Factors and Importance of Marketing

What is marketing?

Marketing is the process of creating and delivering products or services for consumers that have value.  It is creating an offering with value, communicating those offerings, delivering those offerings, and exchanging those offerings.  Though this definition might make marketing sound simple, it is actually very complex and dynamic.  For a company to be successful today, marketing cannot be assigned to a single department of an organization, but must be intertwined within all facets of the company.  Everyone in an organization must support the concept of customer orientation consistently on a day-to-day basis.  With a large number of companies today adopting customer-centric practices, meaning those companies place the customer at the center of the organizational structure in order to become more customer-oriented, production orientation and sales orientation are becoming a thing of the past. 

Because of the importance of the customer, marketing management should be a primary component of a business.  Marketing management provides the oversight and guidance necessary for a business to effectively market their products and services in order to improve company performance at all levels.  Marketing management has the responsibility of marketing planning.  Marketing planning is the process of developing strategies for an organization to market its product offerings.  The market plan and business plan must coexist and should both center around the customer.  Companies generally have a corporate-level strategic plan which guides the overall corporation while strategic business units (SBUs) dive deep into marketing planning.

One method used by organizations when developing their strategic plan is portfolio analysis.   The BCG Growth-Share Matrix is one of the most popular tools used.  This matrix separates the companies SBUs into four categories measured on two scales.  The two scales are market growth rate and competitive position, while the four categories used are stars, cash cows, dogs, and question marks.  Stars and question marks have high market growth rate while cash cows and dogs have low market growth rates.  Question marks and dogs have low competitive position while Stars and Cash Cows have a high competitive position.  It is important for companies to evaluate their SBUs to see where they fall on this matrix.  This will aide an organization in deciding what direction to take that SBU in.  When developing a marketing strategy, it is important to take into account organizational strategies.  Organizations strategy should align with the mission and vision of an organization and pave a path for an organization to achieve its established goals and objectives.

The ultimate goal of an organization is to create a product or offering that has value for the consumer.  Value for a consumer is determined by the benefits gained from a product compared to the costs.  If the costs outweigh the benefits, the consumer will not see any value in the product, although there are some products that the cost does not affect the consumer’s buying decision.  The consumer determines the goods or services offered by a company, the price at which these goods/services will be offered based on the value perceived, and how these products/services will be communicated and delivered to customers.  The company does not decide what has value, but the consumer does because they are the ones who have to be willing to pay for the product.  This is why the marketing mix is a primary focus of marketing management because it looks at the”4 Ps” of marketing:  product, price, place, and promotion.  These four things all have one thing in common, they center around the customer.

Organizations are always looking for ways to continue to create additional value.  Porter’s value chain has become an essential tool for company’s looking to create and deliver additional value within the firm.  A well-aligned value chain helps create and maintain satisfied and loyal customers.  Organizations today are focusing on ways to align the elements of the value chain in order to support the organization’s value proposition.  An organizations value proposition communicates its value offerings, which is sometimes more than just the benefits attached to a specific product.  Value proposition is used to create long-term customer relationships because it provides more than just customer satisfaction which leads to customer loyalty.

With organizations competing for market share, developing a plan on how the organization will be a strong competitor in the target market, competitive strategy, is crucial.  There are four strategic types highlighted in the text: prospectors, analyzers, defenders, and reactors.  Prospectors are the first to move and have first-mover advantage.  Analyzers wait to see the results of Prospectors movement, then they make a move.  Defenders try to defend themselves from change, while reactors only respond when they are forced to by changes in the market.  Organizations attempt to use the things they do very well, core competencies, in their competitive strategy.  Capitalizing on these core competencies can give organizations a competitive advantage, what an organization does better than its competitors, which can lead to increased profits.  Three types of competitive advantage according to Michael Porter are: cost, niche, and technology.

In order to develop marketing strategies, organizations have to understand the market.  This is done through market research.  Power of information has shifted from seller to buyer over the years.  The internet has provided customers with a multitude of information on companies and their product offerings that influence their purchasing decisions.  Just like customers use the internet to research products and services, companies must also perform market research in order to make marketing decisions.  The data collected from research can come from both internal and external sources.  Collecting market data can be expensive. Internal sources can provide data as to what the company is currently doing successfully and what it is not.  According to the text, CRM systems prove to be valuable by collecting customer data from marketing information systems. By examining a customer’s journey with the company from initial inquiry to delivery and follow-up, organizations can identify strengths and weaknesses and modify practices in order to continue to operate a successful customer-oriented business.  Unfortunately, few companies fully utilize the data available from internal sources. 

A few examples of external information to consider in market research are: demographics, competition, environmental, political, legal, economical, and technological.   Being aware of changes in a population’s age, gender, or income levels has the potential to give organizations a better understanding of their current market and identify future needs for this market.  Exploratory, descriptive and casual are three types of research used by organizations.  Exploratory research is about discovery while descriptive tends to focus on the relationship between variables.  Casual research focuses on cause and effect.  For example, if we raise the price of our product will this affect our sales?  Determining what type of research to perform is important and the decision often comes down to the benefit versus the costs of performing the research, what type of information is needed for the decision, and how quickly the information is needed.  The data resulting from this research can be primary or secondary.  Primary data is both qualitative and quantitative and is collected by the researcher.  Secondary data comes from research conducted by another individual for another purpose.  Secondary data can be collected quickly from government sources and the internet, but it will not be able to answer the problem or question alone because it was not conducted for that specific purpose.  After collecting data, the last two steps are to analyze it and report the findings.  Because market research can be very expensive, both domestically and internationally, it is important to establish a strong research design or plan to ensure the organization is utilizing its resources efficiently.

Understanding consumer behavior helps organizations structure their operations and develop their product offerings in order to create value for the customers.  Internal forces and external forces influence consumer buying decisions.  Internal forces consist of things such as age, gender, income, motivation, education, and lifestyle.  Customer perceptions play a large role in their buying decisions.  Selective awareness, selective distortion, and selective retention form individual perceptions.  These three things result in an individual focusing on what is relevant and disregarding the rest (selective awareness), altering information to fit a certain belief (selective distortion), and only remembering things that support existing beliefs (selective retention).   Understanding these three things alone hugely impact how an organization will communicate to different segments of the market. 

Cultural and social factors are also influencing external forces.  It is very important for an organizations marketing strategy to take into account the target markets culture.  The language, values and nonverbal communications of a culture are important to understand in order for an organization to communicate its products effectively.  Without this understanding, the chances of product acceptance decrease. 

Situational factors provoke change in consumer behavior.  Though situational factors cannot be controlled, ways to diminish the effect of these should be incorporated into the organizations marketing strategy.   Situational factors include but are not limited to physical surroundings, personal circumstances, and time. Customers are not only external but internal as well.  If a company can provide offerings of value to its internal customers, its external customers will be better served.

Social factors include family, social class, opinion leaders, and reference groups.  The way families make decisions, social status, or influencers all affect the buying decisions of consumers.  The desirability to fit into a particular group is also an influencing factor.  The process consumers go through when making a purchase can be described as follows: problem identification, research, evaluation of alternatives, product choice decision, and post-purchase evaluation.  Organizations are concerned about the customer’s post-purchase evaluation because this step will determine whether or not the customer will repurchase their product in the future. Three important characteristics of post-purchase evaluation are: post-purchase dissonance, use/nonuse, disposition, and satisfaction/dissatisfaction.  Post-purchase dissonance is the feeling of doubt or anxiety about a purchase.  The likelihood of dissonance is reduced through the consumer’s research of a product.  Use/nonuse is important to measure because the company wants to ensure their products are being used correctly.   Correct usage of the product has the potential to increase customer satisfaction and increases the likelihood of the customer purchasing their product again.  Nonuse of a product is important to address for a company because it decreases the amount of purchases a customer will make.  The longer it takes a customer to use the product, the longer it will take the customer to return for their next purchase.  Disposal of products has become an environmental concern as well, and many companies have begun to use recycled materials for their packaging and implemented programs to encourage consumers to recycle. 

Once organizations have an understanding of how consumers make decisions, they have to decide which segments of the market they will target.  In order for a company to successfully communicate their product to consumers, they have to identify consumers who will be interested in the value their products offer.  Market segmentation is used to divide the market into smaller segments based on one or more factors in order to develop different marketing strategies that will meet the needs and wants of those segments.  Because the different segments have different needs and wants, the company will have to communicate its offerings in different ways to each segment.

The following types of market segmentation are generally used for consumer markets: geographic, demographic, psychographic, and behavioral.  A hybrid form of segmentation, geodemographic segmentation is also used.  Psychographic segmentation focuses on personality, activities and interest of individuals, while behavioral segmentation groups consumers based on similarities in product usage or desired product benefits. Businesses will normally utilize more than one type of segmentation when deciding the best ways to segment the market. 

Business markets will be segmented similarly to consumer markets with a few differences such as purchasing approaches and operating variables.  Segmenting business markets is usually more straightforward because potential customers are easier to identify.  After potential target markets have been identified and analyzed, market segments are then profiled in order to establish the segments priority for investment and development.   Market segments are normally prioritized into four levels:

• Primary target markets – best chance of meeting goals.
• Secondary target markets – reasonable potential, but development can wait.
• Tertiary target markets – may be attractive in the future but not presently.
• Target markets to abandon for future development.

Target marketing approaches can be undifferentiated, differentiated, concentrated, or customized.  A company’s approach is often influenced by the company’s competitive strategy.  Differentiation is commonly used when firms want to provide unique products or services to the market that allows the company to capitalize on any competitive advantages they may have.

Ultimately, the organization wants to ensure their customers are satisfied because unsatisfied customers often turn to competitor’s products.  Customers are not only consumers but other businesses as well.  It is important to alter the communication style to fit the customer.  Businesses generally prefer more personal relationships and direct communication compared to consumers who are generally satisfied with impersonal communication.  It is important to maintain a good relationship with your business customers because one business could be one of the top contributors to your company’s sales number.

Demand from consumers for your products is also an influencing factor in business to business relationships.  If consumers are no longer buying your products, then there will be no need for you to purchase the raw materials for your products from the supplier.   This is known as derived demand.   Organizations must also consider consumer fluctuations in product demand and budget production accordingly.  Elasticity of demand should also be evaluated.  Business products, products sold to other businesses, generally are inelastic and changes in price have very little effect.  This is the opposite for business to consumer markets where changes in product prices can have a significant effect on consumer demand.  The decision-making process for business markets is very similar to that of consumer markets.  The process can be defined as follows:

• Problem identification
• Define need
• Search for suppliers
• Seek sales proposals
• Make the purchase decision
• Post-purchase evaluation

Both personal and organizational factors, such as risk tolerance, will influence a company’s purchasing decision.   Technology has also impacted the way companies make decisions.  From sophisticated purchasing websites to direct links to suppliers to make purchases easier and quicker, technology has increased business to business commerce significantly around the globe.

By investing in managing customer relationships and providing valuable products to consumers, organizations build a reputation.  Brand can be defined by a name, logo, design, or feature of a product or service that distinguishes itself from other seller’s products.  If a company has a good brand reputation, consumers are more likely to purchase their products, both existing products and newly introduced products.  Company’s utilize the perceptions associated with logos to their benefit by making sure consumers are able to see the logos on their products.  Consumers assign meaning to brands based on past experiences with the organizations products such as quality, service, reliability, etc.  Good experiences lead to increased likelihood of consumers choosing that same brand in the future.  The book states that in order to protect the Brand, a trademark is used as a form of legal protection for product features, design, and packaging.  Having a strong brand will also attract competitors in markets where brand strongly influences consumer decisions.  In order to remain competitive companies will market products that overcome the leading brands product weaknesses. 

Brand equity is the value attributed to a firm from customer opinions of a product or service that is linked to a brand’s name or logo.  Five things that contribute to brand equity are:

• Brand awareness
• Brand loyalty
• Perceived quality
• Brand association
• Brand assets

Brand equity is not built overnight, but will deliver benefits to its customers, both consumer and business customers, over time.  The benefits delivered are in the form of perceived quality, brand connections, and brand loyalty.  Businesses will have to decide how they want to define their brand, which entail bringing multiple ideas into one single idea.  Four commonly used strategic decisions for branding are:

• Stand-alone or family branding
• National or store branding
• Licensing
• Co-branding

With stand-alone branding, the brand is separate from the company, but it is very expensive to create and maintain.  Co-branding links two or more brands together creating a partnership.  While this allows you to capitalize on the strengths of both brands, one downside is the loss of some control in the marketing of the co-branded product. 

Packaging and labeling of products must also support the brand while meeting any legal requirements.  Packaging should protect the product, reduce the likelihood of product tampering while communicating information about the product itself, as well as be visually appealing.  Labeling should meet all rules and regulations, be easy to locate and read, as well as contain the brands logo, name, or any other marketing communication.  The marketing communications should take up most of the space on the label.

Offering warranties and service agreements are another way for an organization to show its commitment to its product.  Customer’s find these offerings valuable, and they help improve the customers perception of a brand.  It is important for companies to perform a cost-benefit analysis when considering the type of warranties to offer for their products because warranties can easily become very expensive for a company.

Source: Marshall, G. and Johnston, M. (n.d.). Marketing management. 3rd ed.