Marketing, the process by which
a product or service originates and is then priced, promoted, and distributed
to consumers. In large corporations the principal marketing functions precede
the manufacture of a product. They involve market research and product
development, design, and testing.
Marketing concentrates primarily
on the buyers, or consumers. After determining the customers’ needs and
desires, marketers develop strategies that are designed to educate customers
about a product’s most important features, persuade them to buy it, and then to
enhance their satisfaction with the purchase. Where marketing once stopped with
the sale, today businesses believe that it is more profitable to sell to
existing customers than to new ones. As a result, marketing now also involves
finding ways to turn one-time purchasers into lifelong customers.
Marketing includes planning,
organizing, directing, and controlling the decision-making regarding product
lines, pricing, promotion, and servicing. In most of these areas marketing has
overall authority; in others, as in product-line development, its function is
primarily advisory. In addition, the marketing department of a business firm is
responsible for the physical distribution of the products, determining the
channels of distribution that will be used, and supervising the profitable flow
of goods from the factory or warehouse.
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II
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TAILORING
THE PRODUCT
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Merchandise that is generally
similar in style or design, but may vary in such elements as size, price, and
quality is collectively known as a product line. Most marketers believe that
product lines must be closely correlated with consumer needs and wants.
Firms tend to change product
items and lines after a period of time to gain a competitive advantage, to
respond to changes in the economic climate, or to increase sales by encouraging
consumers to buy a new model. For example, if the economy weakens, a
manufacturer might use cheaper parts to make a product more affordable.
Sometimes, however, manufacturers will alter the style rather than the quality
of the item. Hemlines on dresses, for example, might go up or down, or the
appearance or functionality of an automobile might be altered. The practice of
changing the appearance of goods or introducing inferior parts or poor
workmanship in order to motivate consumers to replace products is known as planned
obsolescence. Some people object that this practice leads to waste or can be
unethical. Manufacturers reply that consumers are conditioned to expect such
changes and welcome the variety they offer, or they deny that poor quality was
intentional.
The popularity of all
products eventually wanes. In fact, successful products go through what is
called a product life cycle, which describes the course of a product’s sales
from its introduction and growth through maturity and decline. Some fad products
such as Beanie Babies go through all four stages in a very short period. For
others, such as phonograph records, the stages extend over decades.
Because products are always
aging and sales of even the most successful products eventually decline, firms
must continually develop and introduce new items. One study found that over
13,000 new products are introduced each year. But despite the millions of
dollars that United States and Canadian companies invest in product research
and consumer testing, it is estimated that more than 30 percent of new products
fail at launch and 60 percent are never fully accepted by consumers and
disappear after a few years. The high failure rate influences the pricing of
successful products because profits from these products must help cover the
development costs of products that fail.
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III
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PRICING
THE PRODUCT
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The two basic components
that affect product pricing are costs of manufacture and competition in
selling. It is unprofitable to sell a product below the manufacturer’s
production costs and unfeasible to sell it at a price higher than that at which
comparable merchandise is being offered. Other variables also affect pricing.
Company policy may require a minimum profit on new product lines or a specified
return on investments, or discounts may be offered on purchases in quantity.
Attempts to maintain resale
prices were facilitated for many years in the United States under federal and
state fair trade laws. Since 1975, however, these laws have been nullified,
thereby prohibiting manufacturers from controlling the prices set by
wholesalers and retailers. Such control can still be maintained if the
manufacturers wish to market directly through their own outlets, but this is
seldom feasible except for the largest manufacturers.
Attempts have also been
made, generally at government insistence, to maintain product-price competition
in order to minimize the danger of injuring small businesses. Therefore, the
legal department of a marketing organization reviews pricing decisions.
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IV
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PROMOTING
THE PRODUCT
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Marketing
and the Internet
The Internet enables marketers to promote products and
services to millions of potential customers through the World Wide Web. This
Web site provides information about a product designed to keep vegetables
fresh.
Courtesy of Dennis Green, Ltd.
Advertising, personal
(face-to-face) or direct selling, sales promotion, and relationship building
are the primary methods companies use to promote their products.
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ADVERTISING
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Point-of-Purchase
Display
A bookstand highlights some of the many books available for
sale in a bookstore. Point-of-purchase displays such as these enable marketers
to showcase a product or products and help finalize a sale by calling attention
to the product in a store, the actual point where the purchase is made.
Gary Morrison
Advertising is often used
to make consumers aware of a product’s special low price or its benefits. But
an even more important function of advertising is to create an image that
consumers associate with a product, known as the brand image. The brand image goes
far beyond the functional characteristics of the product. For example, a soft
drink may have a particular taste that is one of its benefits. But when
consumers think of it, they not only think of its taste, but they may also
associate it with high energy, extreme action, unconventional behavior, and
youth. All of those meanings have been added to the product by advertising.
Consumers frequently buy the product not only for its functional
characteristics but also because they want to be identified with the image
associated with the brand.
By adding meaning to a
product, advertising also adds value. For example, when Philip Morris Companies
Inc. purchased Kraft Foods, Inc. in 1988 for nearly $13 billion, Philip Morris
paid 600 percent more than Kraft’s factories and inventory were worth. Over 80
percent of the purchase price was for the current and future value of the Kraft
brand, a value that was created in large part by advertising. Advertising plays
such an important role in promoting products and adding value to brands that
most companies spend considerable sums on their advertising and hire
specialized firms, known as advertising agencies, to develop their advertising
campaigns.
Advertising is most frequently
done on television, radio, and billboards; in newspapers, magazines, and
catalogs; and through direct mail to the consumers. In recent years, numerous
advertising agencies have joined forces to become giant agencies, making it
possible for them to offer their clients a comprehensive range of worldwide
promotion services.
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VI
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DIRECT
SELLING
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Where advertising reaches a
mass audience, personal or direct selling focuses on one customer at a time.
That kind of individual attention makes direct selling expensive, but it also
makes it effective. As the costs of personal selling have risen, the
utilization of salespeople has changed. Simple transactions are completed by
clerks. Salespeople are now used primarily where the products are complex and
require detailed explanation, customized application, or careful negotiation
over price and payment plan. But whether the sale involves an automobile or a
customized computer network, personal selling involves much more than
convincing the customer of the product’s benefits. The salesperson helps the
customer identify problems, works out a variety of solutions, assists the buyer
in making decisions, and provides arrangements for long-term service.
Persuasion is only part of the job. A much more important part is problem
solving.
Because the selling process
has become much more complicated, most companies now provide extensive training
for the sales force. The average length of the initial training program is four
months. A training program for new members of the sales force teaches them
about such matters as company history, selling and presentation techniques,
listening skills, the manufacture and use of the company’s products, and the
characteristics of both the industry and its customers. Moreover, because the
sales force plays such a critical role in the marketing process, most companies
provide on-going training for all members of the sales force to help them
deepen their product knowledge and improve their interpersonal and negotiating
skills.
With the increasing complexity
of business problems and products, effective sales solutions often require more
knowledge than any one person can master. As a result many companies now use
sales teams to service their largest and most complicated accounts. Such teams
might include personnel from sales, marketing, manufacturing, finance, and
technical support.
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VII
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SALES
PROMOTION
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The purpose of sales promotion
is to supplement and coordinate advertising and personal selling; this has
become increasingly important in marketing. While advertising helps build brand
image and long-term value, sales promotion builds sales volume. Sales
promotions are designed to persuade consumers to purchase immediately by
providing special incentives such as cash rebates, prizes, extra product, or
gifts. Promotions are an effective way to spur sales, but because they involve
discount coupons and contests with valuable prizes, they are also expensive and
so reduce profits.
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VIII
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RELATIONSHIP
BUILDING
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In the past, most advertising
and promotional efforts were developed to acquire new customers. But today,
more and more advertising and promotional efforts are designed to retain
current customers and to increase the amount of money they spend with the
company. Consumers see so much advertising that they have learned to ignore
much of it. As a result, it has become more difficult to attract new customers.
Servicing existing customers, however, is easier and less expensive. In fact,
it is estimated that acquiring a new customer costs five to eight times as much
as keeping an existing one.
To retain current customers,
some companies develop loyalty programs such as the frequent flyer programs
used by many airlines. A marketer may also seek to retain customers by learning
a customer’s individual interests and then tailoring services to meet them.
Amazon.com, for example, keeps a database of the types of books customers have
ordered in the past and then recommends new books to them based on their past
selections. Such programs help companies retain customers not only by providing
a useful service, but also by making customers feel appreciated. This is known
as relationship building.
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IX
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DISTRIBUTING
THE PRODUCT
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Early
Sears, Roebuck and Co. Catalog
An early catalog from Sears, Roebuck and Co. promised the
cheapest prices for a wide variety of goods. Catalogs allow manufacturers and
retailers to sell directly to consumers.
THE BETTMANN ARCHIVE/Corbis
Some products are marketed
most effectively by direct sale from manufacturer to consumer. Among these are
durable equipment such as computers, office equipment, industrial machinery and
supplies, and consumer specialties such as vacuum cleaners and life insurance.
The direct marketing of products such as cosmetics and household needs is very
important. Formerly common “door to door products,” these are now usually sold
by the more sophisticated “house party” technique.
Many types of products
and services now use direct mail catalogs or have a presence on the World Wide
Web. Because many people are extremely busy, they may find it simpler to shop
in their leisure hours at home by using catalogs or visiting Web sites.
Comparison shopping is also made easier, because both catalogs and e-commerce
sites generally contain extensive product information. For retailers, catalogs
and the Web make it possible to do business far beyond their usual trading area
and with a minimum of overhead. More than 95 percent of the leading 1,000
companies in the United States sell products over the Internet.
Television is a potent
tool in direct marketing because it facilitates the demonstration of products
in use. Direct sale of all kinds of goods to the public via home-shopping clubs
broadcasting on cable television channels is gaining in popularity. Some
companies also use telephone marketing, called telemarketing, a technique used
in selling to businesses as well as to consumers. Most consumer products,
however, move from the manufacturer through agents to wholesalers and then to
retailers, ultimately reaching the consumer. Determining how products should
move through wholesale and retail organizations is another major marketing
decision.
Wholesalers distribute goods in
large quantities, usually to retailers, for resale. Some retail businesses have
grown so large, however, that they have found it more profitable to bypass the
wholesaler and deal directly with the manufacturers or their agents.
Wholesalers first responded to this trend by changing their operations to move
goods more quickly to large retailers and at lower prices. Small retailers
fought back through cooperative wholesaling, the voluntary banding together of
independent retailers to market a product. The result has been a trend toward a
much closer, interlocking relationship between wholesaler and independent
retailer.
Retailing has undergone even
more changes than wholesaling. Intensive preselling by manufacturers and the
development of minimum-service operations, such as self-service in department
stores, have drastically changed the retailer’s way of doing business.
Supermarkets and discount stores have become commonplace not only for groceries
but for products as diversified as medicines and gardening equipment. More
recently, warehouse retailing has become a major means of retailing
higher-priced consumer goods such as furniture, appliances, and electronic
equipment. The emphasis is on generating store traffic, speeding up the
transaction, and rapidly expanding the sales volume. Chain stores—groups of
stores with one owner—and cooperative groups have also proliferated. Special
types of retailing, such as vending machines and convenience stores, have also
developed to fill multiple needs.
Transporting and warehousing
merchandise are also technically within the scope of marketing. Products are
often moved several times as they go from producer to consumer. Products are
carried by rail, truck, ship, airplane, and pipeline. Efficient traffic
management determines the best method and timetable of shipment for any
particular product.
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X
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SERVICES
AND MARKETING
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Marketing efforts once
focused primarily on the selling of manufactured products such as cars and
aspirin. But today the service industries have grown more important to the
economy than the manufacturing sector. Services, unlike products, are
intangible and involve a deed, a performance, or an effort that cannot be
physically possessed. Currently, more people are employed in the provision of
services than in the manufacture of products, and this area shows every
indication of expanding even further. In fact, more than eight in ten U.S.
workers labor in such service areas as transportation, retail, health care,
entertainment, and education. In the United States alone, service industries
now account for more than 70 percent of the gross national product (GNP,
the total of all goods and services produced by a country) and are expected to
provide 90 percent of all new jobs by 2012.
Services, like products,
require marketing. Usually, service marketing parallels product marketing with
the exception of physical handling. Services must be planned and developed
carefully to meet consumer demand. For example, in the field of temporary personnel,
a service that continues to increase in monetary value, studies are made to
determine the types of employee skills needed in various geographical locations
and fields of business. Because services are more difficult to sell than
physical products, promotional campaigns for services must be even more
aggressive than those for physical commodities.
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XI
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MARKETING
RESEARCH
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Focus
Group
A focus group, observed through a one-way mirror, discusses
the merits of a new product. Marketers often use focus groups as a form of
qualitative research to obtain suggestions for selling a product or service. By
observing how members of the focus group respond to a series of questions,
marketers can gain ideas for how to market the product before testing those
ideas through quantitative research.
Marketing research helps
businesses identify consumer needs and wants so a company can develop and
promote products more successfully. Such research also provides the information
upon which important advertising and marketing decisions are based.
Marketing
Research and Programs
Marketing research is a pivotal part of the marketing
process. By referring to studies of prospective buyers’ needs, wants, and
tastes, providers of goods and services can tailor their marketing programs.
The results of marketing studies suggest to sellers not only what they should
sell or provide but also where to offer particular goods and services, how to
advertise them, and how to set prices.
There are two types of
research: qualitative and quantitative. To gain a general impression of the
market, consumers, or the product, companies generally start with qualitative
research. This approach asks open-ended rather than yes or no questions in
order to enable people to explain their thoughts, feelings, or beliefs in
detail. One of the most common qualitative research techniques is the focus
group in which a moderator leads a discussion among a small group of
consumers who are typical of the target market. The discussion usually involves
a particular product, service, or marketing situation. Focus groups can yield
insights into consumer perceptions and attitudes, but the findings cannot be
applied to the whole market, because the sample size is too small. Focus group
results, then, are suggestive rather than definitive.
The insights generated by a
focus group are often explored further through quantitative research, which
provides reliable, hard statistics. This type of research uses closed-ended
questions, enabling the researcher to determine the exact percentage of people
who answered yes or no to a question or who selected answer a, b, c, or d on a
questionnaire. One of the most common quantitative research techniques is the
survey in which researchers sample the opinions of a large group of people. If
the sample group is large enough and is representative of a particular group,
such as executives who use cell phones, statisticians consider the findings
statistically valid, which means that if all consumers in that particular
category could be surveyed, the findings would still be the same. This means
that quantitative findings are conclusive in a way that qualitative findings
cannot be.
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XII
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FORCES
AFFECTING MODERN MARKETING
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Of all the forces affecting
modern marketing, perhaps none is more important than globalization. Since the
1980s, technological advances such as global telephone and computer networks
have reduced geographic and even cultural distance. As a result, companies can
now buy supplies and produce and sell goods in countries far from their home
offices. Products conceived in one country are now being manufactured and then
sold in many others. For example, Sony (Japan), Nestlé (Switzerland), Bic
(France), and Volkswagen (Germany) have become household words around the
world.
Although being able to
market goods far from home presents corporations with many new opportunities,
it also means they face new competition. Local companies that never even
considered international competition now find foreign competitors stocked on
shelves right alongside their own products. Some economists argue that local
companies should be protected from such competition through legislation that
regulates the flow of goods through trade barriers and other measures. Others
oppose such regulation, arguing that it only raises prices for consumers.
Globalization, however, is only
one force changing the way companies market their products or services. Another
involves changes in the very interests and desires of consumers themselves.
Consumers today are more sophisticated than those of past generations. They
attend school for a much longer period of time; they are exposed to newspapers,
magazines, motion pictures, radio, television, and travel; and they have much
greater interaction with other people. Their demands are more exacting, and their
taste changes more volatile. Markets tend to be segmented as each group calls
for products suited to its particular tastes. “Positioning” the product—that
is, determining the exact segment of the population that is likely to buy a
product, and then developing a marketing campaign to enhance the product’s
image to fit that particular segment—requires great care and planning. This
type of campaign is known as target marketing.
Competition also has sharply
intensified, as the number of firms engaged in producing similar products has
increased. Each firm tries to differentiate its products from those of its
competitors. Profit margins, meaning the profit percentages made by a business
per dollar of sales, are constantly being lessened. Although costs continue to
rise, competition tends to keep prices down. The result is a narrowing spread
between costs and selling prices. An increase in a business’s sales volume is
necessary to maintain or raise profit.
Another force affecting
modern marketing is the influence of the consumer rights or consumer protection
movement. This movement insists on safe, reputable, and reliable products and
services. Both consumer groups and government agencies have intensified their
scrutiny of products, challenging such diverse elements as product design,
length and legitimacy of warranty, and promotional tactics. Warranty and
guarantee practices, in particular, have been closely examined. New legislation
has generally defined and extended the manufacturer’s responsibility for product
performance.
Environmental concerns have also
affected product design and marketing, especially as the expense of product
modification has increased the retail cost. Such forces, which have added to
the friction between producer and consumer, must be understood by the marketer
and integrated into a sound marketing program.
Even the way a firm handles
itself in public life—that is, how it reacts to social and political issues—has
become significant. No longer may a corporation cloak its internal decisions as
private affairs. The public’s dissatisfaction with the actions and attitudes of
a firm has sometimes led to a reduction in sales; conversely, consumer
enthusiasm, generated by a firm’s intentional establishment of a good public
image or public relations, has led to increased sales.
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XIII
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SPECIALIZED
MARKETING DEVELOPMENTS
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The success of specialized
marketing developments has caused many older organizations to revise their
operating methods. In recent years, for example, franchise distribution has
become an important force in retailing. Under this plan, the retailer is given
the right to sell, within a certain area, without competition from another
retailer dealing in the same product.
Many consumers now find
it more desirable to rent products than to purchase them outright. For example,
a homeowner may find it preferable to rent an electric floor polisher when
needed, rather than purchase the appliance at the list price, use it only infrequently,
and then have to provide storage space within the home. Another item consumers
have found easier and less expensive to rent is the automobile. The renting of
equipment also figures in large industry. Corporations are finding it to their
economic advantage to rent computers and office and industrial machinery,
thereby assuring themselves of product servicing and repair and allowing a
changeover, without great expense, to newer equipment models as they become
available.
Businesses must strive daily
to outdo competitors. The methods available to businesses for distinguishing
their commodity from others in the market are subject only to their ingenuity.
Such methods may include product improvement, a unique promotional campaign, a
new twist in servicing, a change in distribution channels, or an enticing price
adjustment.
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XIV
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THE
MARKETING PROFESSION
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As marketing has become
increasingly more complex, a need has arisen for professional marketers trained
in the social sciences who also possess statistical, mathematical, and computer
backgrounds. Many colleges and universities now have programs designed to train
marketing executives. Courses are offered at the undergraduate and the graduate
level in such specialized fields as advertising, administrative practices,
financial management, production, human relations, retailing, and personnel
administration.
In recent years, as many
U.S. manufacturing industries such as steel and automobiles have been weakened
because of foreign competition, marketing departments have become increasingly
responsible for generating profitable sales volume. Thus, their stature in
top-level business decision-making has been enhanced. This trend gives every
indication of continuing in the foreseeable future. As competition continues to
increase and businesses become even more diversified, the marketing profession
is likely to provide more personnel in the ranks of top management.
