What is marketing?

What is marketing? What is marketed (scope of marketing)? What is a market (where does marketing

take place, markets and competition)? Company orientation toward the

marketplace The age of customer capitalism

Outline

Needs and wants Facilitate Exchange “Marketing is 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.” AMA, 2008.

Defining Marketing

07.07.2010Einar Breivik,

einar.breivik@nhh.no

Marketing as Exchange Marketing as Tactics

◦ 4 P framework Marketing as Value Delivery

Defining Marketing

”Sense and respond” Haeckel (2004), not “make and sell”

Marketing process as any activity which generates or uses information about customers to organize and deploy resources for providing solutions to customer problems (Webster 2002) and hence…..

Marketing is any business process that gathers and disseminates information about customers, guides value creation and delivery with information about customers, or produces information evaluated and used by customers.

Marketing as Value Delivery

What customer value : What is our reason to be?

Customer expectations (what do customers want?)

Core competencies (how can we match this?)

Selecting target markets (heterogeneity, not all customers and firms are created equal)

07.07.2010Einar Breivik,

einar.breivik@nhh.no

Value-defining processes◦ What customer value is at the core of our business?◦ Analyzing market opportunities

Market research (study of customer needs, preferences, expectations, buying behavior, etc.)

Analysis of the firm’s core competencies Selecting target markets and positioning

Value-developing processes◦ Product development and product management◦ Design of distribution channel◦ Developing pricing strategy◦ Developing value proposition (communication strategy)◦ Sourcing strategy, vendor selection

Value-delivering processes◦ Managing distributions and logistics◦ Order-entry, credit, post-sales services◦ Advertising and sales promotions◦ Product upgrades and recalls, Applications engineering, Customer

training

Marketing Processes

What is marketed?◦ Goods◦ Services◦ Events◦ Experiences◦ Persons◦ Places◦ Properties◦ Organizations◦ Information◦ Ideas

Scope of marketing

The only valid definition of business purpose is to create a customer.

What the business thinks it is producing is not as important as what the customers think they are buying; what they consider to be ’value’ is decisive.

Any business has only two basic functions: marketing and innovation; all the rest are costs.

It is not enough to entrust marketing to the sales department.

The aim of marketing is to understand the customer so well the product or service fits him or her and sells itself.

Marketing is the whole business seen from the point of view of its final result, that is, from the customer’s point of view.

“Marketing is too important to be left to marketing people” Frederick E. Webster

The marketing concept (Cites From Peter Drucker)

Markets◦ A collection of buyers and sellers who transact

over a particular market offering Competition

◦ Neoclassical explanation◦ Resource-Advantage explanation (Hunt & Morgan

1995)

Markets and Competition

Perfect competition◦ Demand is homogenous for every industry’s

products◦ Consumers assumed to have perfect information

(which also is costless)◦ Consumers motivated by utility maximization (self

interest)◦ Firms objective profit maximization

Role of marketing: ”creators of market imperfections”

Neoclassical explanation

Resource Advantage Explanation Reexamines foundations of perfect

competition◦ Demand is heterogeneous and dynamic within

industries (product classes)◦ Consumers assumed to have imperfect

information (and obtaining information comes at a cost)

◦ Consumers motivated by constrained self interest◦ Firms objective superior financial performance

Role of marketing◦ Market opportunity analysis (identifying needs

based on customer value, segments)◦ Selecting target markets◦ Developing marketing strategies to deliver

customer value

Production Concept Product Concept Selling Concept Marketing Concept Societal Marketing Concept

Company Orientation Toward the Marketplace

Idea of mass market Consumers prefer products that are widely

available and inexpensive Focus on efficiency (in production) Typical for growing markets (ex. Industrial

revolution, scientific management)◦ T-Ford◦ Refrigerators in their infancy◦ Calculators

Production concept

Quality, performance, innovative features, enough to sell products?

Defining your business by the product you sell rather than by what your customer needs is the classic “Better Mousetrap” trap. Just because you build it does not mean they will come.

Product concept

Saturated markets, compete for attention Requires demand stimulation Role of the customer?

Selling concepts

Marketing today includes the obligation to examine societal issues as well

Customers have a life after the purchase

Societal marketing concept

Define business in terms of need satisfied instead of product made (Levitt, 1960)

Movies Railroads Xerox Coke Kodak . .

Marketing Myopia

07.07.2010Einar Breivik,

einar.breivik@nhh.no

Managerial capitalism (Berle & Means 1932)◦ Managers substituted for owners – entrepreneurs

not good CEOs

Customer capitalism (Martin 2010)

The Age of Customer Capitalism (Roger Martin, 2010)

(Jensen & Meckling 1976, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure)

Owners were getting short shrift from professional managers, who enhanced their own financial well-being rather than that of the shareholders. This was bad for shareholders and wasteful for the economy. Hence, CEO’s had to confirm to the idea of maximizing shareholder value. Typically you could see arrangements such as stock-based compensations to align interests of senior managers and shareholders.

Shareholder value capitalism

07.07.2010Einar Breivik,

einar.breivik@nhh.no

Can not simultaneously maximize two different things (shareholder value and customer satisfaction) It is possible to maximize shareholder value given a minimum hurdle for

customer satisfaction and vice versa, but not both Shareholder maximization

◦ Shareholders have a residual claim on a firm’s assets and earnings◦ Hence, the value of their shares is the discounted value of all future

cash flows minus payments to other claimants◦ Since the future is unknowable, potential shareholders must estimate

what that cash flow will be, their collective expectations about the future determine the stock price

◦ Also, subject to future optimism and pessimism -> Stock markets more volatile than the earnings of the companies in them

◦ What should managers do?

Satisfaction maximization◦ Focus on customer value

Customer Capitalism

High levels of customer satisfaction grow shareholder value

Customer satisfaction positively associated with credit ratings and negatively associated with debt costs

Customer Satisfaction and Financial Performance

07.07.2010Einar Breivik,

einar.breivik@nhh.no

R & DOFFERING

ProductSegmentationPositioningPromotionDistributionService

MarketingConcept

“On Balance Sheet”

CustomerWants +Needs

Environment

Competition

Satisfaction

RetentionRate

Lost toCompetition

New Customers

CustomerBase

Value ofCustomer

BrandEquity

Value of The Firm

Kotler, P. & K.L. Keller: Ch. 1 & Ch. 2 Webster, F.E. (2002): ”The Role of Marketing and

the Firm”, in Handbook of Marketing (eds. B.A. Weitz & R. Wensley), SAGE, 66-82.

Haeckel, S.H. (2004): ”Peripheral Vision: Sensing and Acting on Weak Signals Making Meaning out of Apparent Noise: The Need for a New Managerial Framework”, Long Range Planning, 37, 181-89.

Hunt, S.H. & R.M. Morgan (1995): ”The Competitive Advantage Theory of Competition”, Journal of Marketing, 59(April),1-15

Martin, Roger (2010): ”The Age of Customer Capitalism”, Harvard Business Review, January-February, 58-65.

Sources