The term market is the root word for the word marketing. Market refers to the location where exchanges between buyers and sellers occur. Marketing pertains to the interactive process that requires developing, pricing, placing, and promoting goods, ideas, or services in order to facilitate exchanges between customers and sellers to satisfy the needs and wants of consumers. Thus, at the very center of the marketing process is satisfying the needs and wants of customers.
Needs and Wants
Needs are the basic items required for human survival. Human needs are an essential concept underlying the marketing process because needs are translated into consumer wants. Human needs are often described as a state of real or perceived deprivation. Basic human needs take one of three forms: physical, social, and individual. Physical needs are basic to survival and include food, clothing, warmth, and safety. Social needs revolve around the desire for belonging and affection. Individual needs include longings for knowledge and self-expression, through items such as clothing choices. Wants are needs that are shaped by both cultural influences and individual preferences. Wants are often described as goods, ideas, and services that fulfill the needs of an individual consumer. The wants of individuals change as both society and technology change. For example, when a computer is released, a consumer may want it simply because it is a new and improved technology. Therefore, the purpose of marketing is to convert these generic needs into wants for specific goods, ideas, or services. Demand is created when wants are supported by an individual consumer's ability to purchase the goods, ideas, or services in question.
Consumers buy products that will best meet their needs, as well as provide the most fulfillment resulting from the exchange process. The first step in the exchange process is to provide a product. Products can take a number of forms such as goods, ideas, and services. All products are produced to satisfy the needs, wants, and demands of individual buyers.
The second step in the satisfaction process is exchange. Exchange occurs when an individual receives a product from a seller in return for something called consideration. Consideration usually takes the form of currency. For an exchange to take place, it must meet a number of conditions. (1) There must be at least two participants in the process. (2) Each party must offer something of value to the other. (3) Both parties must want to deal with each other. (4) Both participants have the right to accept or to reject the offer. (5) Both groups must have the ability to communicate and deliver on the mutual agreement. Thus, the transaction process is a core component of marketing. Whenever there is a trade of values between two parties, a transaction has occurred. A transaction is often considered a unit of measurement in marketing. The earliest form of exchange was known as barter.
Historical Eras of Marketing
Modern marketing began in the early 1900s. In the twentieth century, the marketing process progressed through three distinct eras—production, sales, and marketing. In the 1920s, firms operated under the premise that production was a seller's market. Product choices were nearly nonexistent because firm managers believed that a superior product would sell itself. This philosophy was possible because the demand for products outlasted supply. During this era, firm success was measured totally in terms of production. The second era of marketing, ushered in during 1950s, is known as the sales era. During this era, product supply exceeded demand. Thus, firms assumed that consumers would resist buying goods and services deemed nonessential. To overcome this consumer resistance, sellers had to employ creative advertising and skillful personal selling in order to get consumers to buy. The marketing era emerged after firm managers realized that a better strategy was needed to attract and keep customers because allowing products to sell themselves was not effective. Rather, the marketing concept philosophy was adopted by many firms in an attempt to meet the specific needs of customers. Proponents of the marketing concept argued that in order for firms to achieve their goals, they had to satisfy the needs and wants of consumers.
Marketing in the Overall Business
There are four areas of operation within all firms: accounting, finance, management, and marketing. Each of these four areas performs specific functions. The accounting department is responsible for keeping track of income and expenditures. The primary responsibility of the finance department is maintaining and tracking assets. The management department is responsible for creating and implementing procedural policies of the firm. The marketing department is responsible for generating revenue through the exchange process. As a means of generating revenue, marketing objectives are established in alignment with the overall objectives of the firm.
Aligning the marketing activities with the objectives of the firm is completed through the process of marketing management. The marketing management process involves developing objectives that promote the long-term competitive advantage of a firm. The first step in the marketing management process is to develop the firm's overall strategic plan. The second step is to establish marketing strategies that support the firm's overall strategic objectives. Lastly, a marketing plan is developed for each product. Each product plan contains an executive summary, an explanation of the current marketing situation, a list of threats and opportunities, proposed sales objectives, possible marketing strategies, action programs, and budget proposals.
The marketing management process includes analyzing marketing opportunities, selecting target markets, developing the marketing mix, and managing the marketing effort. In order to analyze marketing opportunities, firms scan current environmental conditions in order to determine potential opportunities. The aim of the marketing effort is to satisfy the needs and wants of consumers. Thus, it is necessary for marketing managers to determine the particular needs and wants of potential customers. Various quantitative and qualitative techniques of marketing research are used to collect data about potential customers, who are then segmented into markets.
Market Segmentation
In order to better manage the marketing effort and to satisfy the needs and wants of customers, many firms place consumers into groups, a process called market segmentation. In this process, potential customers are categorized based on different needs, characteristics, or behaviors. Market segments are evaluated as to their attractiveness or potential for generating revenue for the firm. Four factors are generally reviewed to determine the potential of a particular market segment. Effective segments are measurable, accessible, substantial, and actionable. Measurability is the degree to which a market segment's size and purchasing power can be measured. Accessibility refers to the degree to which a market segment can be reached and served. Substantiality refers to the size of the segment in term of profitability for the firm. Action ability refers to the degree to which a firm can design or develop a product to serve a particular market segment.
Consumer characteristics are used to segment markets into workable groups. Common characteristics used for consumer categorizations include demographic, geographic, psychographic, and behavioral segmentation. Demographic segmentation categorizes consumers based on such characteristics as age, gender, income level, and occupation. It is one of the most popular methods of segmenting potential customers because it makes it relatively easy to identify potential customers. Categorizing consumers according to their locations is called geographic segmentation. Consumers can be segmented geographically according to the nations, states, regions, cities, or neighborhoods in which they live, shop, and/or work. Psychographic segmentation uses consumers' activities, interests, and opinions to sort them into groups. Social class, lifestyle, or personality characteristics are psychographic variables used to categorize consumers into different groups. In behavioral segmentation, marketers divide consumers into groups based on their knowledge, attitudes, uses, or responses to a product.
Once the potential market has been segmented, firms need to station their products relative to similar products of other producers, a process called product positioning. Market positioning is the process of arranging a product so as to engage the minds of target consumers. Firm managers position their products in such a way as to distinguish it from those of competitors in order to gain a competitive advantage in the marketplace. The position of a product in the marketplace must be clear, distinctive, and desirable relative to those of its competitors in order for it to be effective.
Coverage Strategies
There are three basic market-coverage strategies used by marketing managers: undifferentiated, differentiated, and concentrated. An undifferentiated marketing strategy occurs when a firm focuses on the common needs of consumers rather than their different needs. When using this strategy, producers design products to appeal to the largest number of potential buyers. The benefit of an undifferentiated strategy is that it is cost-effective because a narrow product focus results in lower production, inventory, and transportation costs. A firm using a differentiated strategy makes a conscious decision to divide and target several different market segments, with a different product geared to each segment. Thus, a different marketing plan is needed for each segment in order to maximize sales and, as a result, increase firm profits. With a differentiated marketing strategy, firms create more total sales because of broader appeal across market segments and stronger position within each segment. The last market coverage strategy is known as the concentrated marketing strategy. The concentrated strategy, which aims to serve a large share of one or a very few markets, is best suited for firms with limited resources. This approach allows firms to obtain a much stronger position in the segments it targets because of the greater emphasis on these targeted segments. This greater emphasis ultimately leads to a better understanding of the needs of the targeted segments.
Marketing Mix
Once a positioning strategy has been determined, marketing managers seek to control the four basic elements of the marketing mix: product, price, place, and promotion, known as the four P's of marketing. Since these four variables are controllable, the best mix of these elements is determined to reach the selected target market.
Product. The first element in the marketing mix is the product. Products can be either tangible or intangible. Tangible products are products that can be touched; intangible products are those that cannot be touched, such as services. There are three basic levels of a product: core, actual, and augmented. The core product is the most basic level, what consumers really buy in terms of benefits. For example, consumers do not buy food processors, per se; rather, they buy the benefit of being able to process food quickly and efficiently. The next level of the product is the actual product—in the case of the previous example, food processors. Products are typically sorted according to the following five characteristics: quality, features, styling, brand name, and packaging. Finally, the augmented level of a product consists of all the elements that surround both the core and the actual product. The augmented level provides purchasers with additional services and benefits. For example, follow-up technical assistance and warranties and guaranties are augmented product components. When planning new products, firm managers consider a number of issues including product quality, features, options, styles, brand name, packaging, size, service, warranties, and return policies, all in an attempt to meet the needs and wants of consumers.
Price. Price is the cost of the product paid by consumers. This is the only element in the marketing mix that generates revenue for firms. In order to generate revenue, managers must consider factors both internal and external to the organization. Internal factors take the form of marketing objectives, the marketing-mix strategy, and production costs. External factors to consider are the target market, product demand, competition, economic conditions, and government regulations. There are a number of pricing strategies available to marketing managers: skimming, penetration, quantity, and psychological. With a price-skimming strategy, the price is initially set high, allowing firms to generate maximum profits from customers willing to pay the high price. Prices are then gradually lowered until maximum profit is received from each level of consumer. Penetration pricing is used when firms set low prices in order to capture a large share of a market quickly. A quantity-pricing strategy provides lower prices to consumers who purchase larger quantities of a product. Psychological pricing tends to focus on consumer perceptions. For example, odd pricing is a common psychological pricing strategy. With odd pricing, the cost of the product may be a few cents lower than a full-dollar value. Consumers tend to focus on the lower-value full-dollar cost even though it is really priced closer to the next higher full-dollar amount. For example, if a good is priced at $19.95, consumers will focus on $19 rather than $20.
Place. Place refers to where and how the products will be distributed to consumers. There are two basic issues involved in getting the products to consumers: channel management and logistics management. Channel management involves the process of selecting and motivating wholesalers and retailers, sometimes called middlemen, through the use of incentives. Several factors are reviewed by firm management when determining where to sell their products: distribution channels, market-coverage strategy, geographic locations, inventory, and transportation methods. The process of moving products from a manufacturer to the final consumer is often called the channel of distribution.
Promotion. The last variable in the marketing mix is promotion. Various promotional tools are used to communicate messages about products, ideas, or services from firms and their customers. The promotional tools available to managers are advertising, personal selling, sales promotion, and publicity. For the promotional program to be effective, managers use a blend of the four promotional tools that best reaches potential customers. This blending of promotional tools is sometimes referred to as the promotional mix. The goal of this promotional mix is to communicate to potential customers the features and benefits of products.
International Marketing
International business has been practiced for thousands of years. In modern times, advances in technology have improved transportation and communication methods; as a result, more and more firms have set up shop at various locations around the globe. A natural component of international business is international marketing. International marketing occurs when firms plan and conduct transactions across international borders in order to satisfy the objectives of both consumers and the firm. International marketing is simply a strategy used by firms to improve both market share and profits. While firm managers may try to employ the same basic marketing strategies used in the domestic market when promoting products in international locations, those strategies may not be appropriate or effective. Firm managers must adapt their strategies to fit the unique characteristics of each international market. Unique environmental factors that need to be explored by firm managers before going global include trade systems, economic conditions, political-legal, and cultural conditions.
The first factor to consider in the international marketplace is each country's trading system. All countries have their own trade system regulations and restrictions. Common trade system regulations and restrictions include tariffs, quotas, embargoes, exchange controls, and non-tariff trade barriers. The second factor to review is the economic environment. There are two economic factors which reflect how attractive a particular market is in a selected country: industrial structure and income distribution. Industrial structure refers to how well developed a country's infrastructure is while income distributed refers to how income is distributed among its citizens. Political-legal environment is the third factor to investigate. For example, the individual and cultural attitudes regarding purchasing products from foreign countries, political stability, monetary regulations, and government bureaucracy all influence marketing practices and opportunities. Finally, the last factor to be considered before entering a global market is the cultural environment. Since cultural values regarding particular products will vary considerably from one country to another around the world, managers must take into account these differences in the planning process.
Just as with domestic markets, managers must establish their international marketing objectives and policies before going overseas. For example, target countries will need to be identified and evaluated in terms of their potential sales and profits. After selecting a market and establishing marketing objectives, the mode of entry into the market must be determined. There are three major modes of entry into international markets: exporting, joint venture, and direct investment. Exporting is the simplest way to enter an international market. With exporting, firms enter international markets by selling products internationally through the use of middlemen. This use of these middlemen is sometimes called indirect exporting. The second way to enter an international market is by using the joint-venture approach. A joint venture takes place when firms join forces with companies from the international market to produce or market a product. Joint ventures differ from direct investment in that an association is formed between firms and businesses in the international market. Four types of joint venture are licensing, contract manufacturing, management contracting, and joint ownership. Under licensing, firms allow other businesses in the international market to produce products under an agreement called a license. The licensee has the right to use the manufacturing process, trademark, patent, trade secret, or other items of value for a fee or royalty. Firms also use contract manufacturing, which arranges for the manufacture of products to enter international markets. The third type of joint venture is called management contracting. With this approach, the firms supply the capital to the local international firm in exchange for the management know-how. The last category of joint venture is joint ownership. Firms join with the local international investors to establish a local business. Both groups share joint ownership and control of the newly established business. Finally, direct investment is the last mode used by firms to enter international markets. With direct investment, a firm enters the market by establishing its own base in international locations. Direct investment is advantageous because labor and raw materials may be cheaper in some countries. Firms can also improve their images in international markets because of the employment opportunities they create.
