Chapter 1 – What is Marketing?
- Define marketing and outline its components.
Marketing is defined by the American Marketing Association as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (American Marketing Association, n.d.). If you read the definition closely, you see that there are four activities, or components, of marketing:
- Creating Value. The process of collaborating with suppliers and customers to create offerings that have value.
- Communicating Value. Broadly, describing those offerings, as well as learning from customers.
- Delivering Value. Getting those offerings to the consumer in a way that optimizes value.
- Exchanging Value. Trading value for those offerings.
The concept of value is an important one in the study of marketing. Before we begin to understand or define how marketing is used to build value for customers and the firm, it is important to understand the concept of value. Value is always considered from the customer perspective, i.e. in the eyes of the customer. It is a perception developed by customers from the marketing efforts of the brand or company (more on this in the segmentation, targeting and positioning chapter). Value is defined as everything a customer gets for what they give up. It is the relationship between the benefits a customer gets for what they give up in return for those benefits. In other words, if the customer perceives that they received more from the brand/company in exchange for what they gave up to the brand/company, they perceive to have received value in that exchange. On the other hand, if they feel that they gave up more in exchange for what they received, they do not perceive value in that exchange. ‡
Value is formed by customers based on the expectations that are built up or developed by the brand/company (brand positioning). Customers determine their personal needs and wants and make purchase decisions based on the brand positioning. Once they purchase the product or service, they assess whether the product or service met the expectation developed by the brand through their positioning and their experience with the product or service. If there is a disconnect between the brand positioning and the customers’ expectations, the customer may feel that they did not receive value in the exchange because they did not receive what they were expecting in exchange for what they gave up. ‡
Our goal as marketers is to create a positive exchange with consumers. We can think of this as an equation. The personal value equation is ‡
Non-financial costs are the time and effort the consumer puts into the shopping process. The equation is a personal one because how each consumer judges the benefits of a product will vary, as will the time and effort he or she puts into shopping. Value received from the same product, then, varies for each consumer. ‡
One way to think of value is to think of a meal in a restaurant. If you and three friends go to a restaurant and order the same dish, each of you will like it more or less depending on your own personal tastes. Yet the dish was exactly the same, priced the same, and served exactly the same way. Because your tastes varied, the benefits you received varied. Therefore, the value varied for each of you. That’s why we call it a personal value equation. ‡
Value is at the center of everything marketing does (Figure 1.1 “The Concept of Value Creation”). What does value mean?
Marketing is composed of four activities centered on customer value: creating, communicating, delivering, and exchanging value.
The 4 Ps
The traditional way of viewing the components of marketing is via the four Ps:
- Product/Service. Goods and services (creating offerings).
- Promotion. Communication.
- Place/Distribution. Getting the product to a point at which the customer can purchase it (delivering).
- Price. The monetary amount charged for the product (exchanging).
The four Ps need to be expanded on to capture all the activities of marketing and to capture the concept of value. For example, exchanging requires mechanisms for a transaction, which consist of more than simply a price. Exchanging requires, among other things, the transfer of ownership. For example, when you buy a car, you sign documents that transfer the car’s title from the seller to you. That’s part of the exchange process.
As was discussed earlier, all aspects of marketing should be designed to create value in the eyes of the customer. We will use the terms Product/Service Strategy, Pricing Strategy, Place or Distribution Strategy and Promotion Strategy to expand the meaning of each of the four P’s.
Product/Service Strategy: Creating Offerings That Have Value
Marketing creates goods and services that the company offers to its customers or clients. A tangible good and/or the intangible service is the company’s offering. When you compare one car to another, for example, you can evaluate each of these dimensions, the tangible and the intangible, separately. However, you can’t buy one manufacturer’s car, and another manufacturer’s service when you actually make a choice. Together, the two make up a single firm’s offer.
Marketing people do not create the offering alone. For example, when the next generation iPad was created, Apple’s engineers were also involved in its design. Apple’s financial personnel had to review the costs of producing the offering and provide input on how it should be priced to be optimally profitable. Apple’s operations group needed to evaluate the manufacturing requirements the iPad would need. The company’s logistics managers had to evaluate the cost and timing of getting the offering to retailers and consumers. Along with customer feedback, Apple’s dealers also likely provided input regarding the iPad’s service policies and warranty structure. Marketing, however, has the biggest responsibility because it is marketing’s responsibility to ensure that the new product delivers value to the customer.
Price Strategy: Exchanging Offerings
In addition to creating an offering, communicating its benefits to consumers, and delivering the offering, there is the actual transaction, or exchange, that has to occur. In many instances, we consider the exchange to be money for products and services. However, today exchange includes non-monetary forms of payment. If you were to fly to Louisville, Kentucky, for the Kentucky Derby, you could “pay” for your airline tickets using frequent-flier miles. You could also use Hilton Honors points to “pay” for your hotel, and cash back points on your Discover card to pay for meals. None of these transactions would actually require cash. Other exchanges, such as Facebook using information about your searches and selling them to advertisers is the payment for being able to use the service for free.
Promotion Strategy: Communicating Offerings
Communicating is a broad term in marketing that means describing the offering and its value to your potential and current customers. With the advent of digital communication and social media, it means hearing from customers about what they want and like. Sometimes communicating means educating potential customers about the value of an offering, and sometimes it means simply making customers aware of where they can find a product. Today companies are finding that to be successful, they need a more interactive dialogue with their customers. For example, Comcast customer service representatives monitor Twitter. When they observe consumers tweeting problems with Comcast, the customer service reps will post resolutions to their problems. Similarly, JCPenney has created consumer groups that talk among themselves on JCPenney-monitored Web sites. The company might post questions, send samples, or engage in other activities designed to solicit feedback from customers.
Mobile devices, such as iPads, iOS and Android smartphones, make mobile marketing possible too. For example, if consumers check-in at a shopping mall on Foursquare or Facebook, stores in the mall can send coupons and other offers directly to their smartphones. ‡
Companies use many forms of communication, including advertising on the Web or television, on billboards or in magazines, through product placements in movies, and through salespeople. Other forms of communication include attempting to have news media cover the company’s actions (part of public relations [PR]), participating in special events such as the annual International Consumer Electronics Show in which Apple and other companies introduce their newest gadgets, and sponsoring special events such as the Terry Fox Run.
Place (Distribution) Strategy: Delivering Offerings
Marketing can’t just promise value, it also has to deliver value. Delivering an offering that has value is much more than simply getting the product into the hands of the user; it is also making sure that the user understands how to get the most out of the product and is taken care of if he or she requires service later. Value is delivered in part through a company’s supply chain. The supply chain includes a number of organizations and functions that mine, make, assemble, or deliver materials and products from a manufacturer to consumers. The actual group of organizations can vary greatly from industry to industry, and include wholesalers, transportation companies, and retailers. Logistics, or the actual transportation and storage of materials and products, is the primary component of supply chain management, but there are other aspects of supply chain management that we will discuss later.
Value varies from customer to customer based on each customer’s needs. The marketing concept, a philosophy underlying all that marketers do, requires that marketers seek to satisfy customer wants and needs. Firms operating with that philosophy are said to be market oriented. At the same time, market-oriented firms recognize that exchange must be profitable for the company to be successful.
Firms don’t always embrace the marketing concept and a market orientation. Beginning with the Industrial Revolution in the late 1800s, companies were production oriented. They believed that the best way to compete was by reducing production costs. In other words, companies thought that good products would sell themselves to customers who wanted them. Perhaps the best example of such a product was Henry Ford’s Model A automobile, the first product of his production line innovation. Ford’s production line made the automobile cheap and affordable for just about everyone. The production era lasted until the 1920s, when production-capacity growth began to outpace demand growth and new strategies were called for. There are, however, companies that still focus on production as the way to compete.
From the 1920s until after World War II, companies tended to be selling oriented, meaning they believed it was necessary to push their products by heavily emphasizing aggressive sales techniques. Consumers during the Great Depression and World War II did not have as much money, so the competition for their available dollars was stiff. The result was this push approach during the selling era. Companies like the Fuller Brush Company and Hoover Vacuum began selling door-to-door and the vacuum-cleaner salesperson was created. Just as with production, some companies still operate with a push focus.
In the post–World War II environment, demand for goods increased as the economy soared. Some products, limited in supply during World War II, were now plentiful to the point of surplus. Companies believed that a way to compete was to create products different from the competition, so many focused on product innovation. This focus on product innovation is called the product orientation. Companies like Procter & Gamble created many products that served the same basic function but with a slight twist or difference in order to appeal to a different consumer, and as a result products proliferated. But as consumers had many choices available to them, companies had to find new ways to compete. Which products were best to create? Why create them? The answer was to create what customers wanted, leading to the development of the marketing concept. During this time, the marketing concept was developed, and from about 1950 to 1990, businesses operated in the marketing era, otherwise known as having a market orientation.
So what era would you say we’re in now? Some call it the value orientation: a time when companies emphasize creating value for customers. Is that really different from the marketing era, in which the emphasis was on fulfilling the marketing concept? Maybe not. Others call today’s business environment the one-to-one era, meaning that the way to compete is to build relationships with customers one at a time and seek to serve each customer’s needs individually. For example, the longer you are a customer of Amazon, the more detail they gain in your purchasing habits and the better they can target you with offers of new products. With the advent of social media and the empowerment of consumers through ubiquitous information that includes consumer reviews, there is clearly greater emphasis on meeting customer needs. Yet is that substantially different from the marketing concept?
Still others argue that this is the time of service-dominant logic and that we are in the service-dominant logic era. Service-dominant logic is an approach to business that recognizes that consumers want value no matter how it is delivered, whether it’s via a product, a service, or a combination of the two. Although there is merit in this belief, there is also merit to the value approach and the one-to-one approach.
Some marketers believe that the time after the COVID pandemic will be the start of a new era defined by slower growth, demarketing and anti-consumption as consumers seek to buy and use fewer resources. This will challenge marketers like never before to work to reduce their impact on the planet while at the same time ensuring the financial viability of their organizations. ‡
Key Aspects of Marketing
1. Marketing helps create value
As discussed earlier, value is always considered from the customers’ perspective. Value is the difference between what the customer gets for what they give up. The value equation is shaped by marketing efforts. Marketers develop products and services to offer value to customers. Marketers set prices, which determine part of what customers must give up, thereby influencing the value equation. Similarly, marketers also deliver that value to customer based on place (distribution) decisions. Finally, marketers also communicate the value to customer through their promotion decisions. ‡
2. Marketing is about satisfying customer needs and wants
In order to market effectively, it is important to understand customers’ needs and wants. A customer’s needs are the basic human requirements necessary for survival. They include food, water, clothing and shelter. People also have a need for things like education, recreation, or entertainment. Needs become wants when the need for something is directed towards a particular product or service that may satisfy the need. The difference between a need and a want is that a need is necessary for survival and can be satisfied using a number of products or services, whereas a want is a specific product or service desired by the consumer to satisfy a particular need. A consumer may have a need for communication, but there are a number of services that could satisfy that need. A consumer’s preference for using a video call is a want, which will satisfy that need for communication. Marketing is about understanding a customer’s needs and developing products or services that they may want to satisfy those needs. ‡
3. Marketing always entails an exchange between parties
Marketing always entails an exchange between two parties, a buyer and a seller. A seller provides goods or services to the buyer in exchange for any combination of money or information. In order for an exchange to occur, there must be two parties (buyer/seller), there must be a transfer between the parties, and each party must receive something of value (money, points, information, product, service, or satisfaction). ‡
4. Marketing requires marketing mix decisions
The marketing mix is the combination of product, price, place and promotion strategy decisions that a marketer may make. As defined above, marketing entails the offering of value, the exchange of value, the delivering of value and the communication of value. This is achieved through a marketing plan which details the approach to each of the strategic decision. ‡
5. Marketing can be performed by both companies and individuals
When one thinks about marketing, one often thinks about organizations that market to individual consumers. However, marketing is often done by businesses towards other businesses and as well as by consumers toward other consumers. Just like businesses market to consumers, they also market to other businesses as well. Finally, with the introduction of a number of resale sites such as kijiji.ca, ebay.ca or craigslist.ca, many consumers market their goods or services to other consumers who may want to purchase gently used goods. ‡
A classic example of businesses marketing to consumers is when the Dell markets their new laptop to individual consumers. However, there are many businesses that market to other businesses. For example, Source Furniture is an office furniture company that sells office furniture to other businesses. They create, price, distribute and promote their products to other businesses who have a need for office furniture. ‡
6. Marketing occurs in many situations
We often think about marketing in a for-profit setting, that companies marketing their goods and services to generate profit for their company. However, marketing is also done in other settings. Non-profit companies such as the Princess Margaret Cancer Foundation, which operates the “Princess Margaret Home Lottery to Conquer Cancer”, uses marketing to create and promote their lottery. They operate the lottery to generate funds for the foundation. They market to consumers not for the purpose of generating a profit, but rather to collect money to support the work of others such as hospitals and patients. ‡
Marketing may also take place at an industry-wide level. A trade association may market commodity like products to raise awareness or to increase usage on behalf of its member companies. For example, the Dairy Farmers of Canada (DFC) launched a campaign (“Milk. It’s in the stuff you love”) on behalf of milk producers of Canada, to position milk differently with the next generation of consumers. Similarly, the Canadian Association of Petroleum Producers (CAPP) had a campaign designed to change the perception toward Petroleum Producers. ‡