Core concepts of marketing

BALANCED COVERAGE To emphasize how various marketii1g areas work together to create a cohesive strategy,Idefine and explain the various marketing areas and their comparative strengths an

PRE FACE

Through good economic times and bad, marketing remains the pivotal functioninany ness Determining and satisfying the needs of customers through products that have valueand accessibility and whose features are clearly communicated isthe general purpose ofany business It is also a fundamental definition of marketing This text introduces students

busi-to the marketing strategies and busi-tools that practitioners use busi-to market their products

BALANCED COVERAGE

To emphasize how various marketii1g areas work together to create a cohesive strategy,Idefine and explain the various marketing areas and their comparative strengths and weak-nesses, as well as stress how to best "mix" marketing toolsin a strategic, integrated plan.The book begins with a discussion of the marketing planning process, continues with a dis-cussion of the preliminary tasks of developing the plan, and concludes witb the tactics avail-able to the marketing planner.This complete coverage ensures that students will learn how

to plan,execute, and evaluate a marketing program that is effective and efficient from start

to finish

Introducing Marketingrecognizes the impact of the global community on marketing tices.International implications are discussed in Chapter 6 and are also integrated intothetext through relevant examples

prac-Technology is altering many marketing practices The World Wide Web databases,tracking devices, and market simulations are only a few examples of the ways technologyhas affected marketing strategies Technology coverage is woven throughout the text, fea-tures, and end-of-chapter materials of this book (Note that because technology is chang-ing so rapidly, it is virtually impossible for a text such as this to remain absolutely current.)

This book demonstrates how companies use marketing Specific examples appear not only

in text discussions, but also in the chapter openers, the Integrated Marketing and Newslineboxes, and the end of chapter cases Examples and stories bring theory to life, demonstratingthe relevance of the reaaing The example subjects are vivid, current, and varied They rangefrom Fortune500 companiesto smaller, privately held businesses The text also focuses oninternationalcompanies ofall sizes

v

vi PREFACE

Learning is not always about success stories Diagnosing problems and failures is animportant aspect of criticalthinking, and examples of such are introduced to challenge s t udents to learn from others' mistakes and better manage real-world problems

A CLEAR, EFFECTIVE ORGANIZATION

Time is a precious commodity to instructors and students Market feedback revealed thatinstructors want an introductory marketing text that(1)covers the basics well and(2)omitsunnecessary detail Careful seleCtion oftopics, appropriate depth of coverage, and concisewriting helpcd us meet those two objectives.Instead of the typical20-25chapters,this textoffers 10 chapters of manageable length

HELPFUL PEDAGOGY

We introduce several features to reinforce learning and help students build business skillsthatthey can use on tne job Our comprenensive learning system enables students to mas-ter materials quickly and thoroughly Some features of that system include opening vignettes,performance-basec learning objectives, concept reviews, Integrated Marketing boxes,Newsline boxes, end-of-chapterprojec~s,and end-of chapter cases

SUPPLEMENTS OF THE BOOK

TheInstructor's Manual with Test Questions provides helpful teaching ideas, advice

on course development, sample assignments and chapter-by-chapter text highlights,learning objectives, lecture outlines, class exercises and more This manual alsoincludes multiple choice, true/false, and short answer text questions for eachchapter

• PowerPoint Presentations are available for download via the text web sie(www.wiley.com/college/burnett) These slides contain lecture outlines for each chap-ter of the text

• A computerized version of the Test Bank is available to instructors for tion of their exams

customiza-• Additional online resources are available to instructors via the text web site Theseresources include: I n Practice exercise~for each chapter, which relate directly tothe Wall Street ,Journal articles on-line; an interactive Study Guide; interactive web-based cases; on-line chapter summaries; aReading Room containing on-line arti-cles from the Wall Street Journal, which correlate with key concepts and topics withineacJl chapter of the text and more

ACKNOWLEDGMENTS

introducing Marketing,First Edition benefits from insights provided from marketing cators aroundthe country that carefully read and critiqued draft chapters I am pleased toexpress my appreciation to the following colleagues for their contributions:

Justification for Study 6

Characteristics of a Marketing Organization 7

The Role of Marketinginthe Firm:

ABasisfor Classification 12

Strategic Components of Marketing 17

KeystoMarketingSuccess 22

DefiningtheMarket 28

The Market IsPeople 28

The MarketIs aPlace 29

The Market Isan Economic Entity 29

Approaching the Market 31

The Undifferentiated Market (Market Aggregation) 32

Product Differentiation 33

The SegmentedMarket 34

The StrategyofMarketSegmentation 45

TheNature and Importanceof MarketingResearch 54

What NeedsResearchinginMarketing? 55

Procedures and Techniques in MarketingResearch 57

Making aPreliminaryInvestigation 57

CreatingtheResearch Design 59

Conductingthe Research 67

Processing theData 67

TheValue of MarketingResearch 67

Buyer Behavior andExchange 74

Buyer Behavior as ProblemSolving 75

TheDecision Process 76

Influencing Factorsof ConsumerBehavior 82

OrganizationalBuyerBehavior 91

Characteristics ofOrganizationalBuying 91

Stagesin Organizational Buying 93

CHAPTE R SIX MARKETING IN

GLOBAL MARKETS 126

Introduction 152

Defining the Product 152

Clas s ification of Products 154

Con s umer Goods and Industrial Good s 155

Good s Versus Services 157

Defining International Marketing 127

Standardization and Customization 128

Reason s for En tering International Markets 129

Re asons to Av oi d International Markets 130

The Stages of Going International 130

The I nternational Marketing Plan 133

The Corporate Level 134

The Bu si n ess Level 134

The Functional Level 136

The International Marketing Environme nt 139

The SociaVCultural Environm e nt 139

The PoliticallLegal Environment 142

The Technological Environment 144

The Economic Environment 145

The Competitive Environment 145

Integrated Marketing Communication 189

The Meaning of Marketing Communication 189

The Objectives of M arketing Co mmunication 190

Ho w We C ommunicate 191

Basic E l e ment s of Commu nication 191

Types of Comm unic a tion Systems 193

M arketing Communications 194

Designing an IMC S tr ategy 194

The Promotion Mix 197

The Campaign 198

Under s tanding Adv e rtising 199

The Organization of Advertising 199

The Advertising Agency 200

Developing the Creative Stra t e gy 200

Developin g the Media Plan 201

Banner Advertisements 202

Sales Promotion and Public Relations 204

Sales Promotion: A Little Bit of Everythin g 204

Public Relation s : Th e Art of Maintaining Goodwill Perso nal Selling and the M arketing

Communication M ix 211

Strengths and Weakne ss es o f Personal Selling 218

The Sal es Force of the Future 219

Summary 222

Marketer' s Vocabul ary 222

Discus s ion Qu estions 223

CHAPTER EIGHT

MASS MARKETS

Product Planning and Strategy Formulation 159

The Determination of Product Objectives 159

The Pr oduc t Plan 160

Product Strategies 161

Strategies for Deve loping New Products 168

Ste p I: Generating N ew Product Ideas 173

Ste p 2: Screening Product Development Ideas 175

Step 3: Bu siness Analysis 176

Step 4: Technical and Marketing Development 178

Step 5: Manufacturing Planning 178

Step 6: Marketing Planning 178

Step 7: Test Marketing 178

Project 224

Case Application: The Microrecorder 224

References 225

Introduction 227

Price Defined: Three Different Perspectives 227

The Customer's View of Price 227

Price from a Societal Perspective 228

Rational Man Pricing: An Economic Perspective

Irrational Man Pricing: Freedom Rules 230

The Marketer's View of Price 230

Psychological Aspects of Pricing 240

Alternative Approaches to Determining Price 242

Cost-Oriented Pricing: Cost-Plus and Mark-Ups

Vertical Marketing Systems 268

Horizontal Channel Systems 268

The Channel Management Process 269

Analyze the Consumer 269

Establish the Channel Objectives 270

Specify Distribution Tasks 270

Evaluate and Select from Channel Alternatives :!7~ Evaluating Channel Member PerfOlmance 272

The Human Aspect of Distribution 2 7 3

The Dual Functions of Channels 253

The Evolution of the Marketing Channel 254

Flows in Marketing Channels 255

Functions of the Channel 256

Channel Institutions: Capabilities and Limitations 257

Producer and Manufacturer 257

Retailing 258

Wholesaling 263

Physical Distribu tion 264

• The various kinds of marketing.

• the strategic workings of marketing components.

ELVIS-ALIVE AND WELL

It's Elvisweek in Memphis, and all over town they've got banners: '''20years/StillRocking.'" Is itjust us, or is it weird to waxsoupbeataboutthe twentiethanniversary of

a death? Youcan'thelp butfeel that the world'sgotthe Elvis Presley it wanted: achangeless, ageless objectof contemplationandveneration Elvis Week culminatesin aneventcalledElvis-The Concert 2000inwhich the man himself,resurrected by videotechnology, will sing withhis living ex-bandmates and the MemphisSymphony Orches-tra Who wouldn'tsecretlyprefer this fail-safe digitizedspectacletoaweary 62-year-oldgrinding out"IfI Can Dream" one more time?

Twenty years ago, no one close to Elvis could have imagined that his fans wouldspend over $250 millionannuallyon Elvis dolls, plates,keychains, towels, and wigs-toname just afewitems.Twoyears after Elvis's death, his estatewas worth less on paper than

it owedintaxes.Then,in1979, Priscilla Presley, Elvis'sex-wife,was named anexecutor ofthe estate for her daughter The family's crown jewels-Elvis'srecordings-had beensoldoffyearsearlierandPriscilla hadjustone chance tosave thelegacy She gambledthatElvis's name,image,and likenesswereworthsomething.Andsheturned his home intoaroadsideattractiontofmancea legalwar, fightingfor controlof all thatwas Elvis

Priscilla concluded that therewas only one way tosaveGraceland: sellticketstothe hundreds ofgawkerswho daily pressed theirfacesagainst Elvis'sgates.Meanwhile,why notsell some gewgawsto the fans that werealready buying cheesy trinketsatthestrip mall across the street? Buoyed by an initial investment of $560,000, Graceland'sdoors were opened to the public in 1982.Ittook 38 days to recoup their investment;350,000 visitors walked through the house the first year."Ifelt I was betraying Elvis,"says Priscilla,recallingher decision to enterthe amusementbusiness "Graceland was

1

2 CHAPTER 1 INTRODUCING MA KETI NG

rh p ';/

© Elvis Presley Enterprises, Inc.

his pride and joy But it came down to the reality thatIhadtoopen itup formy dater's future."

ugh-Today 750,000 people visitGraceland eachy~ar-52%of them under3 ,whichsuggests this is a business with a future The marsion has upgraded its public facilitiesmany times over the years, but there stillare no vending machineson the grounds andthe lawns have never been turned intoaparking lot The original 24 acres have beenexpanded into an 80-acre compound andPriscilla intends to add a hotel to thecomplex.There are also plans for a casino inLas Vegas-perhapswith an Elviswedding chapel-and an international chain of Hard RockCafe-style restaurantscalledElvis P resley's Memphi s Finally, a staff of ten lawyersisemployedfull-time by ElvisPresleyEnterprises simply to protect Elvis's imagefrom interlopers

Sources: Corie Brown, "Look Who's Taking Care of Business," Newsweek, August 18, 1997, p 62 Karen Schoemer, "Burning

Love," Newsweek, August 18, 1997, pp 58-61 G Brown, "More Earll' Elvis Unearthed," The Denv er Pos tAugust 15, 1 9 97,

p 9F Greg Hassell, "King of Trees Rises From Graceland," Houston Chronicle, Dec 8,1999, p 11 Duncan Hughes, "Elvis is Back From the Dead Fmancially," Sunday Business, August 15, 1999, p.23.

INTRODUCTION

The success of Elvis Presley Enterprises was a result ofthe insights and courage ofPriscillaPresley Despite her lack of formal training inmarketing,she exhibited a creativeapproach

MARKETING: DEFINITION AND JUSTIFICATION 3

toward doing business that will becomemore and more necessary as the21 stcentury tinues.Innovativethinking has become aprerequisite for success in today'sglobal envi-ronment,which is saturated withnearclone productsbeingsoldby millionsof comparablecompetitors.Thestatus quowill no longersuffice.The needforconstantchange pairedwithclear strategies is now essential

con-Marketing constitutes just one of the functions available to every business Along withresearch, production, finance, accounting, and a myriad ofotherfunctions, marketing con-tributestothe ability ofa businesstosucceed.In many businesses, marketingmaybe deemed

of highest importance; inothers,it may be relegated toa lesserrole Thevery existence ofbusiness depends uponsuccessfulproducts and services, which in turnrely on successfulmarketing For this reason,everybusines~ person willbenefitfrom even basic marketingknowledge Moreover, marketing principles have been effective~y applied to several non-business institutionsfor morethan 30 years Bankers, physicians, accounting firms, invest-mentanalysts, politicians, churches, architectural firms,universities, and theUnitedWayhaveall cometo appreciate the benefitsofmarketing

A word of warning: thereis a long-standingmyth that marketing is easy.Aftergoingthrough this book you may conclude that marketing is interesting, fun,challenging evenvague-but it is not easy Whether you like numbers or hate numbers, like people or hatepeople, like doing thesame thingevery day or likeconstant change there are opportuni-ties for youin marketing

De fin ing M ark eti ng

Noted Harvard ProfessorofBusiness Theodore Levitt,states that the purpose of all nessISto"findandkeepcustomers."Furthermore,theonlyway you canachievethis objec-tive is to create a competitive advantage. That is, you must convince buyers (potentialcustomers) that what you have to offer them comes closest to meeting their particular need

busi-or wantatthat pointintime Hopefully, youwill be able toprovidethisadvantagetently,sothat eventually the customerwill no longerconsiderother alternatives and willpurchase your productout ofhabit This loyalbehavior isexhibited by people who driveonly Fords, brush their teeth only with Crest,buy only Dellcomputers,and have their plumb-ing fixed only by "Samson Plumbing-On Call 24 hours, 7 days a week." Creatingthis

consis-blindcommitment-withoutconsideration of alternatives-to a particular brand, store, son, or idea is the dreamof allbusinesses.Itis unlikely tooccur,however,without the sup-port ofan effective marketingprogram.Infact,thespecificrole of marketing istoprovide assistance in identifying, satisfying, and retaining customers.

per-While the general tasks of marketing are somewhatstraightforward,attaching an able definition to the concept has been difficu't A textbook writer once noted,"Marketing

accept-is noteasyto define Noonehas yet been able to formulate a clear, concise definition thatfinds universal acceptance." Yet a definition of somesortisnecessary if weare tolayoutthe boundaries of what is properly to be considered"marketing." How do marketingactiv-ities differfrom nonmarketing activities? What activitiesshouldone refer toasmarketingactivities? What institutions should onereferto a~marketing institutions?

Marketing is advertisingto advertising agencies, events to event marketers, ingondoors to salespeople, directmailto direct mailers In other words, to a person with

knock-a hknock-ammer,everything lookslike a nail.~nreality, marketing is a way ofthinking about ness, rather than a bundle of techniques It's;nuch more than justselling stuffand collect-ingmoney.It's the connection between people and products, customers and companies Like

busi-4 CHAPTER 1 INTRODUCING MARKETING

organic tissue,thiskind of connection-or relationship-isalwaysgrowing ordying.It canrever be in asteady state And like tissue paper,this kind of connection is fragile Cus-tomerrelationships, even long-standing ones, are contingent on the last trung that happened.Tracing the evolution of the various definitions of marketing proposed duringthelastthirty years reveals two trends: 1)expansionof the application of marketingtonon-profitand non-businessinstitutions;e.g.,charities,education,or healthcare; and 2) expansion ofthe responsibili'jesofmarketingbeyond thepersonal survivalof theindividualfirm, to includethebetterment ofsociety as awhole.Thesetwo factors arereflectedin theofficialAmer-ican Marketing Association definition publishedin 1988

" Marketing is the process of planning and executing the conception pricing, tion, and distribution of ideas, goods, and serv ices to create exchanges that satisfy individual (customer) and organiwtional objectives.'"

promo-While this definitioncanhelp usbetter comprehendthe parameters ofmarketing, itdoes not provide a full picture Definitionsof marketingcannotflesh out specifictransac-tions and otherrelationshipsamongtheseelements.The followingpropositions are offered

tosupplementthis definition and better position marketing within the firm:

1 Theoverall directive for any organization isthe mission statementor some alent statement of organizational goals It reflects the inherentbusines~philoso-phyof theorganization

equiv-2 Every organization has a setoffunctional areas (e.g., accounting, production,finance,dataprocessing,marketing) inwhich taskst;latare necessary forthesuc-cess of theorgani~ationare performed These functional areasmust be managed

if they are to achieve maximum performance

3. Every functional area is guidedbya philosophy (derived from the missionsmentor company goals) that governs its approachtowarditsultimateset oftasks

tate-4. Marketingdiffer~ from the otherfunctional areas inthat its primary concern iswith exchanges that take place in markets, outside the organization (called a

suc-is reflected in high quality products, fair pricing, convenience, a 100%satisfac~ionpolicyand-above all-dedication to customer service (Proposition 2).Thisphilosophyhasneces-

sitateda very highstandardofproduction,efficientbillingsystems, extensive and sive communication networks, computerization, innovative cost controls, and so forth.Moreover, it hasmeant that all of thesefunctional areashaveto be in constant communi-cation,must be totallycoordinated,andmust exhibit alevel of harmonyandmutualrespectthatcreatesa positiveenvironment inorder t o reach shared goals (Proposition3) TheL.L.Beanmarketing philosophy is incloseharmony with its mission statement Everything themarketingdepartmentdoes must reinforce and make real the abstract concept of"consumer

respon-satisfaction" (Proposition 4) The price-product-qualityrelationshipmustbefair.Theuct must advertiseinmedia that reflectstrushighquality.Consequently, L.L.Bean adver-

prod-MARKETING: DEFINITION AND JUSTIFICATION 5

Pr t

Our

AD 1 1 The website for L.L Bean represents the newest form of marketing communication,

tises through its direct-mailcatalogue andthrough printads inprestigious magazines(e.g.,

National Geo g raphic).Italsohas oneof themost highlyregarded websites (Ad 1.1) uct selec:ion and design are based upon extensive research indicating the preferences oftheir customers Sinceproduct delivery andpossible product returnis critical, marketingmustbeabsolutely sure thatboth these tasksareperformed in accordancewith customers'

Prod-wishes(Proposition5) While one might arguethat themarketing functionmustbe the mostimportant function atL.L.Bean, this is r.otthe case L.L Bean isjust aslikely to loseacustomerbecaus of incorrectbilling(anaccountingfunction)oraflawedhuntingboot(aproductfunction)as it is from a misleading ad (a marketing function)

Admitted:y, marketing isoften a critical partof a firm's success Nevertheless,theimportance of marketingmust be keptin perspective.For many large manufacturers such

asProctor&Gamble,Microsoft, Toyota, andSanyo, marketing represents a majorditure,and thesebusinessesdepend on theeffectiveness oftheir marketingeffort.Conversely,for regulatedindustries(suchas utilities, social services, or medical care or smallbusinessesproviding a one-of-a-kind product) marketingmay be little more than a few informativebrochures Thereare literally thousands ofexamples ofbusinesses-many quite small-thathave neither the resources nor the inclination to support an elaborate marketingorgan-ization andstrategy.Thesebusinesses relylesson research than oncommonsense.In allthes ~ases themarketing program isworththecosts only ifitfits the organization and

expen-facilitates itsabilitytoreach its goals

6 C H PT ER 1 INTRODLCING MARKETING

Artist Linda Armantrout, owner of Armantrout Graphic Design andIllustration, works with businesses to help them picture their goals-literally-through a "pictorialmissionstatement."

As op;:JOsed tothe typical written missionstatementthat is handeddown to employees from management.Armantrout creates a bright

watercolor picture of the statement, after receiving input from bothemployees and managers, The final result is usually a collage of sortsthat depicts whatis important tothe staff and the business-sucha sclients, products, services, and ethics

The mission statement picture that Armantrout designsis framedand hung atthe company to remind employeesof theirgoals ThepiC-torial statements also can beput oncoffee mugs,jackets, and desk-top posters, or turned into screen savers

One of Armantrout's clients, BancOne Leasing Corporation, came

upwith a colorfulimage of a globe surrounded byimages representingits clients and services Drawings of airplanes and busesrepre-sentwhatthecompany leases and the globerepresents itsnationalpresence

-Sources: Katie Ford " Pictu r e Your Goals In Colo r, "The Denver Business

Jour-nal, March 17-18, 1999 , pp 33A , 35A Shirleen Holt, "Mission Possib l e, "Busi

-ness Week ,August 16 1999, p F-12 Teri Lammers , ''The Effective and Indisp ensab le Mission Statement,"Inc.,August 1999, p 75

Ju s tifi c ation for Study

This taskof determiningtheappropriatenessofmarketing foraparticular businessortutionservesasa major justificationfor learning about marketing Although marketing hasclearlycomeof age duringthedecadesof the 1970,1980s, and 1990s,thereis still agr~at

insti-dealof misunderstanding about the meaning and usefulnes of marketing.Formost of the

globalpublic, marketingis stillequated withadvertisingand personalselling.While

mar-keting is bothofthose, itis also much more

Thebusinesscommunity can attrioute apartialexplanatior.~orthisgenerallackof

under-standingaboutmarketingto the uneven acceptanceandadoption of marketing Some nessesstillexist inthedark ages when marketing was defined as"thesalesdepartmentwillsell whatever the piantproduces." Others have advanced abitfurther,in that they have amarketingofficerand engageinmarket research,productdevelopment, promotion andhave

busi-along list of marketing activities.More andmore businesses firmlybelievethat theaim of

marketing istomake sellingsuperfluous, meaning that the marketer knows andunderstandsthe customerso well that theproductorserviceis already what's wanted a n d sells itself.Thisdoes not mean thatmarketeisignore the engineering and productionoftheproductor

the importance of;Jfofits.Itdoessuggest, however, that attentiontocustomers-whotheyare andwho they aregoing to be-isseento be in the best10ng-tenn interest ofthe com-pany.As astudent imerestedin business,it isbeneficialforyou to havean accurateandcom-plete comprehension of the role marketing can andshould play in today's business world.There arealso severalsecondary reasonstostudy marketing Onewehave alreadyalludedtoinourdiscussion ondefinitions: Theapplication ofmarketingto more nonprofit

MARKETING: DEFINITION AND JUSTIFICATION 7

and nonbusiness institutions is growing Churches, museums, theUnitedWay, the U.S Armed

Forces,politicians,andothersare hiring individuals with marketingexpertise.This has opened

upthousands of newjobopportunities for those with a working knowledge of marketing.Even ifyou are not getting a degree~ nmarketing, knowing abou:: marketing will pay

offin a varietyof careers Consider the following individuals:

• PaulMoore, an engineer specializingin earth moving equipment,constantlyworkswith product developmentandsales personnel in order tocreatesuperior products

• ChristyWood, a CPA, isatop tax specialist whospends much of her time tainingcustomerrelationships, and atleastthreedays~monthseeking newcustomers

main-• SteveJacobson, a systems analyst and expert programmer,understands that his skillsmust beused tofind the rightcombination ofhardware and software for every one

There are twofinalfactors that justifythestudyofmarketing for nearly every citizen

First ofall,we areall consumersandact:ve participants in the marketing network

Under-standingtherudiments ofmarketing will make us better consumers,which in tum willforce

businesses to do their jobsbetter Second, marketing has an impact on society as a whole.Conceptssuchas trade deficit,embargo,devaluation of aforeigncurrency, price fixing,decep-

tive advertising, andproduct safetytake onawhole new meaning when weview them in a

marketing context.Thisknowledge should make youamore enlightened citizen who

under-standswhatsuchsocialandpolitical issues mean toyouand to our society

Marketing capsulessummarizetheinformation throughout this text

Characteristics of a Marketing Organi zation

As notedearlier,the application of marketing in a particularorganizationvaries dously,rangingfromcommon-sensemarketing to marketing departments with thousands

tremen-of staff members and multimillIOn-dollar budgets Yet both may have a great deal in

com-mon in respect to how they view the activitycalledmarketing We refer to these common

characteristics as the Csof Marketing They are your clues that a business understands

marketing

1 T he purpose of marketing is to help find and keep cus

-tomers by creating a competitive advantage

2. Marketing, one of severai function s operating in an

organ-ization, i s directed by the mi s sion statement of the

organ-ization and provides certain tools to reach objectives.

3. The value of marketing must be kept in perspective: it must

contribute to the growth of the firm.

4. Th e primary reasons for studying marketing are:

a. Itis important to assess the role marketing should play

in th e firm.

b Marketing offers growing career opportunities.

c Marketing enhances our chances of becoming more effe c tive consumers and citizens.

8 CH A PTER 1 INTRODUCING MARK ET IN G

Consumer Content

What makes the existenceofanyorganizationpossible isthat thereare asignificant ber of people who needtheproductorservice offered bythat organization.As soon asthatgroupbecomes toosmall,or theneed no longerexists,or someother organizationcan sat-isfythatneedbetter, theorganization will beeliminated Thatis thewayof afreeeconomy.Thus,a politiciandoesn't get re-elected,an inner-citychurch closesits doors,the moneyneeded to cureAIDSisnotallocated, andtheVai SkiResortfilesfor bankruptcy

num-I nthecase of businessorganizations,and marketingorganization:.:in particular,thepeople withtheneedsare called consumers or customers.Inmarketing,theactof obtain-ing a desiredobjectfrom someoneby offering somethingofvalue in return iscalled the

exchan ge process Moreover, he exchange betweentheperson with the need (who givesmoney orsomeotherpersonal resource)andthe organization selling thisneed-satisfying

thing (aproduct,service,or idea) isinherently economic, andis called atransaction Theretendsto besomenegotiation betweentheparties.Individualson bothsidesattemptto max-imize rewards and minimize costsintheirtransactionsso a to obtain the :'nostprofitableoutcomes.Ideally,all partiesachieve a satisfactory levelofreward

Ineachtransaction,there isan underlyingphilosophyinrespect to how theparties

perceive the exchange Sometimes deception and lying permeate the exchange Otherexchangesmaybe characterizedasequitable, where each party receivesabout thesamea

theother-thecustomer's needissatisfied andthebusinessmakes areasonableprofit Withtheemergenceof theInternet ande-comrnerc during the 1990s, thenatureof theexchangefor manybusinesses and customershaschangeddramatically.Today'sconsumershaveaccess

tofar moreandfarbetterinformation They also havemanymore choices.Businessesmust

providea simiarlevelof informationandmustdeal with new competitors that are quicker,smarter,andopen24 hoursaday

An organization that employs marketing correctly knows that keeping customers

informediseasier ifthey keepin constantcontactwiththecustomer.This does notnecessarily mean thatthey writeandcall regularly,althoughitcould Rather,itmore likely means

-that amarketingorganization knowsa greatdea l about thecharacteristics,values, int

er-e ts, and behaviors of its customers, an monitorshow these factors change over time.Althoughthe processisnotanexactscience,thereis sufficientevidencethatmarketers who

do thiswell tend tosucceed

Whenthi~attemptto know a muchabout theconsumera possible is coupled with

a decisiontobas allmarketingonthisinformation, it is said thatthe organization is oriented or hasadopted the marketing co n cept.Itmeans workingback from the customers'

consumer-needs,ratherthanforwardfromthe factory's capabilities

Both historically andcurrently, many businesses do not fo~lowthe marketing cept Companiessuch asTexasInstrumentsandOtisElevatorfollowedwhat has beenlabeled

con-aproduction orientation ,where the focusis on technology,innovation,and low tion costs Such companies assume thata technicallysuperior or less expensive product

produc-sellsitself There are alsocompanies,suchasAmway,wheresalesand marketingareesse

n-tially the same thing.Thissales ori e nt a tion assumesthat agood salesperson hasthebilitytosell anything.Often,thisfocusonthes llingprocessmay ignoretheconsumerOf

capa-view theconsumeras someonetobemanipulated.Insightfulbusinessesacknowledge theimportance of productio andsales,butrealizethatathree-step process is mosteffective:(1)continuouslycollect informationaboutcustomers'needs andcompetitors'capabilities;(2) share the informationacrossdepartments;and(3) usethe information tocreate acom-petitive advantagebyincreasingvalueforcustomers.Thisis truemarketing

MARKETING: DEFINITION AND JUSTIFICATION 9

Company Cap abilities

All marketing organizations try to objectively compare theirexistingcapabilities with theirability to meet the consumer's needs now and inthefuture Moreover,when deficienciesare found, a good marketing organization must be willing to makechangesas quickly aspossible When Toyota realized that their products were not connecting with consumersaged

35 and younger, it decided to take direct action In 1999, itgatheredeight people intheir20sand30s from around the company into a new,ethnicallydiverse marketing group called

"genesis." Their first assignment was to launch three cars meant to pull in younger buyers:the entry-level ECHOsubcompact,a sporty new two-door Celica,and the MR2 Spyder, aracy convertible roadster.2

Although assessing company capabilities often begins in the marketing area, all thebusiness functions must be assessed Do we have the technical know-how to produce acom-petitive product? Do we have the plant capacity? Do we have the necessary capital? Do wehave good top management? A "no" toany of these questions may stymiethe marketingeffort.Conversely,a strong advantage in cost control or dynamic leadership may providethe company with a competitive marketing advantage that has little to do with marketing,but everything to do with the business succeeding

Few doubt that the secret of success in any relationship is communication This is ciallytrue in a marketing relationship, where the attitude of both parties is frequentlyskep-tical, the nature of the contact is hardlyintimate,and the message delivery system tends to

espe-be impersonal andimprecise It's because of these factors that communication playssuch

an important role in a marketing organization

Marketers know that consumers areconstantlypicking up cues put out by the ization,or about the organization, that they use to form attitudes and beliefs about the organ-ization Many of these message-laden cues are controlled by the organization, includingfactors such as product design, product quality, price, packaging, outlet selection, adver-tising,and the availability of coupons In this case, marketers follow basic communicationprinciples that are discussed throughout this book.Most notably,there is a constant attempt

organ-to make sure that all of these elements deliver a consistent message, and that this message

is understood and interpreted in the same way by the various consumers

On the other hand,there are many message-laden cues that are not under the control

of the marketer, yet may be more powerful in the minds of consumers, and that must beanticipated and dealt with by the marketers A recent report that United Air Lines had theworstcustomersatisfaction scores created a downturni nboth United'sstock andcustomerreservations Although there are many sources delivering such information, the three mostprominent are employees, competitors, and the media

Employees,from the president on down,are all considered representatives of the ization for which they work Consumers often assume that the behavior, language, or dress

organ-of an employee is an accurate reflection of the entire organization.Making and possibly even former employees-positive ambassadors of theorganizationhas become

employees-so important that a new term hasemerged-internal marketing.

Competitors say agreat deal about one another, some truths,some boldface lies Amarketing organization must becognizantof this possibility and be prepared to respond Theautomobile industry has usedcomparison messaging for over thirty years Coke and Pepsi

have been attacking and counter-attacking for about the same length of time.Negative ical messages appear to be very effective, even though few politicians admit to the strategy

polit-1 CHAPTER 1 INTRODUCING MARKETING

Finally,the media (editors andreporters workingfor newspapers, TV andradio

sta-tions, and magazines) loomsas oneof the greatestcommunication hurdlesfaced by keters,Ina large marketing organization, the responsibility ofcommunicatingwith themedia

mar-isassignedtoa publicrelations staff Public relations people write press release storiesabout

theirorganization that they hope the media will use, If the press releasesare not used, the

marketer attempts to ensurethatwhatever the mediasays about theorganization is rate and as complementary as possible For smaller companies, dealing with the mediabecomes everyone's responsibility,Many businesses now face anew media, the Internet:

accu-chatrooms,websites, and propaganda campaigns intendedto destroy a business have become

commonplace,Companiesthat are willing tofocusoncommunicationas ameans of doingbusiness engage inrelationship marketing-a type of marketing that builds long-standing

positiverelationships withcustomers andotherimportantstakeholder groups, Relationshipmarketingidentifies "high value" customers andprospects and bonds them to the brandthrough personalattention,

Compet iti on

We havealreadymentioned the importance thatcompetition playsin a marketing

organi-zation, Ata minimum, marketingcompanies must thoroughly understand their tors' strengths and weaknesses.This means more than making sweeping generalizations

competi-aboutthe competitors.Itmeans basing irtelligent marketing decisions onfacts about how

competitorsoperateand determining how besttorespond

Often the identificatior.ofcompetitors is fairly straightforward Itis the ket on the next block, or the three othercompanies that manufacture replacement wind-

supermar-shields.There are instances, however,when the identificationof acompetitor is not clear.Marketingexpertiheodore Levittcoinedthe term"marketingmyopia"several years ago

to describecompanies thatmis-identify their competition,3 Levitt argued, for example, thatthe mistakemadeby thepassengertrain industry was to restrict their competition tootherrailroads insteadof all mass transit transportat;onalternatives, includingautomobiles, air-

lines, and buses,Today we see thesamemistake being made by companies in thetainment industry (movie theaters,restaurants,and resorts), who assume that their only

enter-competition is like-titled organizations

Sincepracticallynomarketer operatesasamonopoly, most of the strategy issuessideredbyamarketer relate tocompetition,Visualize amarketingstrategy asa hugechessgame whereone playeris consta;1tly making his orhermovescontingenton what theother

con-player does Somepartners, like Coke and Pepsi, McDonald's and Burger King, and Fordand General Motors, have been playing the gamesolongthata stalemateis often the result

In fact, therelativemarketshare ownedby Coke and Pepsi hasn'tchangedby more thanapercentage or twodespite the billions ofdollarsspentby each onmarketing,

The desire of companies to accurately gaugecompetitorshas led tothegrowing ularity ofa separatediscipline-competitive intelligence, Thisfield involves gatheringas

pop-muchinformation about competitors throughany means possible, usuallyshortof ing the law, Moreis saidabout this processinthe Integrated Marketing(1M)box thatfollows,

break-Cr oss-Function a l C on ta ct

One of thefirstmistakesanorganization might makeistoallowthevariousfunctionalareas

to become proprietary,Whenever a marketing departmentconsidersitselfmostimportant

to the success of the organization and self-sufficientwithout needfor accounting, facturing, or human resources, it ceases to be areliable marketing group, True marketersknowtha~they cannot beany betterthantheirweakestlink.Lackof understandingand trustbetween marketing and manufacturing,forinstance,couldmean that a productsold bymar-

manu-MARKETING: DEFINITION AND JUSTIFICATION 11

keting is not delivered when promised or with the right features Marketers should sider their peers in engineering, who rnjght not be able to produce an ambitious product

con-requested by marketing at the costdesired.Likewise, human resources might not be able

to locate the individ'lal "with tenyearsof experience in package goods marketing" requested

by the marketing manager

The pointis that marketingis farmore likely to be successful if itsstaffrelate

intel-ligently and honestly with members of theother functional areas In someorganizations,thewallsof parochialismhavebeenstanding solong that tearing them down is almostimpos-sible.Nevertheless,creating inter-departmenta: connections iscritical

With downsizing and other cost-cutting activities prevalent during the last decade,the need forinter-related andharmoniousbusinessfunctions has becomeevenmore impor-

tant.In the field of marketing, the term integrated marketinghas been coined, suggestingthat individualsworking in traditional marketing departmentsareno longer specialists, butmust becomeknowledgeableabout all the elements of the business thatcurrentlyor poten-tially haveanimpacton the success ofmarketing.Atthecorporatelevel,allmanagers shouldshare a corporate vision,andthere shouldbe an organizationalstructurethat makes it pos-siblefordepartmentsordivisions to share information and participate in joint planning

Thisapproach representsthe direction in which manycompanies aremoving, inggiantslkeKraft and Disney.To be truly integrated, though, everydecision ateach level

includ-of the business shouldsupportdecisions made at all the other levels To illustrate, let's saythat the corporategoalisto maximize profit A marketing plan objective toincreasesales

by marketingnewproducts matches thegoal.The previous 1M box also illustrates this point

SPYING TO STAY COMPETITI V E

Most corporate detectives avoid terms like spying and

espi-onage, preferring the more dignified label "competitive

intel-ligence," but whatever they call it, snooping on business rivals

has become an entrenched sub-industry.

Nearly every large U.S company has an intelligence office

of some kind Some, like Motorola , Inc., have units sprinkled

in almost all of their outposts around the world Their

assign-ment is to monitor rivals , sniff out mergers or new

technolo-gies that might affect the bottom line, even to keep tabs on

morale at client companies A veteran of the Central

Intelli-gence Agency formed Motorola's intelligence unit , viewed

as a modelinthe business, in 1982.

Corporate intelligence relies on a slew o f tools-some

sophisticated, many quite basic On the simpler end of the

spectrum, business sleuths do everything from prowling

trade-show floors to combing through rivals' web sites and patent

office filings They keep their ears open in airports and aboard

flights But sometimes they go further They take photographs

of competitive factories, and, increasingly, they rely on new

data-mining software that permits them to scan the Internet

at high speeds for snippets about their rivals.

Sources: Neil King , Jr and Jess Bravin , " Call It Mission bleInc.-Corporate Spying Firms Thrive," The Wall Street Jour- nal, Monday, July3, 2000 , pp B1, B4; Norm Brodsky, "The First Step,"Inc ,August , 2000 , pp 37-38; " Spy Practice, "Sunda y

Impossi-Times (London), July 23, 2000,p 89; "Competitive Intelligence is Not COIporateEspionage;' Financial News, June 30, 2000, p A6.

12 CHAPTER 1 INTRODUCING MARKETING

which~ hemarketer operates.ForEsther andJim Williams, who operate an A&Wdrive-in

inMattoon, Illinois, community is quite small ForVerizon Communication, community

encompasses practicallytheentire world,extending even toouterspace

Regardlessof the scope of the marketer's community, maintaining contact withitis

essential.Contactcould meanreadingthelocalnewspaperandlisteningtothe localgossip

Or it could meansubscribingto information releases ofseveralmarketing researchfirmsthat monitor world events24hoursa day.everyday Eithermight do the job,although thedifferences infinancial costs would begreat In Chap~er 3 we discuss some of the more

importanttrendsin the world community Esther and jimwould find this discussionesting,but notvery useful

inter-U:timately, to be considered a responsibleci ~ izenin theenvironmentsin which itates, marketers have theongoing taskofengaging inonly pro-societal activities andcon-ducting businessinan ethicalmanner.There are many marKeting companiesthat donate

oper-millions ofdollarsorland tocommunities,cleanlakesand rivers,revamp deterioratingborhoods, givefreeproductto the needy, managerecycling activities, and soforth There

neigh-is no doubt thattheneed for marketing to continuesuch activities will increase

T h e R o le of Marketing in t h e Firm:

A B a sis f o r Classification

Marketingisanindividualizedanohighlycreativeprocess.Despitetheavailability of

high-powered compuLers and sophisticated software capableofanalyzingmassive amounts of

data, marketing is ~tillmore of an art rather thana science Each business must customize

its marketing effortsinresponseto its environmentandthe exchange process.Consequently,

no two marketing strategiesareexactlythe same

This requirementofmarketing toplayslightly differentroles,depending uponsomesetof situational criteria, has in tumprovidedus with a division of marketing intoanum-ber of differentcategories.This is not to imply,however, thatthere aren'tgeneral market-ingprinciplesthatworkinmostbusinesses-thereare Thereisarightand wrong waytodesign a package Thereare certainadvertising strategiesthat tend toworkmore often thanothers Rather, we are saying that because of certain factors, abusine~s'sapproach towardmarketingand the ensuing~ trategywillrequire some modificationfrom thebasic plan.Shownin Table 1.1arcthe most common types ofmarketingcategories Since thesevarious typesofmarketing will be discussed throughout this text, a briefintroductionisprovided at this point

Ma cr omarketin g Versus Mi cr omarketing

Thedivisionof marketinginto macromarketingandmicromarketing isafairly recentone.Initially,the division was a result of the controversy concerning the responsibilityofmar-keting Shouldmarketingbelimitedto thesuccessofthe individual firm,orshouldmar-keting considerthe economicwelfare of awholesociety?Accepting the later,or"macro,"pointof view dramatically changes theway marketing is carried out Inthis light, every

marketingdecision must be evaluated with regard to how itmightpositively or negativelyaffecteach personand institutionoperatinginthat society.In 1982,Bunt andBurnettsur-veyed the academic communityinorderto define more precisely the distinctionbetweenmacro-and mircomarketing.4Theirfindingssuggest that theseparationdepends upon"what

is being studied," "whether it is beingviewed fromthe perspective of society or the firm,"

and "who receivesthe consequencesofthe activity."Examplesofmacromarketing

activi-tiesare studying the marketingsystemsof differentnations, theconsequences on society

ofcertain marketing actions, and the impact of certain technologies on the marketing

trans-MARKETING : DEF INITION AND JUSTIFICATION 13

the f a c e of Charles D u b i n - c h o i r s i nger, moviegoer and

T director Four y e a r s il~() Charles had " a funny

(et l lo~ i n h ~ chest." When Charles heard the ," 'ort l ~ "heart

", ll ~i,ise'" from his ~k t( lv r he feared l o s i n g his in dt:~ l\J ~I"e

a n d his ability l(.~ t: n !o ~' life fully Bu t to effective

medicines today h e's enjoying ~ n aet i \'C~ ' ~ (ire~t\ t And,

with his new healither lifestyle.Charles i s also doinghispart

to keep h is heart in ~h~fX ~ Heart diseasei sthe k'adifl~ l ~ l."A.:

tl( deat h arnt1- n~ Americans But in the last 30 y e a r s , m o d e r n

Amer Ica ' s Pha rma~euti~a l C ompanies

I., · ~dfng the w a y in t h e s e a r c h (o r c u r e s

medicines h a v e helped reduce the number of J eaths by half.

New medicines are also h<'"~ ' in ~ to keep more patients out o f

th e hospital by controlling l\l ~h~rilik C(Jn Jlli wn~ t h~n lead to heart , d i lSC: (\~, s u c h as high blood t- 'ft'~\J rc and hr ~h cholesterol.

Ptl <l mmc t:ll~i-e,;ll c mp a ny researchers are w o.rk i (\ h a r d to

discover b f t:(lkdu~ Hl jl, 'hs t h a t will help ma ke many illness and di :il.:~<; Ih in~ of the past a n d h ri~ more l ): j(U ': f\l ~new

hopefora better to m~ ' fnlW ~ , m l ) f~ p e o p l e ti ~c Charles can get on w i h living a n d g o on w it h the ~h( I\V.

AD1.2 The pharmaceutical ;ndustry tries to maintain contact with consumers.

action.The useofscannersin supermarkets and automatictellermachinesin bankingtrates the last example Micromarketing examples include determining how Nikon Steel

illus-shouldsegmentitsmarket,recommending how National JewishHospitalshould pricetheirproducts,and evaluatin the success of the"Just Say No"anti-drug campaign

Thedistinction betweenservices and goodsproductsis not always clear-cuL In general,

serviceproductstendto be intangible, areoften consumedastheyare produced,aredifficult

14 CHAPTER 1 INTRODU CIN G MAR KET I NG

AD 1.3 Hot dogs are goods products and, as such, a r e marketed differently.

to standardizebecausethey require humanlabor,and may requirethe customerto ipateinthe creationoftheserviceproduct

partic-Goods productstendto bejustthe opposite intermsof these criteria Consequently,

marketers ofserviceproductsusually employ a marketing strategy quitedifferentfrom that

of goodsmarketers.Forexample,alocalfamilyphysiciancreatestangibility byoroviding

an environment waiting room.examination rooms,diplomas on the walls, thatconvinces

patientsthatthey arereceivinggoodhealhcare Conversely,coffeeproducers creategibilityinorder toappeardifferentfromcompetitors.~:-his is donethroughcolorfulpack-

iiltan-MARKETING: DEFINITION AND JUSTIFICATION 15

TABLE 1.1 Kinds of Marketing

The devaluation of the yen

A pricing strategy for

Wal-M art

Nabisco International Chase Manhattan Bank

Otis Elevator

New Yo rk Museum of Art

Sony

Timemagazine trip.com

Imperial Garden Restaurant

Olympia Brew e ry American Red Cross

Ford Motor Company Owest

Tangibility, standardization, storage, production, involvement

Concerns for profits

Tax status

Nature of contact, information, process for purchasing and delivery

Pro x imity of customers,

geographic area, extent of distribution,

network , marketing variation commitment to

country

Nature of customer

Product function

withacupo rtwoorten ofStarbuck'scoffee

Asthe terms connote, thedifference between for-profit andnonprofit marketingis in their

pri-m a r yobjective.For-profit marketers measuresuccessin terms of profitabilityandtheir

Nonprofit institutions exist to benefit a society, regardless of whether profits are

achieved Becauseoftheimplicit objectivesassignedto nonprofits,theyare subject to an

entirelydifferentadditional setof laws, notably tax laws.While they are allowed to

non-prufit status There are several other factors that require adjustments to be made in the

themanufacturer andtheultimate userof theproduct Mass marketing is characterized as

16 CHAPTER 1 INTRODUCING MARKETING

very little direct contact withits customersandmust distributeitsproduct throughvariousretail outletsalongside itscompetitors Communicationis impersonal, asevidencedby itsnational television and print advertising campaigns,couponing,and point-of-purchase dis-plays The successofmassmarketing is contingent ontheprobabilitythatwithinthe hugeaudience exposedto the marketingstrategy thereexist sufficientpotentialcustomers inter-ested in the producttomake~hestrategy worthwhile

Directmarketingestablishes asomewhatpersonal relationship with the customer byfirst allowing the customer to purchase theproductdirectly fromthe manufacturerandthencommunicating withthe customer on a first-name basis Thistype ofmarketingisexperi-encingtremendous growth.Apparently, marketershave tired ofthe wasteassociated withmass IParketing and customers want more personalattention.Also, modemmechanismsforcoliecting and processing accurate mailinglists havegreatlyincreased theeffectiveness

of direct marketing Catalogue companies (Spiegel,J.e.Penney), telecommunicationspanies(Sprint),anddirectmail companies(Publishers Clearing House) areexampleof directmarketers A modified type ofdirect marketing is represented by companies that allowordelingof product bycalling atoll-freenumber or mailing in an order cardas part ofanadvertisement

com-Although(officially),Intemetmarketing isatype of direct marketing,ithas evolved

so quickly and demanded theattention of somany companies that a separate sectionhere

is 'varranted Essentially,Intemettechnology(whichchanges by themoment) hascreated

anew wayofdoing business.In the Internet age, the way consumers evaluate and followthroughontheirpurchase decisionshaschangedsignificantly "Call now!" is no longeraneffective pitch Consumers have control over how, when, and where they shop on theInter-

MARKETING: DEFINITION AND JUSTIFICATION 17

net The Internet has allbut eliminatedtheurgencyof satisfying the need whenthetunity ispresented.Internetmarketing will b e discussedin detail inalaterchapter

oppor-Local, Regional , National , Intern at iona l, and

As one would expect, the size andlocation of acompany's market varies greatly Localmarketers areconcernedwith customers that tend to beclustered tightly around the mar-keter.The marketer is able to learn a greatdeal about thecustomer and make necessarychanges quickly.Naturally, the total potentialmarketislimited.There is also thepossibil-ity thatanew competitororenvironmental factorwill puta localmarketer outofbusiness.Regional marketerscovera larger geographic area that may necessitate multiple pro-duction plantsanda more complex distributionnetwork.Whileregionalmarketers tend toserve adjoiningcities, parts of states,or entirestates, dramatic differences in demandmaystillexist,requiringextensiveadjustmentsin marketing strategy

National marketers distributetheir productthroughout acountry Thismay involvemultiple manufacturing plants, adistribution system includingwarehouses and privatelyowned delivery vehicles, and different versions of the marketing"mix"or overallstrategy

This typeofmarketing offerstremendousprofit potential, but alsoexposesthe marketer tonew, aggressivecompetitors

International marketersoperatein more than onecountry Aswillbecome clear later

inthis book, massiveadjustmentsare normally made in the marketingmixinvarioustries Legal andcultural differences alonecan greatlyaffect a strategy'soutcome As theU.S market becomes moreandmore saturated withU.S.-madeproducts, the continued expan-sion into foreign markets appears inevitable

coun-Global marketing differs from internationalmarketing insome very definite ways.Whereas international marketing meansa company sells its goods orservicesin anothercountry, itdoesnot necessarilymeanthat thecompanyhas madeany furthercommitments.Usually the product is stillmanufacturedinthehome country,soldby their people,andtheprofits are taken back to thatcountry.In thecase ofHonda Motors, for example, it meansbuilding manufacturing plants in the U.S., hiringlocalemployees, using local distributionsystemsandadvertising agencies,andreinvestinga largepercentageofthe profits backinto'the U.S

Consumer goods marketerssell to individualswhoconsumethe finished product.to-business marketers sell tootherbusinesses or institutions thatconsumethe product intum as part of operating the business, or use theproductin the assembly of the final prod-uct they sell toconsumers Business-to-business marketers engage in more personalsell-ingrather than mass advertising and are willing to make extensive adjustmentsin factorssuch as the selling price, productfeatures, terms ofdelivery, and so forth

Business-For theconsumergoodsmarketer, the various marketing components are relativelyfixed.Inaddition,consumer goodsmarketers mightemployemotionalappealsandarefacedwith theconstantbattle ofgettingtheir product into retail outlets

Strat egic Com ponents of Mar ke t ing

A necessaryanduseful starting pointforthestudy ofmarketingis considerationofthe agementprocess The managementofmarketingserves as theframework for the process

man-ofmarketing Marketing management alsoserves asa central link between marketingand

18 CHAPTER 1 INTRODUCING MARKET I NG

the societallevelandeverydayconsumptionby thegeneral public Althoughthereare manyvariationsofthemarketing process,the one shown in Figure 1.1 will beemployed in thisbook Our process beginswith corporate-levelconsiderations, which dictate the direction

theentire organizationwill take Thethreecorporate-level con~iderations listed heresion, objectives,andstrategy) are moreprecisely basicmanagementtopics,but areaddressed

(mis-in pass(mis-ing (mis-in thefollowing sections

Ifa marketing firm istoadopt the customer-centered orientation discussed earlier,it mustalso extend thisphilosophyto the other functions/institutions w i t h which itmustinteract.These functions,and theinstitutionsthat perform thefunctions can be categorizedasnon-

marketing institutions and marketing institutions

Nonmarketing institutionscanexist withinthe organizationor outsidethe

organiza-tion.Theformerinciudeaccounting, financialplanning, humanresources, engineering,

man-ufacturing, research and development, and so on Marketing must be familia; with thecapabilities of each of~ hesefunctions and plan accordingly Establishing and maintainingrapport withleaders inthese other functional areas is a challenge foreverymarketer Non-marketinginstitutionsoutside the firmfacilitated themarketingprocessby providing experl-

ise in areas notdirectly related to marketing Examplesinclude financial institutions that

lendmarketers necessary funds;regulatoryinstitutions that passlaws to allow marketers

toperformanactivity; and thepress, whichtells the publicaboutthe activities of themarketer

Th e M a rke tin g Plan

To a great extent,thesamesequenceof activities performed at the corporate levelisrepeated

at the marketinglevel.The primary differenceisthatthemarketingplanisdirectly

influ-enced by the corporateplan as well as tne role of the other functions within the tion Consequently, the marketing plan must always involve monitoring and reacting tochangesinthe corporate plan

organiza-Apartfrom thisneed to beflexible to accommodatethecorporate plan,the ingplanfollows a fairlystandardized sequence.The marketingplan begins withamission

market-Amissionreflectsthegeneral values of theorganization.Whatdoesitstand for? Howdoes

it define integrity?Howdoes it view thepeopleit serves? Every organization hasan explicit

The characteristics of a marketing organization include:

1. Maintenance of contact with consumers

2. Objective comparison of existi n capabilities with ability

to meet present and future consumer needs

3. Maintenance of a consistent message from all marketing

elements to all consumer groups

4 Thoro ugh understanding of streng lhs and weaknesses of

1. Macromarketing and rnicromarketing

2. Service marketing and goods marketing

3. Fo r-profit marketing and nonprofit marketing

4. Mass marketing, direct marketing, and Internet marketing

5. Local regional , nation al, and international marketing

6 Consumer goods marketing and busine ss-to-business

marketing

MARK ETING: DEFINITION AND JUSTIFICATION 19

Mission Situation analysis Objectives Strategy

Implementation

Budgeting Evaluation

Mission Objectives Strategy

Human resources

FIGURE 1.1 The marketing process

orimplicit mission.Thecorporatemission might contain words such as"quality," "global,"

"profitability," and"sacrifice."Themarketing-level mission should extend the corporate sion by translating the latter into a marketing context Forexample, a corporate missionthat focusesontechnology mightbe accompanied bya production-oriented marketing mis-sion A corporationthatstressesstockholders/dividends may result ina sales-orientationinmarketing Acorporatemissionthatconcentrates on value or quality reflects a consumer-oriented marketing mission.Once the mission is established, the situation analysis follows

mis-Amarketingplan's si t uation analysisidentifies factors, behaviors, and trends that have

adirectbearingonthe marketing plan.Muchof this informatior is usually collectedtaneously withthe corporateinformation.However, collectinginformation aboutpotentialandactual customers tendstobe the concern ofmarketers This is an ongoing activity and

simul-represents a great deal ofthemarketer's time and money (Chapter 2 describes the process

of~narketingresearch.)

The situationanalysis helps produce arelevant set of marketingobjectives.At thecorporatelevel, typicalobjectivesinclude profitability, cost savings,growth,market shareimprovement, riskcontainment,reputation,and soon All thesecorporate objectives canimply specific marketing objectves."Introd cing acertain number of new products usu-ally" maylead marketerstoprofitability,increasedmarketshare, and movement into newmarkets.Desiretoincrease profit marginsmightdictate level of product innovation, qual-

iy of materials, and pricecharged

The Marketing Mix

Oncethe objectivesaree tablished,the marketermustdecide how to achieve these tives Thisproduces a set ofgeneralstrategies that must be refined into actionable and achiev-able activities The marketingmix-product, price, promotion, and distribution-represents

objec-20 C HAPTER 1 I NTRO DUCIN G MARK ETI NG

the way in which an organization'sbroad marketing strategies are translatedintomarketing programsfor action

-Produ ct Products (and services)-theprimary marketing mix elementthatsatisfied customerwants and needs-provide the main linkbetween the organization anditscustomers.Marketingorganizations mustbereadyto alterproducts asdictated by changes

-in competitivestrategiesorchangesinotherelements oftheorganiz tion'senvironment.Manyorganizations havea vastarrayof productsintheir mix Ideally,eachof the prod-uctsisprofitable Butthis isoftennot thecase,so sometoughdecisionsmustbemadecon-cerningthelength oftimean unsuccessfulproduct is keptonthe market

Distribution The organization's distributio systemmoves theproductto thefinalconsumer.Becausetherearemanyalternativeswhenselecting a distribution channel,mar-ketingmanagementmusthaveaclearunderstanding of thetype ofdistributors, of thetrendsinfluencingthose distributors, and of howthosedistributorsare perceivedb customers

Communi c ation (Promotion ) The product'sbenefits mustbe communicated tothedistributors andtothefinal customers.Therefore,themarketing organizationmustprovidemarketing information thatisreceived favorably bydistributorsand final customers Mar-

ketingorganizations,through promotion, provideinformation byway of advertising, salespromotions,~alespeo ple ,publicrelations,and packaging

Price Fi'lally,marketersmustprice theirproductsin sucha way that customersbelieve

theyar~receiving fairvalue.Priceisthe primarymeansbywhichcustomersjudge the tiveness of aproduct orservice.Moreover,price isareflection of all the activities of an

attrac-organization Finally,price is acompetitivetool in thatit is used asa basisforsonof productand perceived value acrossdifferentorganizations

compari-Decisionsaboutthe marketing mix variables are interrelated.Eachof themarketing

mixvariablesmustbe coordinatedwiththeother elementsofthe marketingprogram Consider, fora moment, a situation in which a firmhas two product alternatives(deluxeandeconomy),two price alternatives($ and$3), two promotionalternatives (advertisingandcouponing), and twodistribution alternatives(department stores andspecialtystores) Takentogether, the firm has a totalof16 possible marketingmixcombinations Naturally,some

-of theseappearto be in conflict,suchasthe "deluxe"product/low price combination.Neertheless, the organization must considermany ofthepossible alternativemarketing pro-grams The problemis magnified bythe existence ofcompetitors Theorganization mustfind theright combinationofproduct,price, promotion,and distributionsothatitcan gain

v-a differentiv-aladvantageo er its competitors (All themarketing mixelementswillbe discussed inmore detail in later chaptersofthisbook.)

-Even awell-designedmarketingprogramthat hasbeenthrough athoroughevaltionofalternativeswill failif itsimplementationis poor Implementation involvessuchthings

ua-asdeterminingwhereto promote the product, getting theproduct totheultimate consumer,

putting apriceon the product, and settinga commissionratefor the salespeople Once adecision is nade, amarketingmanager must decide how to best implement the terms ofthe plan

Scandim:.vian Airlines(SAS)provides agood exampleofanorganization thathascessfully implementedtheirmarketing strategy.SAShad goodon-timeperformance,agoodsafetyrecord and many services designed to make flying easierfor itscustomers How-

suc-MARKETING: DEFINITION AND JUSTIFICATION 21

ever, thesewerenot enough toimprove SAS revenue.Other things hadto be done toattract

business-class customers.T h e approach taken by SAS was largely symbolic in nature Theyputeveryonewhoboughta full-price ticketin"Euroclass," entitling them to useaspecialboardingcard, anexecutivewaitinglounge, designer steelcutlery,and a smallnapkinclip

thatcould betakenas a collector's item These and othervalues were provided at noextra

cost to thecustomer.Theapproachwas very successful;business classpassengersflocked

to SAS, since they appreciated the perceivedincreasein value for theprice of a ticket

The B u dget

Marketing mixcomponentsmust be evaluated as part of anoverallmarketingstrategy.There

-fore,theorganizationmustestablishamarketingbudget based on the requiredmarketingeffort to influence consumers The marketing budget represents a plan to aaocate expen-

ditures to·~achofthecomponentsofthe marketing mix For example, thefirmmustlish an advertising budget as part of the marketing budget and allocate expenditures to various

estab-typesof advertising media-television,newspapers,magazines.Asalespromotion budgetshould also be determined, allocating money for coupons,product samples, and trauepromotions.SimilarlY, budgets are required for personal selling, distribution,and productdevelopment

How much should bespent? Consider the following example.A common questionthat marketers frequently ask is, "Are wespending enough (or too much) topromote the

saleofo rproducts?"A reasonable answer would revolve around anotherconsideration:

"What do we want to accomplish?Whatareour goals?" The discussion should nexttum

to the methods forachievementof goals andtheremovalof obstacles to these goals.This

stepisoftenskippedor avoided

Usually,when the question is asked,"Arewe spendingenough?"an automaticanswer

isgiven, in terms ofwhat othersspend.Knowing whatothers in thesame industry spendcan be important to anorganizationwhoseperformancelagsbehindthecompetitionorto

an organizationthatsuspects thatitsexpenditures are higher thantheyneed to be Buterally,knowing what othersspendleadstoan unproductive"keeping-up-with-the-Jonesesattitude.it alsoassumes that the othersknow whatthey are doing

gen-E v al uating Re sults

No marketing program is planned and implemented pelfectly Marketing managers will tellyou that theyexperience many surprises during the course of their activities In an effOlt

toensurethatperformancegoesaccOfdingtoplans,marketing managersestablish controls

that allow marketersto evaluate resultsand identify needs for modificationsin marketing

strategies and programs Surprises occur, but marketing managers who have establishedsoundcontrolprocedurescanreact to surprises quickly and effectively

Marketingcon~rolinvolves a numberofdecisions One decision is whatfunction ~ to

monitor.Some organizationsmonitortheirentire marketingprogram, whileotherschoose

tomonitor only a partofit,suchas theirsalesforce or their advertisingprogram.Asecond set of decisions concernsthc establishment ofstandardsfor perfolmance; e.g.,market

-share, profitability, or sales A third set of decisionsconcernshow to collect infOlmation

formakingcomparisonsbetween actualperformanceand standards Finally, to theextent

that discrepancies exist between actual andplannedperformance, adjustments intheketingprogramorthestrategicplan must be made

mar-Onceaplanisputinto action,a marketing manager must stillgatherinformationrelated

tothe effectiveness with which the plan was implemented Information on sales, profits,

reactions ofconsumers,and reactionsof competitors mustbe collected and analyzed so

that a marketing managercanidentifynew problemsand opportunities

22 CHAPTER 1 INTRODUCINGMA~KFTING

Aprimeguideline formarketing success isto realizethat establishing customertionshouldbethecompany's number-one priority.Theonly people who really know whatcustomerswant arethecustomersthemselves.A companythat realizesthis will develop amarketingmentalitythat facilitatesinformationgathering and maintainseffectivecommu-

satisfac-nication withtheprimary reason forthecompany'sexistence: the customer

A second guidelineis to establish a companyimage thatclearly reflects the valuesand aspirationsof thecompany to employees,customers,intermediaries, andthe generalpublic.PhilipsPetroleumhas done this for years with their advertising campaign that focuses

on how theircompany benefits society

Third,while marketing requires work that is clearlydistinctfrom other businessities,it shOUldbecentral to the entireorganization.Marketing isthe aspect ofthe businessthatcustomers see.Ifthey see something they do not like,they lookelsewhere

activ-Fourth, thebusiness shoulddevelop auniquestrategy thatis consistent withthe cumstancesthatitfaces.Themarketermustadaptbasic marketing principlestothe uniqueproduct being sold This meansthatwhatGeneralFoodsdoes maynotworkforGTE becauseone isinherently agoods product andtheothera:.;~ rviceproduct And neitherwill workfor theState of Kentucky's ParksandRecreationDepartment,becausethat is a public,non-

cir-profit organization.Inother words,imitatingwhatotherorganizationsdowithout fully

under-standingone's ownsituation isadangerousstrategy

Finally,technologicalprogressdictateshow marketingwill be performedin thefuture

Because ofcomputertechnology inventiveness, bothconsumers and businesses arebetter

informed Knowledge is the most important competitiveadvantage The worldisone ket, and information is changing atlight-speed

1 The components of marketing management are as follows:

a Corporate-level con s iderations include the

organiza-tion's mission and objectives.

b Functional-level considerations include nonmarketing

institutions and marketing institutions.

c Marketing-level considerations include the mi s sion, the

situation analysis, objectives, strategy, implementation,

budget, and evaluation.

d The marketing mix includes the primary tools available

to the marketer: product, distribution, promotion, and

price.

2 The key s to marketing success are:

a Satisfy the customer.

b Establish a clear company unage.

c Make marketing central to the organization.

d Be proactive

e Develop a s trategy consistent with the situation.

THE WALL S TREET JOURNA L

IN PRACTICE

Marketingplaysa critical rolein the

successof businessorganizations:it

helpsthem createa competitive

advantage By continuously

needsand competitors' capabilities

and bysharingthis information

acrossdepartments,business

organi-zationscan createacompetitive

advantage by increasing value for

customers

Individuals working in

market-ingdepartmentsmust be

knowl-edgeableaboutall theelements of

the business that impactthe success

of marketing efforts.Marketing

objectives are directed by an

orga-nization's missionstatement, and

marketers use a set ofstrategies to

achieve theseobjectives

Implementation iscriticalto a

marketing plan'ssuccess; therefore,

themarketing budgetallocates

expenditures foreachof the

compo-nentsof the marketingmix

Market-ingsuccess depends onseveral

factors, themost importantofwhich

isestablishing customersatisfaction

asthe#1 priority

TAKEATOUR

TheFront Section of theInteractive

Journal (wsj.com) is similar to the

front pageof the newspaperversion

ofThe Wall Street Journal.Theleft

columndisplays themenu selection,

with thefivemajorsectionslisted at

thetop.These fivesections are:

The menu remainsonthepageas

you navigate through thesite,

allow-ing you toreturnto theFront tion atany time

Sec-Articlesrela~edto marketingare typicallyfound intheMarket- placesection.ClickonMarketplace

nowto view today's articles.Justbelowthe main menu on theleftside,a smallermenu titled In th is Section .appears, listingmainheadertopicsin Marketplace.One

Market-Marketingtakesmanyforms,and

evolves with newtechnologies.ketingo the Internet,also known

Mar-as e-commerce marketing,provides

challengesandopportunitiesfor

marketers.Visit Volkswagen'ssite, WWW.vw.com to seehow thecompanyhasextendeditsmarket-

toits website

DELIVERABLE

Search the Interactive Journalforarticles aboute-commercemarket-ing UnderJournal Atlas,click on

Searchtoconduct a search usingkey wordslikee-commerce,Inter-

net,and marketing.UsetheBus i ness Indexfeature to searchfor

articlesonspecific companies

Searchthe Business Index nowto

findarticles onVolkswagen

DISCUSSION QUESTIONS

1.Some marketers believe theInternetwill becomethemost

productsto consumers.Doyou

2.Recently,the effectiveness ofonlinemarketing effortshasbeen questioned What can mar-ketersdoto measure the suc-

cessof online marketing?

3.WhatadvantagesdoesreceivingtheWall Street J ou rnalonlineprovideforusers?Specifically,

marketers?

23

24 CHAPTER 1 INTRODUCING MARKETING

SUMMARY

Thisintroductory chapter described marketing as one of the major strategic tools available to the ness organization It began with a basic definition and expanded to a set of propositions of market- ing Simply, marketing is based on the mission statement of the organization; is dependent on the effective management of other functional areas; contains a functional area guided hy its own philos- ophy; is the functional area that is concemed with market exchanges : and is likely to be successful when the philosophy, tasks, and manner of implementing available technology are coordinated and complimcntary

busi-The chapter also discussed sevcral characteristics shared by organizations that cOlTectly ment marketing Referred to as the Cs of marketing, they include consumer contact, company capa- bilities, communication, cross-functional contact, and community contact Companies share these characteristics; the following factors divide marketing into specific types: macromarketing and micro- marketing; services and goods marketing; for-profit and nonprofit marketing; mass and direct marketing: local, regional, national, and intemational marketing; and consumer goods and business-to-business marketing

imple-The chapter concluded with a discussion of the four levels of strategic management with siderations applicable to marketing: corporate functional, marketing, and marketing mix.

1 How would you have defined marketing before you read this chapter? How doe~; that definition differ from the definition provided?

2. Can you think of another organization that demonstrate~ the propositions of rnarketing as well

as L L Bean? Provide a similar discussion using that organization.

3 What are the factors to consider in maintaining consumer contact? Community contact?

4 Why is it so important to understand your competition? Company functions?

S Contrast macro - and micromarketing Contrast services and goods marketing.

6 Demonstrate how the corporate mission can directly influence marketing.

competi-9 Discus~ the reasons for studying maiketing.

PROJECT

S u r v e y 10 nonbusines s students and ask them to provide a definition of marketing Analyze these

answers with respect to how they differ and why people differed in their understanding of this topic.

W ri te a five-page report e plaining.

CASE APPLICATION

THE HOG IS ALIVE AND WELL

two-year-long waiting lists allover the country But the success placed the company in a familiar quandary Should Har ley exp and and risk a market downturn or should it stay the course, content with its good pusition in the industry?

"To invest or not to inve st, that was the question," notes Frank Cimermancic, Harley's tor of Business Planning "Deal ers were begging u s to build more motorcycles But you have to under-

Direc-stand our history One of the things that cau s ed past problems was lack of quality, and that was the result of a too-rigid expansion We did not want to relive that sit uation '

I n 1989, the reputation of Harley-Davidson was excellent Harley shipped 30,000 motorcycles

in 1985; just four years later it ship ped 44 ,000 Harley's market share in the heavyweight bike

cate-gory went from 27 % to 57 % during the same time period I was regularly turning a profit-$53

enthusiasts, or "Rubbies" (rich urban bikers), starte d to shore up Harley sales in the mid-1980s, adding

to the company's success and image But whether these people were reliable, long-term customers was another question Harley also needed to know if i should market its product differently to dif-

ferent audiences A core client e l e of traditional "bikers" had kept Harley afloat dUl1ng its leanest years,

and they could not be alienated.

From their research, Harley identified seven core customer types: the Adventure-Loving ditionalist, the Sensitive Pragmatist, the Stylish Status-Seeker, the Laid-Back Camper, the Classy Cap-

Tra-italist , the Cool-Headed Loner and the Cocky Misfit All of t h e m appreciated Harley-Davidson for the same rea so n s: independence, freedom, and power constituted the universal Harley appeal Also,

owners were very loyal.

Loyalty meant the company could build and sell more motorcycles without having to overex tend itself I n 1990, Harley expanded to build 62 , 800 bikes; in 2000, it built more than 180,000 Based

-on research and the still-expanding waiting lists, Harley expects its phenomenal growth to continue.

In addition, H arley is expanding its product line In early 2000, the company introduced a $4,400 bike called the Blast, aimed at first-time riders and women.

26 CHAPTER 1 INTRODUCING MARKETING

Sources: Ian P Murphy, "Aided by Research , Harley Goes Whole Hog,"The Marketing News,December 2, 1996,

p 16 ; Richard A Melcher , "Tune -up Time for Harley,"Busin ess Week,April 8,1996, pp 90 94; Kelly BatTOn,

"HogWild,"Forbes,May 15 ,2000, pp 68- 70.

Questio liS:

1 Identify the ways in which Harley-Davidson exhibits the propositions discussed in thi~ chap ter.

2. Would you consider Harley to be a marketing organization') Why or w h not?

REFERENCES

I Dictionary of Marketing Tenns,Peter D Bennett, Ed , American

Mar-keting Association , 1988 p 54.

2 "A New Recipe for the Famil y Dinner ," Adweek,April 27 1992, p 46.

3 Th eodore Levitt, "Marketing Myopia," Harvard Business Review,

July-August, 1960, pp 45-66.

4 Shelby D Hunt and John J Burnett , "The

MacromarketingIMicro-marketing Dichotomy: A Taxonomical Model," Joumal of ing,Summer 1982 pp 11-26.

Markel-UNDERSTANDING AND

After studying this chapter, you should be able to :

• Understand the role of the ma r ket in the exchange process.

• Distinguish between the basic kinds of markets.

• Appreciate the differences between the undifferentiated and mental approach toward markets.

seg-• Understand the various bases for market segmentation.

• Translate segmentation concepts into the activity of selecting a target market.

On li ne adver t is ing isstill arelatively tinymarket,butan increasingnumberof

companies arevyingforthe right to tell advertisersandtheirad agencieswhere and how

toresponsibly spendtheir limited pool of Web ad dollars

Easiersaidthan done No reliablemeasurementsexistfor determiningthesizeof

the Web audience, leaving advertisers tosort through adizzying numberof competingclaimsfrom different web sites.Thecreator of asystemthat catches on withadvertisers

has a bigopportunity: thechance to becometheNielsenofthe Internet

The latest entrantinthe race to accurately count Web viewers: Relevant.Knowledge,

an Atlanta-basedcompanyfounded by fOrmerTurnerBroadcastingexecutivesand

staffedwith researchexecutives withexperiencecountingeyeballsin traditionalmedialike televisionandradio This company provides standardized, detailed demographicdata and faster feedback aboutWebviewing, among otherservices.Relevant.Knowledge

hasbeen delivering dataonatest basistocompanies including CNN, Sony,cINET, and

Microsoft's MSN Network

Relevant.Knowledgeis takingaim at one ofthe biggestissuesbedeviling online

advertisersand publishers:a dearthof reliableinformation that advertiserscan use to

justify buyingadsontheWeb So far,advertisers have been caught in a culture clash

betweentechnologybuffs andtraditionalresearchers.The result: notenoughdata thatcanbeapplied to multiplewebsites.Individualsites provideinformationaboutthenum-ber of visitors they receive, but such resultscan'teasily be compared to what othersites

may besupplying And most sitescan'tdistinguishone Dersonvisitingthesamesiteover

27

28 CHAPTER 2 UNDERSTANDING AND AFPROACH IN GTHEMARKET

and overagain fromanewvisitor Instead,media buyers havehad torely on more tive tools, like reportsabout what competitors are spending and where

primi-Sources: AI Urban sky "Escape To TheNet," Pr omo,February2000.pp 21-22; He ather Green , " Gelling To o P ersonal." Busi·

ness Week e.bi z, February7,200 0 p EBI4; "You ' ve got Spam: '.' \merican Demographics, Septe mber 1999 p 22; Christine LeBeau, "Crackin g the Niche,"America n Demographics, June2000 ,pp 38- 39.

INTRODUCTION

Knowing yourmarket accurately and completely is a prerequisite for successful

market-ing This task is madeeven moredifficultfor companies tryingto advertise on the Web.Yet, asnoted earlier, thistrendtowardusingthe Internetwill continue.Three important con-

ceptsrelated to the topic ofmarketsare presentedin thischapter: defining the nature of

markets, identifying the types of markets, and a discussionofproduct differentiation andmarket segmentation

Themarketcanbe viewed from many different perspectives and,consequently, is

impos-sible to defineprecisely.Inorder toprovidesome clarity, weprovidea basicdefinition of

a market:A grou p of potential buyers with needs and wants and the purchasing power to satisfy them Rather thanattempting tocutthrough the many specialized usesof theterm,

it ismore meaningful todescribeseveralbroadcharacteristicsand use thissomewhat ous framework as the foundation for a general definition

ambigu-The Market Is People

Since exchangeinvolves twoor morepeople,itisnatural tothink of themarketaspeople,individuals,or groups Clearly, without the existenceof people tobuy andconsume goods,

services,and ideas, therewould belittlereasonformarketing Yet this perspective must berefined further if it is tobeuseful

Peopleconstitute markets onlyif theyhave overt or latent wants andneeds That is,individuals mustcurrently recognize their need or desireforanexistingor futureproduct,

orhave apotentialneedordesirefor anexisting or future product.Whiletheformer

con-dition isquite straightforward,the lattersituationis abit more confusing,inthatit forcesthemarketertodevelop new productsthat satisfy unmet needs Potentialfuturecustomersmustbe identified andunderstood

When speaking of markets as people, we are not concerned exclusively with vidualultimateconsumers Althoughindividualsand members ofhouseholds docons~itutethemost importantand largest categoryof markets, businessestablishmentsand other organ-ized behaviorsystems alsorepresent validmarkets.People,individually orin groups,busi-

indi-nesses, and i.nstihltions createmarkets.However, peopleor organizations must meet certain basiccriteriainorderto repre-sent a validmarket:

1 There must be a true:lceda n d / o rwantf o r theproduct, service, oridea; this needmay be recognized unrecognized,orlatent

2. Theperson/organizationmust havetheability to pay for theproduct via means

acceptable to themarketer

DEFINING THE MARKET 29

3. The person/organizationmust be willingto buythe product

4. The person/organization must have the authority to buythe product

5. Thetotal number ofpeople/organizations meetingthe previous criteria mustbelargeenough tobeprofitable for the marketer

All five criteria must be metforan aggregate group of peopleor organizations to equate

to a market Failureto achieveevenone ofthe criteriamaynegate theviabilityof a ket An interesting example isthe pharmaceutical industry.There areseveral serioushumandiseases that remain uncured only becausetheyhavenotbeen contracted by alargeenoughnumberofpeople towarrantthe necessaryresearch Theexcessive researchcosts required

mar-to develop these drugs necessitates that companies are assured a certainlevel ofprofitability.Even thoughthefirstfourcriteria may be met, asmall potentialcustomerbase means noviable marketexists

The M a rket Is a Place

Thinking ofthemarketas a place- "the marketplace"- isacommonpractice oftheeralpublic Such locationsdoexist asgeographical areas withinwhich tradingoccurs.In

gen-this context,we canthink ofworld markets, internationalmarkets,Americanmarkets,regions,states, cities,andpartsof cities.A shapping center, ablock,a portion of a block, andeventhesite ofa single retail storecan be called a market

Whilenotaspervasiveas the"people"component ofthemarket,the"place"tionof a market is important too Sincegoodsmust be delivered to and customersattractedtowardparticularplaces wheretran ~ action~aremade,thisidentificationof marketsis use-ful formarketingdecision-making purposes.~-:;- ac~orssuch asproduct features, price, loca-tion of facilities,routingsalespeople, and promotionaldesignare allaffected bythe geographicmarket Even in thecaseofunmeasurablefields, such asreligion,amarketplacemight beYankee Stadium, whereBillyGrahamis holdinga revival Finally, amarketmay be some-where other than a geographicalregion,such as a catalogue or ad thatallows youto place

descrip-an orderwithouttheassistance of a marketingintermediaryoran 800 number

The Market I s a n Economic Entity

Inmost cases, a market is characterized by a dynamicsystemofeconomicforces.Thefour

mostsalient economic forces are supply, demand;competition,andgovernmentintervention Thetermsbuyer's marketandseller's marketdesctibe different conditionsofbargainingstrength We also useterms sucha~ monopoly, oligopoly, andpure competitionto reflectthecompetitive situationin a particularmarket.Finally,the extentof personalfreedom andgovernment control producesfreemarketsystems,socialistic systems, and other systems

-of trade and commerce.I

Again, placing theselabelson markets allowsthemarketerto designstrategies thatmatch aparticulareconomic situation We know,for instance,that ina buyer'smarket, there

is an abundance of product,prices areusuallylow, andcustomersdictate the terms of sale.U.S.firmsfind thatthey must make tremendousstrategyadjustments when theyselltheirproducts in ThirdWorldmarkets The interaction oftheseeconomic factorsiswhat creates

amarket

Thereisalwaysthepressure ofcompetitionasnewfirmsenter and old ones exit tising andsellingpressure,price andcounterprice,claimand counterclaim, service and extraservice are all weaponsofcompetitivepressure Lhat marketers use to achieveandprotectmarket positions Market composition isconstantly changing

Adver-30 CHAPTER 2 UNDERSTANDING AN D PPR OAC HIN GTHE MARK ET

or may even encompass multiple categories It is also possible that a product may besold

inallfour markets Consequently,it is important toknow as muchas possible about how

thesemarketsdifferso thatappropriatemarketingactivitie ~can bedevelop~l ;.

Consumer Markets

Whenwe talk aboutconsumer markets, weare including those individualSandhouseholds

whob u y and consume goods and servicesfor their ownpersonal use They are not

inter-ested in resellingtheproduct or setting themselvesup as a manufacturer.Consideringthethousands of new products,services, andideas being introduced each day and the increasedcapability of consumers toafford these products,the size, complexity,and futuregrowthpotential of the consumermarket isstaggering The nextchapter, Chanter 3, touches onmany of these issues

Industrial Markets

The industrial marketconsists of organizations and the people who work for them, thosewho buyproducts or services for use in their own businesses or tomake otherproducts.For example,asteel mill mightpurchase computer software, pencils,and flooring aspart

of the operationandmaintenance oftheirbusiness Likewise, arefrigerator manufactulermight purchasesheets ofsteel,wiring,shelving, and so forth, as part of its fmal product.2

These purchases occur in the industrial market

Thereissubstantialevidencethatindustlialmarketsfunction differently than dosumermarketsandthat the buying proces in particular is different

con-Instit u tional Markets

Anutherimportant marketsectoris made up of various types ofprofitand nonprofit tutions, such as hospitals,schools, churches, and governmentagencies.I nstitutional mar- kets differ f;'om typical businesses in that they are not motivated primarily by profitsormarketshare Rather, institutions tendto satisfysomewhatesoteric,often intangible,needs.Also,whatever profits existafterall expenses arepaid are normally put back into the institution.Because inststutions operateunder different restrictions and employ different goals, mar-keters must usedifferentstrategies to besuccessful

insti-Reseller Markets

All intermediaries that buy finished orsemi-finishedproductsandresellthem for profitarepart of the reseller market Thismarket includes approximately383,000 wholesalers and1,300,000 retailersthat operate in theU.S.Wihtheexception of productsobtaineddirectly

fom theproducer, all products are sold through resellers.Sinceresellers operate underuniquebusiness characteristics,they mustbeapproached carefully.Producers arealwayscognizant

of the fact thatsuccessfulmarketing to resellersis justas important as successful ing to consumers

market-AP PRO ACHING THE MARK ET 31

AD 2.1 The Olympus camera is part of the consumer market.

A;l the parties in anexchange usually have the ability to select theirexchange partner(s).Forthecustomer, whether consumer, indus:rial buyer,institution, or reseller,productchoices

aremade daily For a produ c t provider, the person(s)or organi za tion(s) selected as

poten-tial customers are referred to as the tar ge t mar ket Aproduct providermight ask:giventhat

myproductwill notbe neededand/orwanted byall peoplein themarket,and giventhatmy