty programs.

Airline industry & tourism industry; online booking of seats and hotels, adding

superior services and features to their services to ensure customer comfort,

satisfaction, and entertainment.

HANDOUT

2. Adopters of the Marketing Concept versus Production- or Sales-

oriented managers

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MARKETING CONCEPT & NON-PROFIT ORGANIZATIONS

The Marketing Concept is now recognized and adopted by non-profit

organizations as well. For example, lets take the World Wildlife Fund (WWF),whose job is to protect animals. The customers of this company are the people

who support it, who give donations. WWF must keep its customers satisfied,

otherwise the customers will stop supporting its cause.

Non-profit organizations also need to attract their customers, due to increase in

competition.

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THE SOCIETAL MARKETING CONCEPT

CONSUMERISM :-

In Western societies, the shift to industrialization in the late 19 th century brought

about the start of Consumerism. As more and more people moved from rural

areas to cities to work in factories, many workforce-related problems surfaced,

including child labor, unsafe and unhealthy working conditions, low minimum

wages, and so on. For this, the huge industries came under heavy criticism.

As the Sales, then Marketing eras came, the criticism expanded to include

marketing and other activities of companies (including HR policies, waste

disposal practices, manufacturing practices, advertising practices, and so on).

Firms were accused of ignoring the impacts of their activities on society. For

example, there are several industries and companies that are posing serious

threats to the environment and health hazards to the consumers:-

Automobile manufacturers

Sugar mills (waste)

Cigarette industry

Plastic industry

Apart from company activities harming the environment or depleting natural

resources, another major criticism on companies is that of Planned

Obsolescence. This is when firms choose materials and components that dont

last very long. For example, stockings, disposable razors, disposable lighters etc.

The positive aspect of this practice is that consumers get inexpensive,

convenient products. And this is how marketers respond to critics. They argue

that planned obsolescence gives consumers convenience, savings and flexibility.

Items that go out of fashion quickly are better off being short-lived. However, the

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criticism on planned obsolescence has increased in the past few years,

especially since it is seen to be a big burden on natural resources.

All these criticism became so harsh that company images were being seriously

damaged. Ultimately, sales were affected as consumers developed negative

feelings towards companies engaging in above-mentioned practices.

Today, the public is very aware and conscious; it rebels against businesses that

sell unsafe products (hazardous to the environment or human health),

purposefully mislead consumers, or offer a restricted choice of alternatives. This

trend is known as the Consumer MovementorConsumerism.

Consumerism is the set of activities undertaken by individuals,

independent organizations, government agencies and business

organizations designed to protect the consumer from unethical marketing

practices and conditions.

The term Consumer Movementis somewhat misleading since there is no actual

organization of consumers; instead there are various groups with separate

concerns. As a result, the activities of these groups in the consumer interest are

better referred to as Consumerism.

The primary concern of Consumerism is to ensure the consumers rights in the

process of exchange. These rights include

1. The right to be informed

2. The right to be told the truth

3. The right to be given adequate number of alternatives

4. The right to be assured of safety in the process of consumption

Three types of organizations make up the consumer movement.

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1. Consumer-oriented groups

2. Government agencies

3. Business organizations

1. Consumer-oriented groups: concerned primarily with increasing consumer

consciousness and providing consumers with information to improve their

basis for choice.

2. Government agencies: their responsibility is to protect consumer interests

through legislation and the actions of regulatory agencies.

a. In the USA, the Congress has prohibited deceptive packaging. It also

requires warning labels on cigarettes and plastic packaging. It prohibits

the sale of unsafe products to children, and requires full disclosure of

health claims and ingredients on food products.

HANDOUT

3. Important consumer protection laws passed in the USA since 1966.

HANDOUT

4. Key US legislation affecting marketers

b. Regulatory agencies play a critical role in ensuring consumer rights.

The two most widely known the world over are the Federal Trade

Commission (FTC) and the Food and Drug Administration (FDA),

both in the USA, established in the first decade of the 20th century. The

FTCis meant to curb monopolistic activities and unfair trade practices.

It also acts as a watchdog over deceptive advertising. The FDA sets

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product standards for the food industry and requires disclosure of

product contents. Other regulatory agencies include (i) the Federal

Communications Commission (FCC), which oversees advertisingdirected at children, (ii) the Consumer Product Safety Commission

(CPSC), which sets product safety standards to protect consumers

from risk or injury, and (iii) the Environmental Protection Agency

(EPA), which sets controls on industry emissions, toxic wastes and

automobile pollution. CPSCand EPA were established in the 1970s.

3. Business organizations: companies are both reactive and proactive in

protecting consumer rights.

a. In reacting to government regulation, businesses must conform to a

variety of laws dealing with areas such as product safety, product

labeling, truth in advertising, controls over pricing and monopolistic

activities, and pollution controls. Companies must also conform to

guidelines established by regulatory agencies, e.g. the FTCin the USA

has put restrictions on deceptive advertising. The Food and Drug

Administration (FDA) requires companies to provide nutritional labeling

on food products.

b. A more proactive response from business organizations is self-

regulation. Many companies today have adopted sophisticated anti-

pollution policies, forthright labeling practices, etc.

This proactive approach is actually a result of the consumer movement. This

means that had the companies been left to decide on their own, most of them

would have quietly gone on with their unfair trade practices, exploitation of

consumers and activities detrimental to consumer health and environment. But it

is the level of awareness of the consumer which scares the business

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organizations. Wise companies decide to make amends BEFORE consumers

raise their voice against that particular company.

Over the past 40 years or so, in response to Consumerism, companies have

adopted what is called the Societal Marketing Concept: in addition to satisfying

consumers and achieving organizational objectives, companies are conscious of

their social responsibility. For example:-

TOYOTA has started investing heavily on environment-friendly cars;

technologies like fuel cell. Fuel-efficient and clean-cars will need years of

R&D, heavy investment, but they are doing it.

Many companies are committed to using recycled packaging materials only,

like MARKS & SPENCER, a garments chain in the UK.

Companies have started responding to criticism about planned obsolescence.

KODAK started making disposable cameras some years back; now it has

started recycling those disposable cameras. Companies that sell bottled

beverages have started recycling their bottles. Companies like CANONand

HP that sell toner cartridges have started refilling the cartridges. So the

burden on natural resources because of planned obsolescence has been

greatly reduced.

PAKISTAN TOBACCO COMPANYundertakes tree plantation and forestation

on a mass scale every year. It has its own nurseries that grow saplings.

P&G and other FMCG companies frequently launch CSR activities like getting

poor sick children treated, opening schools for girls in rural areas, and so on.

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Baby foodcompanies all over the world have started using natural foods and

ingredients. Earlier on they used synthetic ingredients. In general food

companies have started emphasizing use of healthier ingredients.

Companies have to practice social responsibility not only toward their buyers and

extended customers as discussed above, but also toward their employees,

distribution channel members, and even competitors

HANDOUT

5. Socially responsible marketing practices towards various sections of

society.

WHY THE SOCIETAL MARKETING CONCEPT MAKES COMMON &

BUSINESS SENSE:-

There are three reasons why companies have adopted this concept:-

1. Up till the 1960s, natural resources like water, air, oil, etc. were seen as

limitless. But now firms understand that these resources are being

depleted fast. Air is being polluted, energy sources are becoming scarce.

This scarcity of resources has been brought about by the actions of the

general public as well as by firms. According to Business Week

Out of the worlds natural resources that are being used annually,

70% are being used by 25% of the people in industrialized

nations.

Obviously as industrial and economic growth increases, natural resources

will deplete even more, and faster. As this reality has set in, companies

have become more responsible regarding the usage of these resources.

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2. They have recognized that their market is not only people who buy their

products, but also people who are directly affected by its operations. Sothey have broadened their customer base to include their consumers as

well as afectees.

3. They have also understood that satisfying this broader customer base will

require more time, investment and skill than those required for meeting

the needs of the buyers. However, doing so will mean long-term customer

satisfaction. Socially responsible behavior leads to positive customer

response.

ETHICS IN MARKETING

The Societal Marketing Concept guides Ethical Behavior in Marketing. Ethical

Behavior is defined as honest & proper conduct.

Two Important Questions in the Study of Ethics:-

1. How do people decided what is ethical and what is non-ethical?

People learn the difference between right and wrong through their upbringing,

education, job environment, life-long experiences, and religion. They also use

their own moral skills to decide.

2. Why do people act ethically or unethically?

People act ethically or unethically based on their expectations of the reward or

punishment, both the

Magnitude of the reward or punishment, e.g. the size of the raise in salary or

bonus, or size of the penalty or fine.

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Likelihood of occurrence of the reward or punishment

ETHICAL THEORIES :-Various ethical theories have been formulated to try and explain why people and

organizations act in particular ways. Four of these theories are:

1. Egoism

2. Utilitarianism

3. Duty-based

4. Virtue Ethics

1. Egoism

Individuals always act in their own interests, e.g. a production manager who is

due for a transfer in 6 months postpones the much needed product innovation,

because he wants to maximize short-term profit.

2. Utilitarianism

Actions of individuals and organizations are good if they bring maximum benefit

for maximum number of people, e.g. a drug is approved by the FDA if the

number of people it helps is far greater than the number of people who will have

damaging side-effects from using that drug.

3. Duty-based

The rightness or wrongness of actions is not judged on the basis of their

consequences, but actions are right if they stem from some basic obligation or

duty. For example, a supermarket keeps low prices in an area where peoplehave low incomes, even though it reduces the profit.

4. Virtue Ethics

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Actions should be guided by a persons or organizations desire to seek

goodness and virtue. For example, a company is totally truthful in its advertising,

it does not make any manipulative claims or appeals.

CRITICISMS ON MARKETING :-

Marketing comes under a lot of fire for unethical practices, e.g.

Advertising is misleading

Products are not long-lasting (planned obsolescence)

Marketing encourages people to be materialistic

Advertising presents unreal views on life, & forms unrealistic expectations

Marketing encourages organizational managers to be unethical, to get their

customer by hook or by crook

Marketing using a lot of manipulative techniques to lure customers, e.g. credit

options

Pollution of the environment

Depletion of natural resources

DIVISION OF ETHICAL ISSUES :-

1. Product-related Ethical Issues

Whether certain products should be marketed or not, e.g. cigarettes, alcohol,

plastics, polythene

2. Process-related Ethical Issues

Whether certain marketing practices should be used, e.g. certain products that

have been banned in your own country, so you try to sell them overseas. This

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practice is being adopted by many pharmaceutical companies. Also for example,

certain advertising techniques.

ETHICAL ISSUES IN INTERNATIONAL MARKETING :-

Definitions of what is ethical and what is not takes on very different meaning in

different markets.

1. Each society has its own norms and views of what is acceptable behavior

and what is not.

2. Due to different languages, misunderstandings arise

3. In less developed nations, social and environmental issues are not such a

big deal, e.g. in Pakistan

4. Governments in some countries may devise rules to protect domestic

companies, even though the rules promote unethical behaviour. For

example the cigarette industry in the USA

5. International ethical disputes are very difficult to settle. Where will the

arbitration take place? Which countrys law will be applicable?

Examples:

In Japan, giving gifts is part of their culture. It is the same in Pakistan. In

some countries this will be viewed as a bribe.

In some countries, certain phrases are taboo. For example, in the UK and

USA, colleagues often address members of the opposite sex as my dear,

sweetheart etc. But in a country like Pakistan, this would be considered

harassment. Even shaking hands is a socially unacceptable practice in

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Pakistan, whereas it is a common way of greeting someone. In fact, not

shaking hands is considered rude.

CODE OF ETHICS TEACHING ETHICS IN THE WORKPLACE :-

Marketing Ethics is a real issue; it is not just a philosophy. Companies have to

set certain standards of ethics. They have to curb unethical practices by their

employees, and by the company overall. Many companies have their codes of

conduct that are printed and circulated among employees. Employees are

expected to adhere to them. To give you a general idea, I am circulating the

CODE OF ETHICS of the AMERICAN MARKETING ASSOCIATION.

HANDOUT

6. Code of Ethics of the American Marketing Association.

In addition to Code of Ethics, management can do the following:

Present role models of ethical behavior

Give wide-ranging examples of ethical and unethical behavior

Specify punishments for different unethical practices

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