2 Outline What is marketing? What is marketed (scope of marketing)? What is a market (where does marketing take place, markets and competition)?Company orientation toward the marketplaceThe age of customer capitalismWhat is marketing? (and why is it important), hope to answer this through addressing these questions
3 Defining Marketing Needs and wants Facilitate Exchange “Marketing is the activity, set of institutions and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” AMA, 2008.Einar Breivik,
4 Defining Marketing Marketing as Exchange Marketing as Tactics 4 P frameworkMarketing as Value DeliveryMarketing as exchangeexchange behavior (exchanges of value between social actors of all kinds)very broad definition (sort of imperialistic, includes other subject areas such as eceonomics andsociology)Marketing as tactics”Marketing is what marketers do.”Manegerial focusStimulation of demand for the firms outputShort term focus, little strategic orientationMarketing as value deliveryThe only way to increase the value of the firm to its owners is to deliver superior value to customers (of course in a profitable way).Customers the reason to be (rationale for a firm’s existance)
5 Marketing as Value Delivery ”Sense and respond” Haeckel (2004), not “make and sell”Marketing process as any activity which generates or uses information about customers to organize and deploy resources for providing solutions to customer problems (Webster 2002) and hence…..Marketing is any business process that gathers and disseminates information about customers, guides value creation and delivery with information about customers, or produces information evaluated and used by customers.Sense and respond as opposed to make and sell.
6 What customer value : What is our reason to be? Customer expectations (what do customers want?)Core competencies (how can we match this?)Selecting target markets (heterogeneity, not all customers and firms are created equal)Einar Breivik,
7 Marketing Processes Value-defining processes What customer value is at the core of our business?Analyzing market opportunitiesMarket research (study of customer needs, preferences, expectations, buying behavior, etc.)Analysis of the firm’s core competenciesSelecting target markets and positioningValue-developing processesProduct development and product managementDesign of distribution channelDeveloping pricing strategyDeveloping value proposition (communication strategy)Sourcing strategy, vendor selectionValue-delivering processesManaging distributions and logisticsOrder-entry, credit, post-sales servicesAdvertising and sales promotionsProduct upgrades and recalls, Applications engineering, Customer trainingWhat customer value : What is our reason to be?Customer expectations (what do customers want?)Core competencies (how can we match this?)Selecting target markets (heterogeneity, not all customers and firms are created equal)
8 Scope of marketing What is marketed? Goods Services Events Experiences PersonsPlacesPropertiesOrganizationsInformationIdeasWhat is marketed (for what is marketing tools used?)Goods (physical goods, bikes), Services (offerings often a mix)Events (world cup, tour de france (vuelta de espana), marketers promote events (sponsing of events a focus in the marketing literature)Experiences (camps, museums (ex. Williamsburg))Persons (celebrity marketing)Places (New Zealand (Kiwi), Norway (fjords), regions for food and wine, tourism)Properties (ownership rights, real estate, stocks and bonds)Organizations (corporate social responsibility (CSR) (ex. Body shop), reputation management)Information (Schools and universities, production and distribution of information (credit rating))Ideas (social marketing, political campaigns, environmentalists, quit smoking)
9 The marketing concept (Cites From Peter Drucker) The only valid definition of business purpose is to create a customer.What the business thinks it is producing is not as important as what the customers think they are buying; what they consider to be ’value’ is decisive.Any business has only two basic functions: marketing and innovation; all the rest are costs.It is not enough to entrust marketing to the sales department.The aim of marketing is to understand the customer so well the product or service fits him or her and sells itself.Marketing is the whole business seen from the point of view of its final result, that is, from the customer’s point of view.“Marketing is too important to be left to marketing people” Frederick E. Webster“Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.” Peter Drucker“The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” Peter Drucker“Marketing is the whole firm seen from the customer’s point of view” Peter Drucker“Marketing is too important to be left to marketing people” Frederick E. Webster
10 Markets and Competition A collection of buyers and sellers who transact over a particular market offeringCompetitionNeoclassical explanationResource-Advantage explanation (Hunt & Morgan 1995)Marketers tend to refer to markets as just groupings of customers. This may be one reason for criticism on a too narrow focus for marketers. One should also look at what one can offer. As you will see this is a focus advocated by many recent marketing contributions, not at least in branding where we deal with this in more detail.
11 Neoclassical explanation Perfect competitionDemand is homogenous for every industry’s productsConsumers assumed to have perfect information (which also is costless)Consumers motivated by utility maximization (self interest)Firms objective profit maximizationRole of marketing: ”creators of market imperfections”Demand is homogenous for every industry’s products (consumers are allowed to prefer different quantities of each industries products, but tastes and preferences are assumed to be identical with respect to desired product features and characteristics (homogenous within industry)Consumers assumed to have perfect information (which also is costless) regarding availability, characteristics, benefits, and prices of all products.In equilibrium marginal cost is equal to price. Then what about innovation? Equilibrium provides no incentive to change.Role of marketing: product innovation harmful (creates local monopolies (differentiated monopolies) moving markets away from equilibrium.
12 Resource Advantage Explanation Reexamines foundations of perfect competitionDemand is heterogeneous and dynamic within industries (product classes)Consumers assumed to have imperfect information (and obtaining information comes at a cost)Consumers motivated by constrained self interestFirms objective superior financial performanceRole of marketingMarket opportunity analysis (identifying needs based on customer value, segments)Selecting target marketsDeveloping marketing strategies to deliver customer valueConsumers motivated (both self-interest, but also moral (what is right)),Ex. If you worked together with a friend painting a house and your friend did 80% of the work, what if you then get paid the same amount?
13 Company Orientation Toward the Marketplace Production ConceptProduct ConceptSelling ConceptMarketing ConceptSocietal Marketing Concept
14 Production concept Idea of mass market Consumers prefer products that are widely available and inexpensiveFocus on efficiency (in production)Typical for growing markets (ex. Industrial revolution, scientific management)T-FordRefrigerators in their infancyCalculatorsExpanding marketsT-Ford (“people can have any color they want as long as it is black”)Calculators (Texas Instruments (1972 available at $150 (a month pay for a student might have been $500) and did 4 functions), Soon price dropped to $79 (still doing 4 functions) and demand picked up. Today you get much better calculators for free for opening accounts or other promotional deals.Same with PCAlso, oysters in Norway
15 Product conceptQuality, performance, innovative features, enough to sell products?Defining your business by the product you sell rather than by what your customer needs is the classic “Better Mousetrap” trap. Just because you build it does not mean they will come.Levitt’s railroad example.
16 Selling concepts Saturated markets, compete for attention Requires demand stimulationRole of the customer?Requires demand stimulation: What can we do to sell our products?Role of the customer: someone that can be manipulated
17 Societal marketing concept Marketing today includes the obligation to examine societal issues as wellCustomers have a life after the purchaseMad men (Lucky Strike)Relationship marketing, environmental issues, Corporate Social Responsibility
18 Marketing MyopiaDefine business in terms of need satisfied instead of product made (Levitt, 1960)MoviesRailroadsXeroxCokeKodak.Einar Breivik,
19 The Age of Customer Capitalism (Roger Martin, 2010) Managerial capitalism (Berle & Means 1932)Managers substituted for owners – entrepreneurs not good CEOsCustomer capitalism (Martin 2010)stage: Management should be divorced from ownership. Owner CEO’s substituted with professional managers. Entrepreneurs were welcome to start up new firms but would be wise to hand them over to professional managers, who were more dependable and less volatile, once business reached a significance size. Different phases required different competencies.Jensen & Meckling (Theory of the Firm: Managerial Behavior, Agency Costs and Ownership structure) argued that owners were getting short shrift from professional managers, who enhanced their own financial well-being rather than that of the shareholders. This was bad for shareholders and wasteful for the economy. Managers were squandering corporate and societal resources to benefit themselves. Hence, CEO’s had to confirm to the idea of maximizing shareholder value. Typically you could see arrangements such as stock-based compensations to align interests of senior managers and shareholders.
20 Shareholder value capitalism (Jensen & Meckling 1976, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure)Owners were getting short shrift from professional managers, who enhanced their own financial well-being rather than that of the shareholders. This was bad for shareholders and wasteful for the economy. Hence, CEO’s had to confirm to the idea of maximizing shareholder value. Typically you could see arrangements such as stock-based compensations to align interests of senior managers and shareholders.Einar Breivik,
21 Customer Capitalism Satisfaction maximization Focus on customer value Can not simultaneously maximize two different things (shareholder value and customer satisfaction)It is possible to maximize shareholder value given a minimum hurdle for customer satisfaction and vice versa, but not bothShareholder maximizationShareholders have a residual claim on a firm’s assets and earningsHence, the value of their shares is the discounted value of all future cash flows minus payments to other claimantsSince the future is unknowable, potential shareholders must estimate what that cash flow will be, their collective expectations about the future determine the stock priceAlso, subject to future optimism and pessimism -> Stock markets more volatile than the earnings of the companies in themWhat should managers do?Satisfaction maximizationFocus on customer valueShareholders have a residual claim on a firm’s assets and earnings meaning that they get what’s left after all claimants (employees and their pension funds, suppliers, tax, debt-holders, etc.) are paidHence any shareholders who expect that the discounted value of future equity earnings of the company will be less than the current price will sell their stock. And… more will buy.Therefore Shareholder value has little to do with the presentWhat should managers do? Raise expectations (but that can’t be done indefinitely), rather one focusing on relatively short-term strategiesFocus on customer value: After all the customer is the reason for the company’s existence. Of course, a single minded focus on satisfaction may turn out non-profitable, but a focus on customer value or satisfaction given financial constraints should make companies more profitable in the long run.
22 Customer Satisfaction and Financial Performance High levels of customer satisfaction grow shareholder valueCustomer satisfaction positively associated with credit ratings and negatively associated with debt costsMartin points to several companies that do support this claim. Several other studies have found support for this, although some of them produce mixed results.
23 R & D Customer Wants + Needs OFFERING Product Segmentation Positioning PromotionDistributionServiceNewCustomersMarketingConceptSatisfactionEnvironmentRetentionRateCustomerBaseBrandEquityValue ofCustomerCompetitionLost toCompetitionValue ofThe Firm“On Balance Sheet”Einar Breivik,
24 Sources Kotler, P. & K.L. Keller: Ch. 1 & Ch. 2 Webster, F.E. (2002): ”The Role of Marketing and the Firm”, in Handbook of Marketing (eds. B.A. Weitz & R. Wensley), SAGE,Haeckel, S.H. (2004): ”Peripheral Vision: Sensing and Acting on Weak Signals Making Meaning out of Apparent Noise: The Need for a New Managerial Framework”, Long Range Planning, 37,Hunt, S.H. & R.M. Morgan (1995): ”The Competitive Advantage Theory of Competition”, Journal of Marketing, 59(April),1-15Martin, Roger (2010): ”The Age of Customer Capitalism”, Harvard Business Review, January- February,