Marketing management notes complete CHAPTER # 1 INTRODUCTION TO MARKETING What is Marketing? There are many different definitions of marketing. Consider some of the following alternative definitions: “The all-embracing function that links the business with customer needs and wants in order to get the right product to the right place at the right time” “The achievement of corporate goals through meeting and exceeding customer needs better than the competition” “The management process that identifies, anticipates and supplies customer requirements efficiently and profitably” “Marketing may be defined as a set of human activities directed at facilitating and consummating exchanges” Which definition is right? In short, they all are. They all try to embody the essence of marketing: • Marketing is about meeting the needs and wants of customers; • Marketing is a business-wide function – it is not something that operates alone from other business activities; • Marketing is about understanding customers and finding ways to provide products or services which customers demand To help put things into context, you may find it helpful to often refer to the following diagram which summarises the key elements of marketing and their relationships: http://tutor2u.net/business/images/m...g_overview.gif Customers or Consumers? A common question that arises when studying marketing is the following: What is the difference between a customer and a consumer? The following distinction should help: • A customer – purchases and pays for a product or service • A consumer – is the ultimate user of the product or service; the consumer may not have paid for the product or service Consider the following example: • A food manufacturing business makes own-label, Italian ready meals for the major supermarkets. • So far as the business is concerned, the customer is the supermarket to whom it supplies meals • The consumer is the individual who eats the meal In terms of its marketing effort, who should the business above target? In reality – it needs to understand the needs and wants of both the customer and the consumer. It needs to develop a strong understanding of the needs of the supermarkets in terms of their requirements for ready meals (e.g. packaging, recipes, price & delivery). It also needs to understand (perhaps with the help of the supermarkets) the needs and wants of the consumer. How are tastes changing? Are consumers happy with the standard / taste of the product? Marketing Concept and Orientation It is a fundamental idea of marketing that organisations survive and prosper through meeting the needs and wants of customers. This important perspective is commonly known as the marketing concept. The marketing concept is about matching a company's capabilities with customer wants. This matching process takes place in what is called the marketing environment. Businesses do not undertake marketing activities alone. They face threats from competitors, and changes in the political, economic, social and technological environment. All these factors have to be taken into account as a business tries to match its capabilities with the needs and wants of its target customers. An organisation that adopts the marketing concept accepts the needs of potential customers as the basis for its operations. Success is dependent on satisfying customer needs. What are customer needs and wants? A need is a basic requirement that an individual wishes to satisfy. People have basic needs for food, shelter, affection, esteem and self-development. Many of these needs are created from human biology and the nature of social relationships. Customer needs are, therefore, very broad. Whilst customer needs are broad, customer wants are usually quite narrow. A want is a desire for a specific product or service to satisfy the underlying need. Consider this example: Consumers need to eat when they are hungry. What they want to eat and in what kind of environment will vary enormously. For some, eating at McDonalds satisfies the need to meet hunger. For others a microwaved ready-meal meets the need. Some consumers are never satisfied unless their food comes served with a bottle of fine Chardonnay. Consumer wants are shaped by social and cultural forces, the media and marketing activities of businesses. This leads onto another important concept - that of customer demand: Consumer demand is a want for a specific product supported by an ability and willingness to pay for it. For example, many consumers around the globe want a Mercedes. But relatively few are able and willing to buy one. Businesses therefore have not only to make products that consumers want, but they also have to make them affordable to a sufficient number to create profitable demand. Businesses do not create customer needs or the social status in which customer needs are influenced. It is not McDonalds that makes people hungry. However, businesses do try to influence demand by designing products and services that are • Attractive • Work well • Are affordable • Are available Businesses also try to communicate the relevant features of their products through advertising and other marketing promotion. Which leads us finally to an important summary point. Marketing Orientation Whilst marketing text books usually suggest that successful business will be "marketing orientated", it is the case in the real world not all businesses subscribe to the marketing concept. The implications of believing in the marketing concept become clearer when the alternatives are examined: There are three main alternatives to adopting a marketing orientation. These are: (1) Sales orientation (2) Production orientation, and (3) Product orientation. These are described briefly below. Sales orientation Some businesses see their main problem as selling more of the product or services which they already have available. They may therefore be expected to make full use of selling, pricing, promotion and distribution skills (just like a marketing-orientated business). The difference is that a sale-orientated business pays little attention to customer needs and wants, and does not try particularly hard to create suitable products or services. Production orientation A production-orientated business is said to be mainly concerned with making as many units as possible. By concentrating on producing maximum volumes, such a business aims to maximise profitability by exploiting economies of scale. In a production orientated business, the needs of customers are secondary compared with the need to increase output. Such an approach is probably most effective when a business operates in very high growth markets or where the potential for economies of scale is significant. Product orientation This is subtly different from a production orientation. Consider a business that is “obsessed” with its own products – perhaps even arrogant about how good they are. Their products may start out as fully up-to-date and technical leaders. However, by failing to consider changing technological developments or subtle changes in consumer tastes, a product-orientated business may find that its products start to lose ground to competitors. CHAPTER # 2 MARKET ANALYSIS Market Analysis Defining the Market All businesses operate in “markets”. But what is a market? And how can it be defined? It is important to be careful about how a market is defined. The following key marketing processes rely on a relevant market definition: - Measuring market share - Measuring market size and growth - Specifying target customers - Identifying relevant competitors - Formulating a marketing strategy A market can be defined as follows: A market is the set of all actual and potential buyers of a product or service. This definition suggests that a market is the total value and/or volume of products that satisfy the same customer need. For example, if the customer need is “eat breakfast”, then the relevant market could be defined as the “Breakfast Food Market”. Many products would be relevant to measuring and analysing such a market: - Breakfast Cereals - Nutrition Bars - Porridge / Oats - Speciality Breads (e.g. croissants) - Fast-food Outlets serving breakfast In defining a market, it is important not to focus only on products/services that currently meet the customer need. For example, the button manufacturer who believed that their market was the “button market” would have made some poor marketing decisions unless he had seen the arrival of products such as Velcro and zips – which also satisfy the same need – “to fasten clothes”. Thinking about customer needs first – and then identifying the products that meet those needs – is the best way to define a market. However, it is also important not to define a market too broadly. For example, it is not particularly helpful for a marketing manager to define his or her market as the “food market” or the “transport market”. The purpose of market definition is to provide a meaningful framework for analysis and decision-making. For example; consider the “entertainment market”. The customer need is to be “entertained”. There are many products and services that can claim to meet that need in different ways: At home: - Television - Radio - Video - DVD - Games Consoles Outside the Home: - Cinema - Theatre - Theme Parks - Opera - Sporting Events It is important to avoid too broad a definition of a market. For example, it will be more manageable for marketing managers in the sporting events market to further refine their market definition into more detailed classes or segments. To help with calculating market share, the following definitions are helpful: Product class – e.g. computers, televisions, holidays Product subclass – e.g. laptops, digital televisions, long-haul holidays Product brands – e.g. Dell, Panasonic, Kuoni Kuoni as a brand, for the purposes of measuring market share, is only concerned with the aggregate of all other travel brands that satisfy the same group of customers. However, Kuoni also needs to be aware of the trends in long haul holidays and the holiday market in general. Market Analysis Introduction to Market Share Definition Market share can be defined as the percentage of all sales within a market that is held by one brand / product or company. Market share can be measured in several ways. However, the two most important measures are by: - Sales revenue - Sales volume (the number of units sold) Importance of Market Share Why is Market Share important? An important piece of research in the 1960's provided the basis for understanding the importance of market share - and emphasised the implications for marketing and business strategy. The Profit Impact of Market Strategy ("PIMS") analysis was developed at General Electric in the 1960's and is now maintained by the Strategic Planning Institute.� The PIMS database provides evidence of the impact of various marketing strategies on business success. The most important factor to emerge from the PIMS data is the link between profitability and relative market share. PIMS found (and continues to find) a link between market share and the return a business makes on its investment. The higher the market share - the higher the return on investment. This is probably as a result of economies of scale. Economies of scale due to increasing market share are particularly evident in purchasing and the utilisation of fixed assets. Case Study on Market Share - Dixons Dixons is widely regarded as the dominant electrical retailer in the UK. What does dominant mean? It refers to the fact that Dixons (which is the market leader) has a very high relative market share. In other words, it is substantially bigger than the next largest competitor. This can be illustrated by the chart below which lists the leading UK electrical retailers in 2000. http://tutor2u.net/business/images/m..._retailers.gif How might Dixon's market dominance enable it to further increase its market share? Many retail analysts believe that the electrical retailing market provides advantages to larger businesses. In recent years, Dixons, along with the number two Comet, has been able to thrive while other retailers have suffered. The reasons for the advantages of size include: Buying advantage: An ability to use size to source product more cheaply is a clear advantage in an industry that faces rapidly declining consumer prices Volume advantage: As a low-margin business, retailers that can sell in high volumes are in the best position to gain market share Access to new products: The largest retailers typically have first-mover advantage in stocking new "in demand" products that have just been released Advertising scale: As a price-led business, access to national advertising provides the ability to keep customers regularly informed of the latest product deals. This helps to reinforce customer perception of value, in addition to strengthening the Dixons Group brands Access to retail property: With the continuing trend towards out-of-town, larger destination stores that offer a broader range of choice, and with restrictive planning laws limiting opportunities, the larger electrical retailers have both the financial and operational capacity to secure such important new sites. The UK electrical retail market has many examples of businesses with a small market share that have fallen victim to the intense competition in the market. In the UK, Tiny Computers and US brand Gateway both folded. In the electrical appliance sector, well-known market casualties include Tandy (which was acquired by Carphone Warehouse who subsequently closed 110 of Tandy's shops and reformatted the remaining 160 into its own format) and Scottish Power's consumer appliance chain. These are summarised in the table below:
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