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What is marketing?.

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Presentation on theme: "What is marketing?."— Presentation transcript:

1 What is marketing?

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 marketplace The age of customer capitalism What 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 framework Marketing as Value Delivery Marketing as exchange exchange behavior (exchanges of value between social actors of all kinds) very broad definition (sort of imperialistic, includes other subject areas such as eceonomics and sociology) Marketing as tactics ”Marketing is what marketers do.” Manegerial focus Stimulation of demand for the firms output Short term focus, little strategic orientation Marketing as value delivery The 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 opportunities Market research (study of customer needs, preferences, expectations, buying behavior, etc.) Analysis of the firm’s core competencies Selecting target markets and positioning Value-developing processes Product development and product management Design of distribution channel Developing pricing strategy Developing value proposition (communication strategy) Sourcing strategy, vendor selection Value-delivering processes Managing distributions and logistics Order-entry, credit, post-sales services Advertising and sales promotions Product upgrades and recalls, Applications engineering, Customer training 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)

8 Scope of marketing What is marketed? Goods Services Events Experiences
Persons Places Properties Organizations Information Ideas What 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 offering Competition Neoclassical explanation Resource-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 competition Demand is homogenous for every industry’s products Consumers assumed to have perfect information (which also is costless) Consumers motivated by utility maximization (self interest) Firms objective profit maximization Role 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 competition Demand 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 interest Firms objective superior financial performance Role of marketing Market opportunity analysis (identifying needs based on customer value, segments) Selecting target markets Developing marketing strategies to deliver customer value Consumers 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 Concept Product Concept Selling Concept Marketing Concept Societal Marketing Concept

14 Production concept Idea of mass market
Consumers prefer products that are widely available and inexpensive Focus on efficiency (in production) Typical for growing markets (ex. Industrial revolution, scientific management) T-Ford Refrigerators in their infancy Calculators Expanding markets T-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 PC Also, oysters in Norway

15 Product concept Quality, 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 stimulation Role 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 well Customers have a life after the purchase Mad men (Lucky Strike) Relationship marketing, environmental issues, Corporate Social Responsibility

18 Marketing Myopia Define business in terms of need satisfied instead of product made (Levitt, 1960) Movies Railroads Xerox Coke Kodak . Einar Breivik,

19 The Age of Customer Capitalism (Roger Martin, 2010)
Managerial capitalism (Berle & Means 1932) Managers substituted for owners – entrepreneurs not good CEOs Customer 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 both Shareholder maximization Shareholders have a residual claim on a firm’s assets and earnings Hence, the value of their shares is the discounted value of all future cash flows minus payments to other claimants Since the future is unknowable, potential shareholders must estimate what that cash flow will be, their collective expectations about the future determine the stock price Also, subject to future optimism and pessimism -> Stock markets more volatile than the earnings of the companies in them What should managers do? Satisfaction maximization Focus on customer value Shareholders 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 paid Hence 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 present What should managers do? Raise expectations (but that can’t be done indefinitely), rather one focusing on relatively short-term strategies Focus 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 value Customer satisfaction positively associated with credit ratings and negatively associated with debt costs Martin 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
Promotion Distribution Service New Customers Marketing Concept Satisfaction Environment Retention Rate Customer Base Brand Equity Value of Customer Competition Lost to Competition Value of The 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),1-15 Martin, Roger (2010): ”The Age of Customer Capitalism”, Harvard Business Review, January- February,


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