Chapter 5: Marketing Management

Foundations of Marketing

Marketing is typically defined as the creation, promotion, and delivery of goods and services directed towards consumers and businesses. This definition reflects upon the basic activities and functions of marketing and specifies that marketers deal with (1) identifying and creating needs, wants, and desires of consumers in B2C (business-to- consumer) and B2B (business-to-business) markets, (2) promoting the product by way of integrated communication techniques, and (3) delivering the product by appropriate sales points in either brick-and-mortar retail locations or virtual outlets. Perhaps a better definition for marketing would entail the human dimension, such as the following: marketing is managing profitable customer relationships. In this short-yet-effective definition, there are three important concepts: first, marketing is all about building a relationship with customers. Without a deep understanding of consumer behavior, marketing cannot succeed.

Marketing is about managing customer relations. It is no coincidence that a majority of a brand’s fans agree on the basic values and advantages that the brand provides. Building a strong relationship with customers requires a proactive approach in marketing. The management of customer relationships must generate profits, not only because companies need money to pay their employees and other shareholders, but also because they need money to invest in other opportunities.

Scope of marketing is not limited with products (good and services), which are intended to be commercially sold. The following are also in the scope of marketing: Events, such the Olympics where different types of sports are played by thousands of different players from around the world, Places, such as Paris as the most romantic destination for honeymoon, Organizations, such as the World Wild Life, trying to lead initiatives on preserving wild life on earth, Persons, such as Marilyn Monroe, who has become the icon for beauty and the symbol of “dumb blonde” character in Hollywood, * Experiences, such as Disneyland theme park, with over 650 million visitors since it opened, Consumers may need something, which is mostly common across all people regardless of culture and geography. Need is usually biological, such as thirst, hunger, and love. Want is the need directed towards an object, where brands may compete over customers. Brands may also position themselves as “desirable”, such as in the case of Magnum ice cream, an obvious example, or Coca-Cola, a less obvious example. Consumer demand emerges when the consumer pays for the product, i.e. the actualization of what the customer wants or desires.

Strategic Marketing Management

Strategy can be defined as the method or the plan to achieve a desired future state. Marketing strategy, from this perspective, is the way of doing marketing towards a certain positioning. For marketers to decide on this “way,” they have to combine all marketing goals into one comprehensive plan. Two key decisions marketers have to make in this regard are (1) generic marketing strategy and (2) segmentation and targeting.

Generic Marketing Strategy: Firms which stuck in the middle fail to develop their strategy in at least one of three dimensions: (1) cost leadership, (2) differentiation, and (3) focus.

Cost leadership: One of the ways to establish competitive advantage is to produce output with the lowest cost in the industry. This can be achieved by producing in more and more efficient ways using scale economies, scope economies, and experience (learning curve) effects. Scale economies state that a company can produce at a lower cost per unit of production if it is able to use the capacity further. The company can achieve a cost advantage with increased output of a product because fixed costs can be distributed over a larger quantity of outputs, leading to a lower cost per unit. The reasoning behind cost leadership strategy is that in each industry, customers are looking for a few basic things being offered in a product.

Differentiation: Companies may want to offer some extra value in addition to the basic features offered in the product. For instance, a shampoo brand may claim it repairs the hair and makes it shine (beyond the fact that it actually cleans the hair). Differentiation strategy requires that the point being differentiated has specific characteristics. For instance, the so-called differentiation as the company argues may not be meaningful for the target customers. If the consumer is not willing to pay for it, then the company has to start from scratch to find a meaningful advantage.

Focus: Focus strategy attempts to capture a smaller segment in the market; however offering a very specific product designed according to the particular needs of this segment, it is highly possible that people with that need would buy from this focused company. Focus (or niche) strategy can be attractive for several reasons:

• A particular niche market can allow a few companies only (usually one or two), so the competition is not intense.

• It may be easier to build a clear positioning strategy since the product itself is directed towards particular attributes.

• Profit margins are usually higher for focused companies.

Segmentation is the task of dividing this population into sub-groups in a way that can meaningfully separate consumers in terms of their consumption patterns. In order to talk about a useful segmentation, the following conditions must be met:

\1. People in the same group should be homogenous

\2. People in different groups should be heterogeneous.

\3. Some data should be available for each segment so that measurements can be made as regards to the size of the market, the general characteristics of consumers constituting that market, details of their buying behavior, and thus, the overall attractiveness of the segment.

\4. The segments should be substantial either in terms of number (sales potential) or in terms profit per unit sold (profit potential). Each company is likely to have a “minimum” requirement to be profitable.

\5. The segments should also be accessible so that an effective distribution and communication strategy can be established.

The criteria for segmentation may differ from one company to another. One of the most convenient methods is geographic segmentation. A more sophisticated yet still simple criterion for segmentation is demographic (and in the case of B2B markets, firmographics). A more useful approach is categorizing consumers on the basis of how they purchase and use a particular product or brand. The most useful approach in segmenting consumers is on the basis of psychographic information. With psychographics, marketers become able to closely “know” consumers and understand their psychological and social predispositions.

The next step after segmentation is actually choosing which segments to target. The increased availability of consumer data over the internet has made it possible to directly target a specific group of consumers or households. Proper evaluation of the data is critical in segmentation and targeting decisions. Targeting involves the careful selection of at least one segment identified in the previous step, by considering a variety of different factors. One of these factors is the measurability. As in the case of segmentation, the size and the purchasing power of the target should be measurable. A second criterion is that the target should be substantial in order to compensate for all the costs related to marketing research, strategic organization, and sales. Additionally, the chosen target should be accessible, so that consumers in that target market can be effectively satisfied. Also, the target should be differentiable. Lastly, the targeted segment should be actionable. An obvious example might be cigarette companies which cannot directly target consumers under the age of eighteen.

Marketers can target one or all of the segments identified in previous stages. Company can produce and sell an all-satisfying (usually a basic) product and engage in mass marketing. Companies may choose to differentiate their products, prices, distribution, and communication strategies as tailored to the specific needs and expectations of the targeted segments. If the company chooses to focus on only one or a few of these segments, this reflects that the company is actually focusing on the particular needs of specific consumers. Lastly, through a micro marketing strategy, a company can focus on individual consumers, one by one.

Marketinng Mix

Marketing mix can be considered as the tactical-level marketing facilities, which are directed towards a certain target group, identified in the phase of strategic decisions. Four Ps are identified to be the initial letters of the most fundamental marketing actions, namely, product, price, place (distribution), and promotion. These activities have to be combined in such a way that they are meaningful and effective together in the eyes of the target customers. Marketing mix is called a mix because decisions about each different element cannot be made without considering the other elements. For instance, if the offering is of high quality (product), the price should be high to reflect this superiority. Communicating this quality (promotion) would then be managed with the idea of a smaller target market with specific characteristics. Four Ps of marketing actually represents the firm’s perspective. When evaluated from the consumer’s perspective, marketing mix is called “Four Cs”, representing customer value (product), cost to the customer (price), convenience (place), and communication (promotion), explained in each section below.

Product: (good or service) is the offering in the market, created and sold in order to solve a problem or satisfy a need or want. The most fundamental distinction is between tangible products and intangible services. A new perspective in marketing reflects that every transaction in a market is always a service relationship. The distinction between a product and a service does not exist, and the product is only a transmitter of the service exchange. It is also possible to categorize products on the basis of B2B and B2C markets, too, where the former usually deals with unfinished products, components, and raw materials to be used in the production process of another product while B2C products are used by end-consumers.

Products can also be categorized in terms of the consumers’ buying behavior. Consumers purchase convenience products on a frequent basis. They are usually cheap products, which require minimum effort. Shopping products, on the other hand, require more effort on the part of consumers since they are less frequently purchased. Specialty products require much more time and money; therefore, consumers may compare brands and prices and may necessitate different promotion and distribution strategies. Lastly, unsought products are not normally wanted by consumers, as the name implies. They are not products to be consumed with joy, but bought because of an obligation.

Price: The second major marketing activity involves the pricing of a product. This represents the financial compensation in return for the value provided by the product or service. There are different pricing approaches with unique advantages and disadvantages. The simplest method is called cost-based pricing where companies first figure out the cost of producing one item, and then add a profit margin to arrive the price to be used in the marketplace. Cost-oriented pricing should consider the fixed, variable, and total costs, as well as the margin to be added. The company, however, should always consider how consumers react not only in terms of quantity purchased, but also in terms of product quality perceptions, future intention to buy, and other types of behavior such as brand loyalty. In considering pricing methodologies, marketers can also rely on the so-called psychological pricing tactics. One such tactic involves consumers’ reliance on price to judge the quality of the product. Price as quality signal can be increased to send the message that the product is superior, which is called the high- level pricing. Another psychological pricing tactic is ending the price with certain numbers, such as 9.99 Turkish liras for a t-shirt.

Place (Distribution): Products cannot be sold if they are not in the right place at the right time. Place is a decision regarding where the products would be purchased (and implicitly, how they are purchased), and the activity conducted by the company is called distribution. A distribution channel is a chain of intermediaries through which products reach consumers. A supply chain represents a whole system of organizations, people, systems, and resources responsible along the way of products moving from producers to consumers.

A special type of distribution, called franchising, is an arrangement where a producer does not sell the products but sells the right to sell the products under certain rules. Retailing is simply the process of selling consumer goods and services to customers, also the term often refers to a physical shop with a service provider filling the small orders of a large number of individuals.

Promotion: Promotion entails the activities that attempt to establish some sort of a relationship with target customers, and all shareholders involved, and try to win the heart and loyalty of consumers. Promotion aims to promote the product in the market. The tools of communication available for marketers are: (1) advertising, (2) sales promotions, (3) public relations and publicity, and (4) personal sales.

Advertising is the most expensive but the most effective (in terms of the number of people reached with one message) contact method. It is the most well-known mass method of conveying a message. Advertising is the most expensive but the most effective (in terms of the number of people reached with one message) contact method.

Other contact methods include sales promotions, which aim to increase sales within a certain period of time. To do this, marketers use a variety of different promotional activities. It is nowadays common to see online promotions, such as interactive games on the web, online contests, and cheaper products or product bundles sold online.

Another marketing communication tool is public relations and publicity. Although these two functions are enunciated together, they in fact entail different activities. Public relations (PR) involves gaining exposure in the mass media and other types of contact channels and proactively managing the dispersion of information between organizations and individuals. Among the activities that PR specialists do include the following:

• Preparing news releases,

• Managing interviews,

• Acting as the spokesperson of the company,

• Managing the web site and social media content,

• Responding to customer complaints,

• Building on company reputation,

• Engaging in crisis management when necessary,

• Helping in the process of event management.

Personal sales is not only a type of distribution channel (i.e. direct sales), but also a type of promotion facility. Personal selling occurs when a representative from the company meets a potential customer. The purpose is usually making a sale, and sometimes meeting the client and providing information about the company, product, and/or brand.

Branding

A brand is a name, slogan, symbol, or logo associated with a product or service. Branding is the process of differentiating the company’s offerings in the marketplace from those of the competitors. Branding involves a set of marketing and promotion activities that promote the brand, aiming to have a persistent image in consumers’ minds. Branding is the most strategic investment of the company. Brand equity is a term reflecting the brand’s worth in the eyes of consumers, usually reflected in the price. Brand identity is the set of all individual components of a brand, specifically including the imagery, slogans, colors, and all other types of imagery.

Positioning is how the brand is perceived by the consumers and the “position” in their minds. Companies try to distinguish themselves from competitors and emphasize this differentiation point through different communication attempts. A positioning strategy has to be sustainable and create a meaningful competitive advantage. Marketers can base their positioning on a variety of different factors, but overall positioning can depend on one of three bases:

• Functional positioning: The brand promises to solve a problem and provide a functional benefit to customers.

• Symbolic positioning: The brand tries to capture the attention and win the hearts of consumers by focusing on ego identification, social belonging, life meaningfulness, and emotional attachments.

• Experiential positioning: The brand tries to provide stimulation throughout the purchasing and consumption process.

Positioning (Perceptual) maps: Perceptual maps are based on consumer perceptions showing the position of the product/brand so that the firm can see its position as perceived by consumers, take corrective action if necessary, compare its position with competitors, and make strategic, future-oriented decisions.

Brand value reflects brand equity (being a well-known brand will generate more revenue) or strength of a brand, the financial strength (the net present value of the estimated future cash flows), and/or the effective attachment consumers have with the brand due to functionally, emotionally, and experientially strong aspects. Brand personality refers to the set of human characteristics attributable to a brand.

New Trends in Marketing

Major trends in the world such as globalization, automation, and digitalization have their effects on marketing, too. In fact, marketing is a very old discipline but it has become a totally different concept compared to the day it first emerged. In earlier eras, slaves were subjected to further humiliation by being “branded” to signify whose slaves they were. The modern practice of marketing evolved over time: The simple trade era was dominated by commodities being exchanged for household consumption, which later progressed towards commodities exchanged for the use of larger communities and nations.

The marketing era was then followed by the relationship marketing era (from the 1990s to the 2010s), where the focus has changed to building a long-term, mutually-benefiting relationship with target consumers and the intended value has started to capture the lifetime customer loyalty. Customer relationship management (CRM) has been a key concept with many software programs claiming to help firms understand what the data says about customers and facilitating the formation of a long-lasting relationship. “Big-data” in this new era represents large and complex sets of data collected through primary data collection methods and data readily available on the web. Associated with the development of more complex statistical data analysis methods, software programming, and artificial intelligence, digital technologies constitute another big development in recent years. Virtual and augmented reality, for instance, provides an effective way for marketers to get into the lives of consumers, connect with them, and have real-life experiences together.

Content marketing still remains to be the dominant digital marketing technique, instead of the traditional search marketing. Content marketing refers to the creation, publishing, and distribution of digital content for a targeted audience online. A lot of companies eagerly turn to social media marketing to create stories with customers, instead of more traditional communications channels such as TV or radio. Consumers actively use social media to make consumption decisions, hence companies feel the need to create social media content and connect with customers. A lot of companies eagerly turn to social media marketing to create stories with customers. Social media can be used more passively such as by following the content related to the brand or as a PR tool (news about the company on Twitter) or direct marketing tool (selling products on Facebook), or more actively through customer engagement tools, by making customers make comments, react in various ways, and participate in different types of applications and games. One specific marketing development in recent years is the use of electroencephalograpgy (EEG) and functional magnetic resonance imaging techniques (fMRI) to better understand consumer motivations and their reactions to stimuli (such as advertising).

Marketing Ethics

Marketing ethics deals with the moral principles behind marketing activities. One of the newest eras in marketing involves the concept of societal marketing, for instance, which tries to discuss creative ways to optimize consumer satisfaction and preserve society and nature as a whole. There are a lot of issues raised as regards to marketing ethics. The following list is not exhaustive:

• Invasion of privacy in marketing research

• Stereotyping in segmentation and targeting

• Uncontrolled marketing efforts towards vulnerable consumers, such as the elderly children, illiterate people, and financially disadvantaged people

• Unethical pricing tactics such as price fix- ing, price wars, and price collusion

• Ethically questionable and insensitive con- duct in advertising and promotion

• Deceptive advertising and marketing tactics such as by strong emotions like fear and sex

• Product safety issues

• Irreversible corruption of the nature and natural resources

• Misleading packaging

• Low-quality export/import products

• Bribery

• Over-booking and over-selling

• Intentionally creating limited supply

• Fake products

• Planned obsolescence

• Materialism

• Created needs and

• Cultural corruption.

Corporate social responsibility (CSR), also called corporate citizenship, denotes the integration of a self-regulation mechanism in all conducts and ideas of doing business.