This paper describes the core marketing concepts and market targeting which are essential for the understanding of marketing activities.

University Degree Business and Administrative studies

Introduction

There has been much discussion in literature over what marketing is. It is difficult to give simple definitions of marketing as analytic definitions of marketing seem to be abstract and controversial. O’Shaughnessy (1995, P4) mentions that ‘one definition that sees marketing as the skill of finding and securing customers. Another analytic definition views marketing as a business activity and directs of attention more toward promotion and distribution than anything else.’ Although none of these definitions of marketing are accepted universally, there are fundamental elements involved in the term “marketing” which are generally agreed to analyse all the different activities intended to make and attract a profitable demand for a product. These elements consists of some basic concepts of marketing and the four marketing mix (Product, Price, Promotion and Place). The analysis of these marketing elements would be able to give more concrete definitions of marketing.

To start with, this paper describes the core marketing concepts and market targeting which are essential for the understanding of marketing activities. Furthermore, this paper explores the marketing mix (Product, Price, Promotion and Place) in both theoretic and practical sides.

Core marketing concepts

According to Kotler et al (2002), the core marketing concepts might start with the explanation of human needs and wants. Human needs are ‘states of felt deprivation. Human wants are the form that a human need takes as shaped by culture and individual personality’ (Kotler et al, 2002, P6). For instance, people need drink to meet physical needs of thirst, but their wants might be different. Some people may want a glass of water, some people may want orange juice or a cup of tea.

In order to satisfy people’s needs and wants, the concept of product is introduced. A product is ‘anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. It includes physical objects, services, persons, places, organisations and ideas’ (Kotler et al, 2002, P7). Under this point of view, the ranges of product are defined broadly. A television can be seen as a product, a television program can be seen as a product as well, the after sale service of this television also is a product.

When customers decide whether to buy a product or service, they will weigh the value of what they receive. The customer value is defined as ‘the consumer’s assessment of the product’s overall capacity to satisfy his or her needs’ (Kotler et al, 2002, P7). Therefore, customer satisfaction depends on a product’s perceived performance that matches a buyer’s expectations. For example, there are many transport services available for customers who wish to travel from London to Paris. They could be Eurolines coach service, Eurostar train service or Easyjet flight service. The choice made depending on the perceived value that products offer to the customers.

‘Exchange’ and ‘transactions’ are two important concepts of marketing. Exchange is ‘the act of obtaining a desired object from someone by offering something in return’. And a transaction is ‘a trade between two parties that involves at least two things of value, agreed-upon conditions, a time of agreement and a place of agreement’ (Kotler et al, 2002, P9). Marketing occurs through exchange and is measured by a transaction.

The concepts of exchange bring us the concept of a market. A market is the set of all actual and potential buyers of a product or service. The concept of markets finally leads to the concept of marketing. Kotler et al (2002) also define that marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. Figure 1 shows the linkage of these core marketing concepts.

Figure 1: Core marketing concepts (source: Kotler et al, 2002)

Market targeting

O’Shaughnessy (1995) argues that the term ‘market’ has several senses. It can refer to the network of institutions, like wholesalers and brokers. It can also mean the demand, within some area. In general, the market is considered as the demand for those goods and services serving the same use function. A market consists of numerous buyers and their needs are varied. And thus businesses could not cover all segments of the market.

Hansen (1972) suggests that the marketer will improve his competitive position by dividing a larger market into smaller segments with different preferences. The product or service in the different segments will reduce the overall distance between what you are offering and what the market requires. Under this view, Hooley and Saunders (1993) conclude that modern markets have become segmented. Where there are differences in customer needs and wants towards the offerings on the market.

Market segmentation is the selection of groups of people who will be most receptive to a product. The most frequent methods of segmenting ...

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Market segmentation is the selection of groups of people who will be most receptive to a product. The most frequent methods of segmenting include demographic variables such as age, sex, race, income, occupation, education, household status, and geographic location; psychographic variables such as life-style, activities, interests, and opinions; product use patterns; and product benefits. (Thorson, 1989)

After evaluating different segments, the firm is able to decide how many and which segments to target. Kotler et al (2002) define that the ‘market targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter’.

There is a company called Bellsouth Corporation which is a successful example of market targeting. Bellsouth Corporation was a traditional telecommunications service company in United States. In 2001, Bellsouth realized that a key customer segment for the company was new broadband subscribers who expected high-speed Internet service. This group of people normally had previous experience of using Internet and they were interested in high technologies and anticipated in doing things online quickly and efficiently. In order to attract this huge group of people, Bellsouth invested in the broadband online order system which enabled customers to order and install the software through their web site. Customers were able to connect and run broadband service quickly by simply processing online. By the end of year, BellSouth broadband customer had increased from 200,000 to 660,000, within which, 90 percent of customers were using the online self-service. (O’Brien, 2002 and www.bellsouthcorp.com)

Product

Product can be simply viewed as problem solver that means to use ‘what we sell’ to match ‘what customers want’. (Chernatony and McDonald, 1998) They also hold that products should not be just viewed as tangible goods. Products could include physical objects, services, persons, places, organisations, ideas or mixes of these entities. Products can be classified variously in term of different aspects of views. For instance, there are ‘non-durable’ or ‘durable products’ in term of product durability. Or product can be divided into ‘consumer products’ or ‘industrial products’ based on the types of customers. (Kotler et al, 2002)

Kotler et al (2002) suggest that the attributes of product are very important as they significantly affect consumer reactions to a product. These product attributes are product quality, features, style and design. Product quality is defined as ‘the ability of a product to perform its functions; it includes the product’s overall durability, reliability, precision, ease of operation and repair, and other valued attributes’ (Kotler et al, 2002). Slack et al (1995) emphasise that the continual development of quality and designs help the firms to form their competitive position by meeting customers’ actual or anticipated needs and expectations. The mobile phone industry is a particular example that products are always redesigned with new styles and features in order to attract customers to buy.

Another important aspect of product that many marketers highly concerned is brand. Brand is a name, term, sign, symbol or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. (Peter, 1998) Chernatony and McDonald (1998) found evidence that brand personify the relationship with customers. The difference between a brand and a commodity is ‘added values’ which might generate inestimable benefit to a business. Strong, successful brands will attract customers to buy their products and help organizations to set up stable, long-term demand and help them to build and maintain better margins than either commodity products or unsuccessful brands. As can be seen from CoCa-Cola which forms the most popular and well-known brand over the world. It is more meaningful for a customer to consume CoCa-Cola products than other soft drinks. Many customers find it difficult to accept other soft drinks even though they are cheaper than CoCa-Cola products.

There has been a consensus that a product follows a life cycle (PLC). Figure 2 shows that sales and profit curve over product life with the stage of introduction, growth, maturity and decline.

Figure 2: Product life Cycle (Source: O’Shaughnessy, 1995)

According to Kotler et al (2002), there are different states of product during the different stages of product lifetime which enable the marketers to use different marketing strategies. In the stage of introduction, new product is launched with low sales growth and low or negative profits. A company should adopt a suitable launch strategy in this early stage in order to achieve its intended product positioning and build customers’ awareness of product. In the stage of growth, sales and profits climb up quickly as the early buyers will continue to buy and later buyers will start following their lead. Profit attract new competitors to enter the market therefore proper strategies should be use to help a company to capture an advanced position. In the maturity stage, the sales and profit will slow down or level off. This stage normally lasts longer than the previous stages and it appears strong challenges to marketing strategy. A company should enhance its imagination and look for new ways to develop its market or product. In the final stage, the sales and profits are dropping down as the reason of technological advances or shifts in consumer tastes. A company need leave industry or seeks the way to reposition the product. O’Shaughnessy (1995) considers that product life cycle offers guidance for product planning and it should be highly aware by marketers for the development of marketing strategy of product.

Price

Price is one of the most flexible elements of the marketing mix. Katler et al (2002, P566) define that price is ‘the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service’.

Nagle and Holden (1995) present that costs, customers and competition are three basic considerations in developing an effective price strategy. They suggest a general framework that can be used both to set prices for new products and to adapt established prices to changing market conditions. The figure below illustrates the steps of this process.

Figure 3: Steps to more profitable pricing (source: Nagle and Holden, 1995)

According to Nagle and Holden (1995), in the stage of data collection, it is important to understand that good pricing decisions require information from three factors: costs, customers and competitors. In the cost measurement, marketers should be able to determine what total costs is for the product which include ‘incremental variable costs’, ‘semi-fixed costs’ and ‘avoidable fixed costs’. In the customer identification, marketers should collect information about potential customers and the reason they buy product, which means that the economic and perceived value of product to customers should be identified. In the competitor identification, marketers are expected to do research in competitors’ behaviour as the activities of current and potential competitors will affect the price strategy in the company.

In the stage of strategic analyses, marketers integrate the information of costs, customers and competition from the previous stage in order to generate final strategy of price. For example, in financial analysis, the accounting techniques will be used to find out the ‘Break-even position’ and ‘contribution margin’ (Dyson, 1997) of a product to support developing a price strategy. In segmentation analysis, marketers devote to communicate the value of product to customer segments and give different purchase motivations. In competitive analysis, marketers will be able to use the information of competitors collected previously and propose the firm’s objectives which are more achievable and profitable. Strategy formulation is the final stage of pricing, marketers will use the results of previous analysis to make decision of which price strategy for a particular product is the most reasonable.

Promotion

Kotler et al (2002) suggest that marketing strategies of a modern company need more than just developing a good product and pricing it attractively. The communications with intermediaries, consumers and various publics are essential to the business value. The marketing communications system is complex. ‘A company’s total marketing communications mix or called its promotion mix consists of the specific mix of advertising, personal selling, sales promotion, public relations and direct marketing that a company uses to pursue its advertising and marketing objectives’ (Kotler et al, 2002, P624).

According to Fill (1999), the objective of marketing communication is to position or reposition the organisation and its product or service in the mind of member of the target audience. At a basic level, communication can inform and make customers aware of product or service that a company offer. Secondly communication might be able to persuade customers to enter into an exchange relationship. Furthermore, communication can remind people of a need they might have or the benefits from previous exchange and so convince them to consume. Also marketing communications can differentiate a company’s product or service from competitors’ offering.

Fill (1999) also explains the different characteristics of promotional mix. Advertising is considered as a form of mass communication which provides and delivers appropriate messages to target audiences. The main roles of advertising are to create awareness and to position brands by changing either perception or attitudes. There are three main elements involved in an advertising plan: (1) the message, (2) the media and (3) the manner in which the message will be carried. If the effects of advertising are over the long term, sales promotion can achieve short term improvement in sales. Sale promotion includes various marketing techniques which are normally used tactically to improve sales and gather marketing information and provide added value to the product or service. Personal selling is often considered as a personal communication tool which involves face to face activities. The purpose of personal selling is to inform, persuade or remind an individual or group to take action of consumption. Public relations is a management activity that attempts to shape the attitudes and opinions held by an organisation’s stakeholders. Publicity and event management appear to be the main activities used by practitioners. There are also other activities used by public relations such as lobbying, sponsorship and crisis management. Direct marketing has been developed significantly in the late 1980s and 1990s as the changing of technologies and buyer life styles. In contrast to traditional approaches, direct marketing intents to create a partnership with each customer by communicating with customers on a direct and personal basis. The examples of using direct marketing are email, fax, telemarketing, and internet.

Place

The fourth marketing mix is place which often relate to the decisions and activities of distribution system. O’Shaughnessy (1995) explains that a distribution system is ‘a network of people, institutions or agencies involved in the flow of a product to the customer, together with the informational, financial, promotional and other services associated with making a product convenient and attractive to buy and rebuy’. He also suggests that the selection of a distribution system is very important as it normally involves heavy investment and has long term relationship with the firm and, more over, it can be the deciding factor in determining the success or failure of a marketing strategy in the company.

Kotler et al (2002) found evidences that the use of distributors results from their greater efficiency in making goods available to target markets. Distributors always offer the firm great benefit through their contacts, experience, specialisation and scale of operation. Figure 4 shows how using distributors can provide economies. Part A shows three manufacturers contact customers without distributor and that requires nine different contacts. Part B shows three manufactures contact customers with a distributor and that reduces the requirement of contacts.

Figure 4: How a marketing intermediary reduces the number of channel transactions and raises economy of effort (source: Kotler et al, 2002)

The purposes of distribution channel in marketing are concluded by Kotler et al (2002) that are (1) to gather and distribute information of marketing environment; (2) to develop communications about product and customers; (3) to shape and fit the offer to the consumer’s needs with an agreed price. Therefore, developing a successful strategy of distribution channel is very important to a company. O’Shaughnessy (1995) concludes that the distribution strategy involves: (1) determining the goals to be achieved through the channel system; (2) selecting the type of channel system; (3) determining whether a policy should be taken; (4) selecting the individual channel member.

Marketing strategies in Dell Corporation

Dell Corporation has experienced the greatest success in marketing strategies within this decade. Base on the reports from www.dell.com that business revenue for the last four quarters totalled $39.7 billion and the company employs approximately 44,300 team members around the globe.

In product planning, Dell develops many different product lines ranging from highly reliable server to flexible Peripherals based on the variable market segmentations. At the meantime, Dell devotes at improving service which maximize both customer value and business value. In year 2002, the brand value of Dell is 9,237 billion us dollar with its overall ranking at 28th in the world. ()

The most exciting strategy in Dell is considered as direct marketing which is central to its business. Customers are able to order Dell products and receive the service through telephone and Internet. Through direct marketing strategy, Dell reduces the costs of intermediaries and thus is able to price its products at a lower level but with good qualities and designs. As reported by New York Times (27.09.2003)，‘Dell, whose strategy of direct sales and low-margin pricing has made it the No. 1 seller of personal computers’.

Conclusion

The aim of this paper is to give a general view of the term of “marketing”. It is difficult to cover all aspects of marketing in a short review, therefore, to undertake this purpose; the paper describes the basic elements involved in marketing especially focusing on 4PS which are commonly accepted by researchers and scholars. In practice, the term of marketing is still developing and would be more complex as many new business issues arisen. Marketers are expected to integrate and manage the complicated real situation to achieve the natural goals of marketing.

(3,114 words)

References

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http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/09/27/BUG3T1VN4C1.DTL&type=tech