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Chapter 17
The nature of Marketing

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17.1 ROLE OF MARKETING

• Marketing objectives and Corporate objectives
• Coordination of marketing with other departments

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ROLE OF MARKETING
• Marketing – Management task linking business to customer by identifying and meeting the
needs of customers profitably – it does this by getting the right product at the right price to
the right place at the right time
• Chartered Institute of Marketing – Marketing is the management process responsible for
identifying, anticipating and satisfying customers’ requirements profitably.
• Marketing involves related marketing functions:
• Market research
• Segment the market
• Identify Target market (TM)
• Identify needs and wants of TM
• Satisfy needs better than competitors
• Make profits
• Product design + Packaging + Pricing + Advertising + Distribution
• Based on needs and wants of TM
• Must complement each other
• Customer service
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 A) MARKETING OBJECTIVES &
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CORPORATE OBJECTIVES
• Corporate objectives = well-defined and realistic goals set for the whole company
• Marketing Objectives – Goals set for the marketing department to help the business achieve its overall
objectives = Based on corporate objectives
• Examples Increasing market share; Total sales; average number of items purchased per customer visit;
frequency of shopping by loyal customers; percentage of return customer – a measure of customer loyalty;
number of new customers; customer satisfaction; brand loyalty; Rebranding or repositioning – To give a fresh
appeal; Market development – Selling existing products in new markets
• Effective of Marketing objectives
• Linked to aims and mission
• Determined by senior management because of long run impact on markets and products
• Should be realistic, motivating, achievable, measurable, and clearly communicated to all departments
• Importance of marketing objectives
• Provide sense of direction
• Used for control
• Broken down into regional and product sales targets
• Forms the basis of Marketing Strategy = plan of action to achieve marketing objectives by giving
competitive advantage
• EXAMPLES – Penetration of existing markets (selling more to existing and new customers); Entering new markets in
other countries; Developing new products or updating existing products

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 B) COORDINATION OF MARKETING
5

WITH OTHER DEPARTMENTS

• Coordination between all deparmetns = Critical Success Factor
• With Finance
• Finances uses sales forecasts to construct CF forecasts and Operational budgets
• Ensures availability of capital for payment of marketing budget
• With HR
• Marketing forecasts help develop workforce plans
• Ensure recruitment and selection of qualified and experienced workers to sell and
produce
• With Operations
• Market research data helps in new product development
• Sales forecast help in planning capacity needs and purchase of machinery; and
Stocking of raw materials

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17.2 DEMAND & SUPPLY

• Demand
• Supply
• Determining equilibrium price

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 A) DEMAND
Price ($) 7

• Demand – Quantity of a product that consumers are 80

willing and able to buy at a given price in a sepcific time
period 20

• Inverse relationship between P and Qd = Downward D0

sloping demand curve
0 120 480
• Change in price – Movement on the line
Quantity demanded
• Change in other factors – Shifts in demand curve
• Change in consumer’s income Increase in income =
Increase in demand for NORMAL GOODS BUT Decrease in Rightward shift –
demand for INFERIOR GOODS Price ($)
Increase in demand
• Changes in price of substitutes and complementary
goods Leftward shift –
• Substitutes (satisfy same need) – Increase in PS = Rise in Decrease in
demand
demand
• Complements (enhance satisfaction) – Increase in PC = Fall in
demand
• Change in population size and structure – RISE IN
POPULATION = rise in demand D D2
D1
• Change in fashion and tastes
• Successful advertising campaigns = Increase demand 0 Quantity demanded
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 Price ($)

B) SUPPLY
S0 8

80

• Supply – Quantity of a product that firms are willing

and able to sell at a given price in a specific time 20
period.
• Direct relationship between P and Qs = Supply curve is
upward sloping 0 120 480 Quantity supplied

• Change in price – Movement on the line

Price ($) Leftward shift –
• Change in other factors – Shift in supply curve Decrease in
• Cost of production (labor or RM costs) – Increase in supply
cost = Fall in supply S1
• Indirect taxes by government – Imposition of tax = Fall
in supply S
• Subsidies by government to suppliers = Increase supply S2
• Advances in technology = Lower cost = Increase in Rightward shift –
supply Increase in
• Weather conditions and other natural factors – Good supply
weather = Good crop = increase in supply
0
Quantity supplied

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 C) DETERMINING EQUILIBRIUM PRICE
9

• Equilibrium price = Market price that

equates supply and demand of a Price ($) Disequilibrium of excess
product. supply
S0
• If Price > Pe
80
• Unsold stock – Excess supply
• Suppliers lower price and back to Pe = 60
equilibrium
40
• If Price < Pe
• Shortages – Excess demand D0

• Suppliers increase prices and back to 0 240 280 320 Quantity

Disequilibrium of excess Qe
equilibrium demand

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 CHANGES IN EQUILIBRIUM
10

• Equilibrium can change if there is either a shift in demand or a shift in supply

• Increase in demand – Increase price and quantity
• Increase in supply – Reduce price and increase quantity

Price ($) Price ($)

S1

S0 S2
E2 E1
P2
P1 E2
E1
P1 P2

D2

D0
D1
0 Q1 Q2 Quantity
0 Q1 Q2 Quantity

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17.3 MARKETS
• Industrial markets and consumer markets
• Local, national and international markets
• Customer (or market) orientation and Product orientation
• Market share and Market growth

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 MARKETS
12

• Definition (1) – Place or mechanism where buyers and sellers meet to engage in exchange, e.g.
Fruit market, shopping centers and auctions
• May not have physical location – can exist electronically using internet, e.g. Amazon and e-bay
• Definition (2) – Group of consumers that is interested in a product, has the resources to purchase
the product, and is permitted by law to purchase it
• Potential market – Total population interested in the product
• Target market – Segment of the available market that the business has decided to serve
• Market segment – subgroup of a whole market in which consumers have similar characteristics
a) Industrial markets and Consumer markets b) Local, national and international markets
• Industrial markets – selling of products by • Local markets – only sell locally, e.g.
businesses to other businesses = Business hairdresser, laundries = Limited sales potential
to Business = B2B – e.g. specialist industrial • National market – Cover most of the country,
machines, trucks and office supplies e.g. banking, supermarket chains = More
• Consumer markets – selling of products by growth potential; relatively few businesses
businesses to the final end user = Business expand nationally
to Consumer = B2C – e.g. mobile phones, • International market – Sells in different
holidays, chocolates, fashion clothing countries = Largest sales potential, Rise of
MNCs; = A strategic decisions and may need
• Need different marketing strategies for adapting marketing strategies to cater to
two markets different local needs
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 C) CUSTOMER (OR MARKET) ORIENTATION
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& PRODUCT ORIENTATION

Customer (Market) Orientation Product Orientation
• Market-orientation – An outward-looking approach basing product • Product-orientation – An inward-
decisions on consumer demand, as established by market research looking approach that focuses on
• Market research required to measure present and future demand making products and selling them
• Based on what consumers want to buy • Put quality and innovation first
• Useful in fast changing, volatile, consumer markets especially as • Belief – Always a market for
customers have more information about competitors’ products and good product (Sony Walkman,
prices = want a product that satisfies their needs WAP mobiles)
• Where useful = Pharmaceuticals
• Advantages and Electronics; Quality-driven
• Lower risk of NPD failure – Especially important as costs of research are rising firms – especially in product area
BUT does not eliminate risk where quality and safety is
• Products likely to have longer life and be more profitable important (advanced medical
equipment)
• Constant customer feedback helps improve products before competitors
launch a better product • Advantages – Can be successful in
• Disadvantages some instances without market
research (e.g. FACEBOOK)
• Does not guarantee success – Also depends on Identifying needs, NPD, USP,
4 Ps and Competition • Disadvantage
• Risk of overstretching – Solution – Asset-led marketing • Very risky – Does not consider
• Expensive – Require spending on market research consumer needs
• Takes more time to reach the market and may not match quality of a • Expensive R&D – High investment
competitor can fail
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EVALUATION
• Pure research is risky and expensive – Decreasing although useful in some industries
• Market oriented approach is less risky though does not guarantee success and can over-
stretch resources
• Not all customer-oriented businesses will succeed – It takes more time for these products
to reach the market; may fail to match competing products
• Success depends on whole marketing process and not just market research
• Firm can focus on asset-led marketing
• Asset-led marketing An approach to marketing that bases strategy on the firm’s existing
strengths and assets instead of purely on what the customer wants, e.g. Levi Strauss focuses
on clothing only, BMW in sports and luxury cars only
• Advantages
• Also based on market research
• Avoids overstretching of resources – Does not satisfy all needs
• Focus on strengths and core competencies such as people, assets and brand image
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D) MARKET SHARE & MARKET

GROWTH
• Key marketing issues = Identify the Target Market (TM); Create a consumer profile;
Identify their needs; Develop 4 Ps to satisfy their needs
• Need to consider – Market size; Market growth; Market share
• Market Size – Total level of sales of all producers within a market in a given time
period
• Can be measured in either Volume of sales (units sold) or Value of goods sold
(revenue)
• Importance = Size affects attractiveness of an industry – Larger the better; Used for
Calculating market share and Calculating growth or decline in industry

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MARKET GROWTH
• Market Growth – Percentage change in size of a market over a period of time
Growth (%) = {(Salescurrent – Salesprevious)/ Salesprevious} x 100
• Measured in either Volume of sales or Value of sales = Different results
• Sales may rise or fall (desktop computers)
• Not always to good to enter growing market because new competitors entering and market share
and profits may be low
• Example
• Sales in 2009 – 150 units @ P = $8 per unit; Revenue = $1,200
• Sales in 2010 – 170 units @ P = $9 per unit ; Revenue = $1,530
• Growth in volume = {(170-150)/150} x 100 = 13.33%
• Growth in value = {(1,530-1,200)/1,200} x 100 = 27.5%
• Factors affecting rate of market growth
• General economic growth – Boom = Rise in sales; Recession = Fall in sales
• Changes in consumer incomes (rise in income) – Luxury goods = Rise in demand; Inferior goods =
Fall in demand
• Development of new markets
• Development of new products by a firm or competitor – reduce sales of existing products
• Change in consumer tastes
• Change in technology – makes existing products obsolete
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Implications of INCREASED
market growth
• Sales rise if business’s market share
remains the same
• Possible to increase prices and
profits per unit
• Cost savings due to higher sales =
Economies of scale
• Increasing level of competition as
more businesses might be
attracted to the market
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MARKET GROWTH
Implications of REDUCED
market growth
• Sales rise slowly even if business’s
market share remains the same
• Competitors may reduce prices to
increase sales in slow-growing or
shrinking market
• Lower profit per unit due to lower
prices
• Business may consider expanding
into faster growing markets (e.g. in
other countries)
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MARKET SHARE
• Market Share – Percentage of sales in the total market sold by one business
Market share (%) = (Firm’s sales/Total market sales) x 100
• Measured in either volume or value – Give different results
• Difficult to compare market share of 2 firms using different strategies, e.g. VOLUME v
MARGINS
• Volume = High market share in volume but Low in value; Value/Margins = High market share
in value but low in volume
• Firm’s market share can fall even if sales are rising
• gfirm > gindustry = increase in market share
• gfirm = gindustry = stable market share
• gfirm < gindustry = reduction in market share
• Usefulness of market share as a measure
• Relative success of firm’s marketing strategy – Higher market share = better strategy
• Brand leader – Brand with higher market share
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CALCULATING MARKET SHARE

• Market share can be measured in either volume or value – Give different results
• Manufacturers will use the measure that reflects best on their position = Difficult to
compare changes in market share for different firms
• Firm selling low volume of expensive products = Higher market share in value
• Firm selling high volume of low-priced products = Higher market share in volume
Total sales Average Total sales Total sales of Average Total Market Market
in industry price in in industry company price of revenue of share in share in
(units) industry ($) ($) (units) firms ($) firm ($) volume value

2009 10,000 5 50,000 2,000 6 12,000 20% 24%

2010 12,000 6 72,000 2,500 6 15,000 20.83% 20.83%

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Implications of an increase
in market share
• Sales rise faster than competing
businesses = more profits
• More bargaining power with retailers –
Retailers keen to stock and promote
best-selling brands; Give prominent
position in shops; Give lower discounts
and margins to retailers and increase
profits
• Market leader – Used in advertising
and promotional material, e.g.
Mobilink = Pakistan’s largest network
• Gain economies of scale and Lower
cost of production = Gives competitive
advantage to firms
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MARKET SHARE
Implications of a fall in
market share
• Sales likely to fall unless market
grows rapidly
• Retailers less keen to stock and
promote the product; Do not give
prominent position in shops; Give
higher discounts and margins to
retailers and reduce profits
• Not a brand leader = Can’t use for
promotional advantage
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17.4 CONSUMER MARKETING

(B2C) AND INDUSTRIAL
MARKETING (B2B)
• Classification of products

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A) CLASSIFICATION OF PRODUCTS
• Consumer products = goods or services sold to end users (individuals and
households) – Further classified as:
• Convenience products = purchased frequently, often bought on impulse and sold to
a large target market (e.g. sweets, soft drinks)
• Shopping products = usually require some planning and research by consumers
before being purchased; often not bought very frequently (e.g. washing machines)
• Speciality products = bought infrequently, often expensive, and with strong brand
loyalty (e.g. cars and designer clothing)
• Industrial products = goods or services sold to businesses (industrial use)
• Materials and components = needed for production to take place, e.g. steel and
electric motors for washing machines
• Capital items = equipment, machinery and vehicles, e.g. lathes, IT system, and
industrial buildings
• Services and supplies = business services and utilities, e.g. power supplies and IT
support & maintenance
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 DIFFERENCES IN SELLING TO BUSINESSES
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RATHER THAN CONSUMERS

• Most industrial products are MORE COMPLEX than many consumer products =
require specialist sales employees and support services will me more important
with B2B selling
• Industrial buyers have MORE MARKET POWER and are BETTER INFORMED than an
average consumer = require well-trained and experience sales employees
• Industrial buyers REARELY BUY ON IMPULSE – only purchase after long
consideration and detailed analysis of alternative products = need to keep in
regular contact with industrial customers
• Traditional MASS MEDIA AVERTISING & SALES PROMOTION TECHNIQUES ARE NOT
USEFUL in most industrial markets = selling via trade fairs or direct contact with
industrial buyers (often initially via websites)
• UNLIKE TO USE MASS MARKETING as there are relatively few buyers = need to
adapt products to meet needs of a particular business buyer (e.g. specialist
elevator system for a very tall hotel building)

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17.5 MASS MARKETING &

NICHE MARKETING
• Mass market
• Niche market

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 A) MASS MARKET
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• Characteristics of mass market

• Large size of the market because customers are willing to purchase standardized product
(undifferentiated)
• High levels of production because of high sales levels
• Low price is usually charged
• Mass Marketing – Selling standardized products or range of products in same way to the
whole market
• Less frequently used as consumer incomes rise and they develop more individual needs
• Examples = cola drinks, toothpastes, washing-up liquids
Advantages Disadvantages
• Low average costs of production = • May not appeal to many consumers
gain economies of scale as more is due to lack of differentiated products
produced due to high sales and differentiated marketing
• Lower prices to consumers due to cost • Does not establish a premium brand
advantages = reinforce market image due to focus on low prices
position of the product
• Fall in demand for standardized
• Clear brand identity results from products due to technological or other
extensive publicity for the business and changes – Overdependence on one
its product product = risky strategy
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 B) NICHE MARKET
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• General characteristics of a niche

• Customers want to buy differentiated products
• Small size but large enough to be profitable
• Low competition, if any
• Unfulfilled needs
• Need market research to establish customers’ special needs
• Can be both luxury or cheaper markets – Expensive high-status products such as Versace, Clinique; Non-luxury
products such as very cheap items attracting low income segment, extreme sports clothing, $-stretcher retail
shops
• Niche Marketing = Identifying and exploiting a small segment of a larger market by developing differentiated
products to suit it
Advantages Disadvantages
• Successful small firm strategy = Focus on • No economies of scale due to small
niche = survive and thrive in markets market size = higher unit cost
dominated by large firms
• Limited scope for business growth if niche
• Premium prices and higher profits in market has few customers
unexploited niche as competition is low –
consumers pay more for an exclusive • High risk as market changes (Change in
product consumer tastes; Increase in competition)
– Solution = multi-niche strategy
• Gives status and image to a large firm if
use niche market products and exclusive • Profitable niches attract competition =
marketing lower price and profitability
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17.6 MARKET SEGMENTATION

• Advantages and Disadvantages of market segmentation
• Methods of market segmentation

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 A) MARKET SEGMENTATION 28

• Market Segment – Sub-group of a whole market in which consumers have similar characteristics.
• Market Segmentation – Identifying different segments within a market and targeting different products
or services to them
• It is customer focused – consistent with market orientation
• Also referred to as differentiated marketing – market different products for different segments based on their
needs
• Need market research to identify segments and their needs
• Company can Market products to multiple segments (Coke sells standard Coke and Diet Coke) or
Concentrate on one segment only (Abercombie & Fitch only targets the youth market)
• Helps develop a target market and a consumer profile
• Consumer Profile – A quantified picture of consumer of a firm’s products, showing proportions of age groups, income levels,
location, gender and social class.
Advantages Disadvantages
• Develop targeted marketing campaigns – • High R&D costs to make and market different
Identify Target market; Increase sales and profits product variations
• Identify gaps – Unfulfilled needs • No economies of scale – Higher unit cost
• Saves costs and time – Targeted campaigns are • High promotional costs – Different products and
more effective different markets
• Small firms survival – Target niche vs. Direct • High stock-holding costs – More stock of different
competition with large firms varieties
• Price discrimination – Different prices from • Extensive market research
different segments
• High risk – Excessive specialization; Niche may die
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B) METHODS OF MARKET
SEGMENTATION
Geographic differences Demographic differences
• Customer tastes vary across regions • Demographics – Study of population data and trends
• Pan-Asian or Pan-European marketing = One • Segmentation based on: Age, Gender, Family size,
marketing strategy for whole of Asia or Europe = Ethnic background, Income, Social class
Saves costs regionally; BUT may not be • Individual’s occupation tends to determine his
successful if national tastes vary social class
• Reasons for differences • Main socio-economic groups in UK
• Cultural differences – e.g. Alcohol not allowed in
Arab countries Class Type Description .
• Climatic differences – e.g. heating and
refrigerating products need to adapt for sales in A Upper middle class Higher managerial, administrative and professional;
Directors of big companies, successful
Malaysia and Finland lawyers
• Promotional differences – certain tactics not B Middle class Managerial staff, Professionals, teachers
allowed in certain countries, e.g. lottery-type
promotions may not be allowed in some C1 Lower middle class Supervisory, clerical, or junior managerial; Skilled
countries manual workers
• Name differences – ‘Nova’ is a poor name for a D Working class Semi- and unskilled manual workers
car to be sold in Spanish country, because in
Spanish Nova means ‘Doesn’t go’ E Casual, part-time workers and unemployed

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Psychographic differences
• Differences between people’s lifestyles, personalities,
values and attitudes - can be influenced by social
class
• Attitudes – An expression of favor or disfavor toward
a person, place, thing or event – Attitude toward
ethical business practices = GREEN customers buy
from environmentally-friendly firms.
• Lifestyles – Relates to activities undertaken, interests
and opinions, e.g. “TV meals” Customers who want
pre-prepared meals without missing a favorite
program
• Lifestyles change at different stages of life =
Dependent (e.g. children still living at home with
parents); Pre-family (with their own households
but no children); Family (parents with at least
one dependent child); and Late (parents with
children who have left home, or childless
couples)
• Personality characteristics such as Aggressive person
vs. timid person; Impulsive people vs. cautious
people; Introverts vs. extroverts
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METHODS OF MARKET
SEGMENTATION
Behavioual differences
• Usage rate = light, medium and heavy users
• Benefits sought – Main benefits customers look for
in a product, e.g. toothpastes for economic,
medicinal, taste or cosmetic benefits
• Brand loyalty – High, medium and no loyalty
groups
• Occasions – When a product is consumed or
purchased, e.g. holidays, mother’s day, New
Year or Eid
• Kelloggs = Eeat breakfast cereals on the
‘occasion’ of getting up
• User status = First time, regular or potential
consumers = Helps develop targeted marketing
campaigns
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17.7 CUSTOMER
RELATIONSHIP MARKETING
• Costs and Benefits of CRM

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CUSTOMER RELATIONSHIP MARKETING

• Customer Relationship Marketing (CRM) – Using marketing activities to establish
successful customer relationships so that existing customer royalty can be
maintained
• Key = Gain information about customer (income, product preferences, buying habits)
and then Develop 4Ps to satisfy his needs = Easier and cheaper with new technology
• Reasons for improving CRM
• Customers are vital to the survival of firms – Repeat customers + New customers
• Provide useful information – Helps improve products or introducing new successful
products
• Satisfy the customers – Get positive word of mouth
• Brand loyalty – Charge premium prices and increase profits
• Successful differentiation – Use this as USP
• Key aim of CRM – Keep existing customers satisfied and retain them = Costs 4 to
10 times as much to gain new customers
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HOW TO IMPROVE CRM

• Targeted marketing – give each customer the product they have indicated the need = records of past
purchases
• Customer service and support – after-sales services and effective call centers = require building
customer focused culture = require commitment from senior management; training of staff to improve
skills; hiring skilled workers
• Communicating regularly with customers – Give frequent updates on new products/ special offers/ new
features/ new promotions and support services
• Also get feedback – set focus groups, interview customers, allow feedback online or on helpline
• Use social media – some CRM systems use social media sites to track and communicate with customers
• Feedback management software platforms (e.g. Confirmit and Satmetrix) combine internal survey data
with trends identified through social media = more accurate decisions about which products to supply to
satisfy customers’ needs
• Make customer service as objective – include in mission statement
• Make CRM a part of appraisal and staff development systems – Change the reward system = Reward
based on customer satisfaction and not just sales
• Improve past deficiencies such as poor service and poor quality
• Develop better marketing strategies – Improve product or offer new product, improve pricing decisions;
add channels of distribution; change promotional strategies

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A) BENEFITS & COSTS OF CRM
Benefits
• CRM is cost-effective if there is an
existing customer base = higher
sales usually exceed costs
• Sustainable strategy creating long-
term customer unlike special price
offers or similar promotions
• Loyal customers recommend to
friends and family = additional
marketing benefits at no cost
• Costs less per customer v. trying to
attract new customer
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Costs
• Need IT systems and software + Need staff
training to respond to customer feedback
• May require use of an EXTERNAL
MARKETIG CONSULTANCY = high cost
• CRM needs an EXISTING CUSTOMER BASE
to be established first before investing in
CRM otherwise costs won’t lead to higher
sales
• Costly to respond to each customer’s
feedback especially if it contains special
requests or requirements
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END OF CHAPTER

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