Logobook.ru

Part One
Customers,
Markets, and
Marketing
1 Where does it all start?
Youneed a pair of sandals—what do you do? You go to a shoe shop, where you are able to ex- Introduction:
amine several different styles of sandals within arange of prices. If you find a pair you like and canthen afford them, you purchase them, paying in one of a variety of ways, such as with cash, a creditcard, electronic fund transfer, and so on.
What you, as a member of a modern society, are Marketing
incapable of doing is providing sandals from thenatural resources at your disposal. You do not know which of the naturally available materialsare suitable; neither, even if you were given ap-propriate materials, do you have the skills neededto create a sandal. Compare this situation with that of the few remaining, so-called primitive soci-eties where people live in small self-sufficientgroups. For example, many Australian aborigineslived in such a way until the second half of thetwentieth century, and the organization of their Objectives
lives was a constant trade-off, as they divided their time between obtaining sufficient food from The objectives of this chapter are: their natural environment, moving on to otherareas when the resources in a locality became 1 to explain why marketing exists in a modern
depleted, and taking time to provide for their minimal material needs (see Insert). So if one of 2 to demonstrate the role of marketing in a
their group needed some sandals, then the group would decide when to give this matter priority 3 to introduce a number of key marketing ideas
over other activities, and, once this was agreed, that will be considered in greater depth inlater chapters of the book.
Shoes or food?
‘The talk about the activities for the day goes on for along time. . . . The men have decided to hunt emu, sothe discussion centres on what the women will do.
Nyurapaya has decided that her bark sandals are wornout and need to be replaced. During the day the sandbecomes too hot to walk around on comfortablybarefoot, so these sandals (called playkanpa) get lotsof use. Sandals are made from the green bark of tali-wanti, a plant that grows in the sandhills. Nyurapayaknows where to find some of these plants, but theplace lies in a different direction from the area wherethe women have been lately looking for edible plants.
Should they take a chance that they will come acrosssome edible seeds or fruit on the way to the taliwanti-place? Or should they stick with a sure thing and man-age with their worn-out sandals for another day?’ could produce the sandals from naturally avail-able materials. There was no need to rely on any- 2 Factors that influence
In fact, by the time modern people have got up demand for a product
in the morning and left home for work, we haveconsumed or used a great many goods and ser-vices. These would include food, clothing, and the Imagine a small firm producing only one type of product (it could be a physical product or a shelter provided by our homes; there is also a sub- service), which it sells directly to individual con- conscious sense of security arising from the fact sumers; this firm finds itself in the happy position that our property is insured, and that, in the event of having enough customers to be able to run at a of an accident, the fire, ambulance, and police ser- profit. This satisfactory situation is illustrated in vices are available. What is striking about those Fig. 1.1, where the demand from the market is of us who live in ‘advanced societies’ is not only shown as equal to the level of output that the firm that we consume so much and such a variety of needs to achieve to cover its costs.
products but that we are incapable of producing However, it would be a foolish manager who the vast majority of these items ourselves. We are, decided that such a situation was unlikely to therefore, dependent for our style of living on change, for the nature of modern markets is that others producing these items and making them demand seldom remains constant and indeed that available to us, either by direct purchase with our changes are often dramatic and disruptive. Most own funds, or indirectly through public provision changes in demand derive from a complex inter- paid for through the taxation system or as gifts.
action of a large number of factors and for sim- Of course even such a simple activity as making plicity it helps initially to think of these as divided a pair of sandals available for sale in a shop in- into five broad categories: population; tastes and volves a great many organizations trading with fashions; economic conditions; technology; and each other. Amongst these would be firms supply- politics and regulations. In reality the demand for ing the various raw materials (leather, plastic, most products is affected by a combination of each metal, etc.); converting the raw materials into different forms; cutting up sheets of plastics orleather and assembling the sandals; supplying thepackaging; transporting the packaged sandals to Figure 1.1 The firm with a product meeting a
warehouses or retail outlets; insuring the prod-ucts while in transit; and so on. Altogether, to market demand
produce even such a basic product involves an immensely complex set of exchanges betweenmany different organizations. At its simplest thesubject of marketing is concerned with how such firms decide what they should offer to make andsell and what form their products (be they goodsor services) should take. Yet the apparent simplic- ity of these questions is deceptive and there arenumerous and complex factors that need to be taken into account by a firm when deciding whatthe answers to them should be. To illustrate thisSection 2 will consider the problem confronted by a firm as it seeks to decide what it should be mak-ing and offering on the market.
of these factors, though some products are more below). Assuming that the growth in population directly influenced by one factor than by the oth- does not lead to a reduction in the per capita ers. So the demand for some products is influ- wealth of the country, then the demand for many non-basic needs will also rise as the population in- technology, while for others the opposite may be creases. Unless the increase in the population is the case. For ease of understanding, therefore, the result of mass immigration, there are many each of the factors will first be considered inde- products for which the demand will be slow to pendently and examples of their impact given react to any such change in the population. If, for from different industries. Then an illustration will example, the increase—as it most typically will be given of the way the demand for a product is in- be—is mainly the result of a rise in the birth rate, fluenced by the interaction of these factors. These then the firms most immediately affected will be five categories are indicated in Fig. 1.2, with the those concerned with the needs of pregnant moth- question mark at the end of the time arrow acting ers and of babies. But other firms will see little if as a reminder that the nature and volume of any change in demand for their products for several years as a result of such an increase, eventhose firms supplying toys for 4–5 year olds willsee little effect for a few years after an increase in 2.1 Population
The population in a given geographic marketchanges in two ways: first, in terms of its size, and, 2.1.2 Age distribution
secondly, in terms of its age distribution. Although The second population effect is the age distribu- these are interconnected, they will initially be tion, for, other than in those countries that have been involved in major wars, the split betweenmale and female normally remains fairly steady.
2.1.1 Population size
There are many products whose demand is mainlyderived from members of specific age groups. For In most countries the size of the population is example, the demand for chiropody is primarily steadily rising and the effect of this is that there is related to the number of older people in the popu- an ever-increasing demand for products such as lation. Although the proportion of people in vari- food, shelter, and so on. Even so, the demand for ous age groups changes relatively rapidly (see individual food items varies and it may be that, Table 1.1), the numbers in each age group except even in a country with a rapidly rising population, for the youngest one are predictable well in ad- the demand for a particular type of food may fall, vance. So, unless the demand for a firm’s product owing, say, to changes in consumer tastes (see is related to the number of babies in the popu-lation, the number of people in its target agegroup may change but will be predictable well inadvance.
Figure 1.2 The firm with uncertain future
There is, of course, a link between the age distri- market demand
bution of a population and its size. Clearly thenumber of births relative to the number of deathsdetermines the size of the population. The num- ber of births is related to the number of women inthe childbearing age groups, though this link is complex because whether or not a woman wishes to have children is determined by a combined set of factors that fall within the other four broad categories of change discussed in this section. The number of deaths, assuming no famine or major epidemics, is predictable with a high degree of accuracy in Western Europe and is primarily determined by the number of peopleover the age of 70.
Table 1.1 Age distribution of the UK resident population, 1951–2001
2.2 Tastes and fashions
A personal culture on offer
A significant feature of affluent economies has To Nicolas Hayek, originator of the Swatch, vision is been the extension of the concept of ‘fashions’ to the basis of Swatch’s success. ‘To him this success is a wider and wider range of goods and activities.
not simply because Swatch is a fashion item, but lies in Fashion in clothing has been accepted for cen- the fact that, “we are offering our personal culture. If turies, but it is only in the latter part of the twenti- it were just a fashion item, it could be easily copied, eth century that there have been annual changes but Swatch have tapped deep into the roots of in what is regarded as being ‘in fashion’. Also since change, to respond to the feelings of wanting to be the 1980s the concept of ‘being fashionable’ has extended to an even wider range of items of cloth- ing and other items. For example, people buyingnew swimming costumes each year is a relativelynew phenomenon. It is based not on a need to replace worn-out costumes, as modern materials Fashions also arise in markets not associated mean that costumes last much longer than they with clothing. For example, the skateboard craze used to, but from a desire to wear costumes of the that hit many European countries in the 1970s latest shape and colour. Similarly the concept of turned out to be quite short lived. While in the there being fashions in watches is relatively new.
1990s skateboards were still sold in quite large The complexity of this is illustrated by the views numbers, the tremendous enthusiasm that ex- of the founder of Swatch (see Insert), who believes isted for a period of about two years when it that Swatch satisfies a desire to identify with a seemed that almost every teenager wanted a culture of change. The source of new fashions is skateboard dissipated within a few years.
clearly more often than not an attempt by various Consumers’ tastes also seem to change in the industries to create a demand for replacement literal sense of the word ‘taste’, as exemplified products. However, from time to time consumers by changes in demand for products as different do reject the ‘latest fashion’: sometimes because as coffee, whisky, wine (see Insert), and foreign they simply do not like it, on other occasions because they cannot afford to replace items thatstill have a useful life, even if they are no longerfashionable.
it will immediately dispose of the car. The ex- /A substitute for Viagra?
perience of owning the car will have resulted in Consumption of Western-style wines—particularly changes in the family’s behaviour, and the family red wine—is rising fast in the more prosperous and may now place a lower relative value on items that, cosmopolitan cities of China. Although part of the when it was previously less well off, would have reason is that the Chinese government has been dis- been seen as too important to do without.
couraging consumption of spirits and beer (becausetheir production uses staples such as grain), the main 2.4 Technology
reason seems to be a belief that red wine is good foryour health and in particular for your virility.
The impact of technology on the demand for prod-ucts is particularly complex because it has threeaspects. Technology developments result in:changed production methods, improved existing 2.3 Economic conditions
products, and the introduction of new products.
The lay person often remains totally oblivious to The state of a country’s economy obviously has a the effects of the first of these categories, and may direct effect on the demand for many products.
not notice many of those of the second.
However, the population’s perception of the state ofthe economy and its implications for their per- 2.4.1 Production methods
sonal financial security is probably more impor- Engineers are constantly seeking to improve the tant in the short term than its actual state. When efficiency of the plant that they run. Similarly, people feel confident about their economic situa- managers in service organizations try to improve tion, they will not only spend the money they the efficiency of their operations. However, the have more readily, but will also be more willing customer often remains unaware of this, even to borrow money. So, as members of a population when quite dramatic improvements are achieved.
perceive their economic situation to be more se- For example, a new method of mixing two or cure, their expenditure will increase. The pattern more solids together resulted in the 1970s in a re- of their expenditure will also change, and typi- duction in the number of batches that failed the cally they will begin to purchase more items that stringent quality tests in the pharmaceutical in- they might previously have classified as luxuries dustry (where it is critically important to create and not felt able to afford. Their changed pattern an even mix, as the active components of some of purchasing will also include some substitution tablets are less than 0.05 per cent of their weight).
effects, with, for example, a reduction in pur- The tablets reaching the market were no better or chases of cheaper foods and the substitution worse than before, but the cost of manufacturing of more expensive items—say, steak instead of the tablets was reduced because of the reduction in the number of tablets failing quality-control However, what is difficult to understand is how tests. In these circumstances the manufacturers people’s perception of their economic well-being were then able to reduce their prices, which could relates to actual economic conditions. This is ob- equally have led to an increase in demand. In viously very complex. For example, people may be other industries an improvement in production very aware of the price increase on one product technology and service delivery organization has that they purchase, but they may not reflect on the led either to a visible reduction in prices or at least other items they purchase on which there have to price increases at less than the rate of inflation.
been no increases. Consumers’ perceptions can The result of this has been a maintenance or even also be influenced by the topics on which the press an increase in demand over that which would decides to concentrate. There is also the complica- have been achieved without these improvements tion that, just because people buy an item when in efficiency (see Insert overleaf ).
they feel better off, it does not follow that they willcease to buy that item if harder economic times 2.4.2 Improved existing products
return. For example, a family may decide that it is now affluent enough to be able to own a car. If, The nature of competitive markets is such that later, the family perceives that their economic each firm is constantly seeking to improve its situation is becoming less secure, it is unlikely that product offering in an attempt at least to keep up ceives repainting as being less expensive and is Faster photos
consequently prepared to redecorate rooms more A modern Kodachrome film processor is rather large (occupying 1,000 square metres), costs £750,000,and requires ten staff to operate it. However, a recent 2.4.3 New products
development means that in future machines will fitinto a space of only 60 square metres, cost about While it is sometimes difficult to differentiate £75,000, and require only one operator. This will between improved products and new products, mean that, instead of having to send a Kodachrome there are many products that, when they were film away for processing and then waiting some time first introduced to the market, were regarded as for it to be developed and returned, it will in future be genuinely new (see Chapter 24). These would have possible to get it developed at a local store. Even if this included CDs, videos, and telephone banking.
is done at the existing price, it is expected that the re- Clearly, if people do start to purchase a product duction in inconvenience will result in a growth in that is newly arrived on the market, they will have to adjust their expenditure to pay for it. Some- Source: The Economist, 15 Feb. 1997, 79–80.
times these adjustments have a dramatic effect onthe demand for other industries: when you startedto buy CDs, you probably reduced your purchasesof cassette tapes. In other cases, the changes in ex- with, and ideally to keep ahead of, its competitors.
penditure are not obvious: if you buy a mobile It follows that few products remain the same over phone, you do not usually give up your traditional any period of time, for their suppliers are con- landline phone, though you will probably use stantly trying to find ways of making improve- it less. It is, however, difficult to predict on what ments, which they believe will be appreciated by In many cases the customers are well aware of 2.5 Politics and regulations
and do appreciate these improvements. For exam-ple, the reduction in the size of mobile phones is Politics with both a small and a large ‘P’ affect the both visible to and valued by the majority of their demand for many products, and, although many users. In other cases customers do not notice im- regulations are based on political decisions, there provements, often because, in spite of the adver- are also many that are not. For example, many tising claims of some manufacturers that their professional organizations have regulations that product now has a ‘new formula’, the changes are their members must obey if they wish to retain so marginal and started from an already high stan- their membership. These regulations are seldom dard. Alternatively, the product may be used so in- codified in the country’s laws, but they can never- frequently that the customer cannot make a valid theless exercise great influence over the mem- comparison between the old and the improved New laws may create markets, expand markets, The impact of product improvements on the destroy markets, or make the product unneces- demand for many products is often not very dra- sary. The Australian market for bicycle crash hel- matic (at least compared with the effect of the mets, was created by the passing of laws that made introduction of a new product—see below). How- wearing them compulsory. The decision reached ever, in some cases they do have an effect both on by many governments to make seat belts in cars the demand for the product itself and also on the compulsory caused the rapid expansion of an ex- demand for other products. For example, the im- isting but small market. In comparison, the deci- provement in the quality of house paint has led to sion of the UK Government to ban the ownership both a decrease in the demand for the services of of handguns by the public has effectively de- professional decorators and an increase in the de- stroyed the market for these weapons within the mand for paint. These effects have arisen because UK. The UK Government’s ruling that it was un- modern paints can easily be applied by a house- necessary for cars to show lights when parked on a holder, who then can save money by not employ- lit road after dark meant that the market for clip- ing a professional decorator. Then, although on parking lights was effectively destroyed. In this modern paints last longer, the householder per- case, while it was not illegal to show lights, the demand for clip-on parking lights disappeared was increasing. In addition, the price of calcula- almost immediately because most people had pur- tors was falling, and their capabilities were being chased them only because of the legal require- extended as a result of improvements in produc- tion technologies and product improvements. The Political decisions may particularly affect mar- economic situation at the time was relatively posi- ket demand through their impact on prices. In tive, so both schools and individuals felt able to af- some cases governments use increased taxation as ford the purchase of these new items, and to some a method of raising the prices of products and ser- extent young people (who often seem to be the vices whose consumption they believe should be most fashion-conscious sector of the population) reduced. So taxes on tobacco have been progres- saw a calculator as a prestige item to own.
sively increased in many countries in an attemptto reduce the amount of smoking. In other cases, 2.7 Second-order effects
governments seek to encourage demand for aproduct by reducing its price through reducing It is important to recognize that the effects of taxes payable on the product or by offering subsi- these five factors on demand can often have an dies. For example the Government of Queensland impact on organizations far removed from the has offered financial incentives to households consumer. This can be illustrated by examining to encourage them to purchase solar-energy developments in the cosmetics market, where concern about and interest in the ingredients used Political decisions can also affect the supply of in cosmetics have forced the cosmetic manufac- raw materials and consequentially their price. For turers to develop products that use a much greater example, the Arab Oil States’ decision to quadru- proportion of natural products. The cosmetic ple the price of oil in the period 1973–5 was un- manufacturers purchase their ingredients from equivocally a political one. Other countries that chemical suppliers, and so this change in con- control the supply of other strategically important sumer preferences has had an effect on these raw materials (such as nickel) have also used their chemical-processing firms—remote as they at first monopoly or near-monopoly power to influence seem to be from the consumer of cosmetics (see their prices and thus exercise political influence.
Regulations other than those created by govern- ments are also very influential. For example, in England and Wales the market for pocket Natural raw materials are ‘in’
calculators was transformed when the National Karl Raabe, a Product Management Director at School Examination Boards (which are indepen- Henkel, a firm that, amongst other things, manufac- dent of the Government) decided to allow tures cosmetic ingredients, stated: ‘In Germany there students to take calculators into examinations. is a strong trend toward natural ingredients, such as Before this happened, many teachers and parents plant extracts used as active components, or surfac- had discouraged schoolchildren from purchasing tants based on natural raw materials such as cocoa calculators, because they feared that, if they did nut or palm oil. Petrochemical-free ingredients are become accustomed to using them, they would also in vogue. In general, the industry is moving lose the facility to do calculations without them towards animal free vegetable-based ingredients.
and thus would have been disadvantaged in There is also a trend to use ocean-derived products in ingredients such as seaweed, chitin from shrimpshells, or fish oils.’ 2.6 Combined effects
As was suggested above, in reality all five of thesefactors can influence the demand for a product. To The arrival of new products on the market can use the pocket-calculator example again, the rapid also lead to the decline—sometimes to the point increase in demand for these items in England of extinction—in the demand for particular prod- and Wales was not only affected by the changed ucts. The development of the market for pocket examination regulations. Other important factors calculators has led to the near extinction of at were that, at the time of the changed regulations, least two other products. The first is the slide rule the number of young people in secondary schools and the second is log tables, both of which enabled students, engineers, etc. to carry out a range of calculations. However, both have been The firm adapted to changes in
displaced by the calculator, which not only can market demand
carry out more functions than either slide rules orlog tables, but also is much easier to use and moreaccurate than either of them. Indeed, it is now dif- ficult to purchase a slide rule in Europe, becausethere are almost no suppliers left.
3 Factors that influence
the way a product is
produced
It is also the case that, even if an organization’s own market is not changing, the manner in ing the labour market would have faced severe which it can be most efficiently organized is al- tered by the need to respond to the changing envi- Thus, as shown in Fig. 1.3, both the market and ronment. Indeed the five factors that influence the supplying organization can be seen changing demand also influence the organization of the over time as a result of the influence of these five supply of goods and services. Thus developments in production technologies can obviously impact The above discussion has centred around the very considerably on a manufacturing firm, and problems faced by a single-product firm. In reality new advanced manufacturing technologies make there are very few single-product firms and most it possible for firms to offer quite different prod- of these are very small. Most firms market a num- uct mixes—often at lower costs than previously.
ber of different products and therefore a signifi- Changes in governmental and other regulations cant decision is how many different products to can impact on the supplying firm in a variety of offer and what, if any, their relationship should ways. Thus firms with a large proportion of female be. These questions are discussed in Chapters 14 staff have had to re-examine their methods of and 15, but the essential issues for each individual operation because of the need to absorb increased product are those raised above. This is true even costs following the implementation of the equal- where the differences between the products are opportunity regulations being introduced in most no more fundamental than, say, their size or their European countries. It is also obvious that eco- nomic conditions have an impact on a great manydecisions that firms make. Clearly, when there istoo much economic uncertainty, firms are reluc-tant to make new investments, and decisions as to 4 Demand and supply in
whether or not to launch a new product may be in-fluenced by the management’s expectation of the organizational markets
Population changes too can have an impact on organizations. In the period 1981–91 the The discussion in Sections 2 and 3 considered a firm selling directly to the consumer market numbers of young people in the 15–19-year-old (i.e. a market made up of individuals making group (roughly covering the school-leaving age purchases for their own use or the use of the group) in the UK fell by about 970,000. If the households to which they belong). An identical severe economic recession that hit the UK dur- discussion could be applied to the problem faced ing those ten years had not occurred, those by a firm selling to other firms. Indeed, the brief organizations whose employment practices had comment in Section 2.7 on second-order effects assumed a steady supply of school-leavers enter- implicitly touched on this, as it referred to cos- introduction: what is marketing about? 11 metic firms purchasing from chemical firms. It is,however, very important to recognize that in a ‘I promote fads’
modern economy the majority of firms are in- ‘I and other management consultants continue to volved in selling to other organizations.
promote fads despite frequent derision from users of Some firms, because of the nature of their prod- our services. Experience shows time and again that ucts, sell only to organizations. For example, the clients are more willing to buy the latest fad than a ra- market for multi-spindle lathes consists of manu- tional bespoke improvement programme based on facturing organizations, for, while there is noth- careful analysis of the organization’s position, envi- ing to stop a rich individual from buying such a machine, there can be few if any individuals who Source: Letter to The Economist, 8 Feb. 1997.
would wish to buy one. Even a keen amateur machinist would not want a multi-spindle lathe.
There is also a group of firms that sell both to indi- engineering was ‘old hat’. So consultants who had viduals and to organizations. Thus car manufac- been advising their clients on the benefits of re- turers sell the same car (though by using a totally engineering found the demand for their services different marketing mix—see Chapter 9) to indi- viduals and also to organizations, such as hire carcompanies, which have fleets of cars. A third cate-gory of firms that sell to organizations consists ofthose that need to do so through other organiza- 5 Management’s
tions if they are to get efficient access to individualconsumers. Examples of such organizations are matching problem
those in the food-processing industry and those in the domestic-appliance industries. Given thestructure of the retailing industry, such firms need As Fig. 1.3 shows, developments in the environ- to sell through the retail chains, for, unless these demand and the nature of the supplying organiza- organizations purchase their products, access to tion change. Management’s problem is to deter- the mass consumer market would be very costly mine how best to respond to such developments.
There are three possible approaches or orienta- The same patterns of behaviour can be observed tions that an organization might pursue as it seeks in business-to-business markets as in consumer to respond. As is discussed in Chapter 2, these are markets. For example, when an organization a production orientation, a sales orientation, and feels financially confident, it will be more ready to consider replacing old equipment, spending Most modern organizations are now committed on ‘luxuries’ like replacing the carpets in its to attempting to pursue a market orientation. Un- offices, investing in new computer systems, and derpinning such an approach is the marketing so on. Then, again like an individual, when a concept that was described by a successful busi- firm becomes economically less assured, it does ness executive as ‘to make the firm do what is in not reverse these behaviours, but cuts back on the interests of the customer and not make the other items of expenditure. This happens because, customer do what is in the firm’s interest’ (McKitt- like an individual, the relative value the firm places on the items it purchases has been changed However, in practice interpreting this concept by the experience of purchasing and using new and working out its implications in the context of a specific organization are far from easy. First, In business markets fashions and management it is not always clear what the ‘interests of the fads also rise and fade (see Insert). For example, customer’ are. Secondly, customers’ perceptions after a period when any firm that was not re- of their wants—especially future wants—are engineering was, in the opinion of some commen- often limited. Thirdly, organizations are made up tators, destined for the scrap heap, the enthusi- of a bundle of assets into which considerable in- asm for re-engineering was by 1997 on the decline.
vestments have been made. Fourthly, few organi- This was partially, but not entirely, because the zations do not face competition in some form. The creator of the concept was signalling by his cre- presence of competitors is shown in Fig. 1.4 and ation of another management technique that re- Chapters 18 and 19 consider various aspects of the For example, with regard to the issue of healthy Figure 1.4 The firm facing competitive
eating, the steady flow of advice from a wide range activity
of experts leaves many consumers muddled aboutwhat is and what is not ‘healthy eating and drink- People tend to exaggerate their virtuousness
‘For a good cautionary tale about how you can’t trust everything your customers say, look no further thanthe recent forays of several fast-food restaurants intodiet cuisine. McDonald’s McLean, KFC’s skinless friedchicken, and Pizza Hut’s low-cal pizza all have the du-bious distinction of being responses to customers and also flops. For all the millions and marketing savvy ex-pended, the companies failed to see that, when itcomes to diet, people tend to exaggerate their virtu-ousness. A 1993 study by the National Restaurant Association found a gross disparity between what impact of competition on a firm’s marketing people intend to eat (fresh fruit, bran muffins) and what they really eat (whole lotta burgers).
People asked for diet burgers, but a greasy one still holds the allure. Sales of McDonald’s McLean havebeen, well, lean.’ 6 The interests of
the customer
Consumers’ perceptions of their future wants There is certainly a particular difficulty for orga- are also usually very poor. There are innumerable nizations that believe that they understand the examples of new products that have been suc- ‘interests of the customer’ if the customer is un- cesses even though consumer research had indi- aware of what might be considered their best in- cated that consumers would not buy them. There terests. For example, car seat belts were marketed are also many examples of changes being made to in most European countries years before wearing existing successful products that have resulted in them was made legally obligatory. However, many a dramatic fall in sales even though consumer re- car-owners apparently did not recognize that it search had indicated apparent enthusiasm for the would be in their interest to fit and use these changes. There are also examples of new-product items, and sales remained relatively low until failures where consumer research had clearly their use was made a legal requirement. Arguably indicated that the new product would sell well.
the problem is that consumers themselves often Unfortunately many people use such examples to do not know what their best interests are and also assert that consumer research is a waste of time.
regard advertising as little more than a cynical at- However, as will be discussed, the term ‘consumer tempt to manipulate them. Certainly with regard research’ covers a wide range of activities and to the use of seat belts, even after government- sometimes the research on which decisions have backed campaigns to encourage their use and leg- islation to make wearing them legally obligatory, Consumers are also ‘poor’ at predicting the uses many people remained unconvinced that seat to which they may put new technologies. It is also belts were necessary. Some continued to believe the case that the originators of these technologies that wearing them could increase the risk of in- often fail to predict how they will be used. For jury in an accident. Again, sometimes consumers example, digital cameras, which store their pic- receive so much advice—much of which appears tures on disks or in computer-type memories (see to be contradictory—that they are unable to deter- Insert), cannot yet produce the same quality of pic- mine what action is in their own best interests.
ture as film-based cameras. Therefore over several introduction: what is marketing about? 13 The market that the industry did not
Box 1.1 ‘Post-it’ notes
know existed
A snazzy new camera is always welcome in the photo- The adhesive used in Post-its was discovered acciden- graphic industry, but the digital camera seems to be tally by Dr Spencer Silver, a 3M’s scientist trying to creating a new market for ‘temporary imaging’ that produce an adhesive with the opposite characteris- the industry never knew existed. Suddenly business tics (i.e. a super strong adhesive). Art Fry, another re- people who have never needed a camera at work have search scientist, was a member of a church choir who found room for one. Many commercial web sites are was fed up with the fact that the markers he put into now assembled with the help of pictures taken di- his hymn book were constantly falling out, so he tried rectly by digital cameras. Other business people, such making up a set of bookmarkers using the ‘failed’ ad- as estate agents and insurance assessors, still use film hesive; in so doing he ‘came across the heart of the cameras when they want to produce detailed (or es- idea. It wasn’t a bookmarker at all, but a note. These pecially alluring) pictures. But they have become big notes were a systematic approach to communicating users of digital cameras in order to obtain instant because the means of attachment and removal were Although the samples that Fry created and passed Source: The Economist, 30 Aug. 1997, 49–50.
around the firm were praised and people requestedfurther supplies, there remained a reluctance tolaunch the product on the market. Indeed, it is saidthat Post-its failed when formally test marketed. In years they have not been much of a threat to the particular it became apparent that the only way to get traditional camera. However, the demand for people to use the product was to provide them with these cameras is suddenly booming with the de- samples, as once people used them they ordered velopment of a new market for ‘temporary imag- more—though they ‘still couldn’t talk intelligently ing’. This is the use of these cameras by business about the product’. The product was initially seen as a people to create an image that can be put onto a not-very-adhesive adhesive that replaced paper clips,staples and glue—all things used to stick two pieces computer display, a website, and so on.
of paper together. Such a description did not indicate The use of e-mail is another illustration of this their true value, but users, while not able to articulate phenomenon. In 1997 it was still very difficult for their approval, were prepared to prove it by repur- the average householder to give much of a re- sponse to questions about his or her likely use of e- mail in 2000. Most simply would not have knownwhat e-mail was, what it could do at the time, andwhat it was anticipated it would be capable ofdoing by 2000. Even those that had some knowl-edge of what e-mail could do would have tended to handling, as, where a really radical innovation is regard it as a method of communication suitable being considered, it has to be recognized that for businesses rather than for personal communi- what consumers do is determined by the tech- cations. This inability to respond is partly a matter nologies currently available to them. The essential of the consumer lacking the technical knowledge thing is to ‘pay attention to what consumers do’ to determine the product’s capabilities and what and then try to understand ‘the want’ they are it offers. It is also the conservatism that con- satisfying through that action. Once that has sumers (both individuals and firms) show. This been identified, then an innovator will be in a was pointed out by a Motorola executive who said position to evaluate his product with respect to ‘Our biggest competitor, by the way, isn’t IBM or Sony. It’s the way in which people currently do know what is in the consumer’s interests but are What is evident is that listening naïvely to what unable to persuade consumers to purchase the consumers say may produce information that can product. For example, there can be little doubt lead to wrong decisions (see Box 1.1). It has been that it is in the interest of a married person with suggested that an alternative approach is: ‘Ignore young children to ensure that his or her partner what your customers say; pay attention to what is adequately insured against premature death.
they do.’ However, such an approach needs careful However, the insurance companies have not found it easy to market such products. First, as involves balancing the company’s need for profit against with many insurance products, there is a problem the benefits required by consumers so as to maximize in making people aware of the likelihood of long-term earnings per share. There is a continuing ‘unpleasant’ incidents occurring. Secondly, even if tug of war between the firm’s need for efficiency and the customer’s needs for unique benefits. Getting the people accept that there is a risk, the financial balance right is not easy. It requires a thorough know- consequences of which can be reduced by an ledge of a company’s assets and an ability to relate insurance policy, many regard the price (i.e. the these to profitable opportunities in the market place.
cost of the insurance premium) as beyond their However, some organizations exist primarily (Davidson’s statement was made in the context to help consumers to understand what their best of a book discussing marketing within the profit- interests are. For example, many professional ser- making sector of the economy. In the case of vice organizations and charities would maintain not-for-profit organizations like charities, whose that their role is to offer advice to their customers financial objectives are often merely to cover their (and the fact they usually describe those who use costs, then this statement is not appropriate. Here their services as ‘clients’ rather than ‘customers’ is the following adaptation of Davidson’s definition an indicator of their perception that their rela- might be helpful: ‘marketing involves balanc- tionship is different). A lawyer, for example, will ing the organization’s need to cover its costs explain to a client what their legal rights and re- against the benefits required by clients so as to sponsibilities are and, if legal action is a possibil- maximize the probability of achieving its objec- ity, which approach is most likely to be successful.
tives. There is a continuing tug of war between the A charity’s objective might be to make people organization’s need for efficiency and the client’s more environmentally aware, believing that needs for unique benefits. Getting the balance access to such knowledge will encourage its right is not easy. It requires a thorough knowledge clients to act in a manner that the founders of the of the organization’s capabilities and an ability to charity believe is in the consumer’s interests.
relate these to the needs of its clients.’) It is important to recognize that an organiza- tion’s asset base is much more than its physical assets—significant though these often are. An or- 7 The firm’s investments
ganization’s asset base will include, not only itsphysical assets, but also its reputation, its brand in its assets
names, its staff—their knowledge and attitudes—its business links, its patents and licences, and so The marketing concept does not mean that a on. Such features will have become assets as a change in consumers’ requirements should be result of careful and continuous activity by the blindly followed. There will be occasions when it firm’s employees over lengthy periods of time. For is inappropriate to do this, for a successful organi- example, a really strong brand name (see Chap- zation will have made a considerable investment ter 20) is created not just by clever advertising and promotion (though these are required) but As Fig. 1.3 showed, market demand changes through the identification of appropriate specifi- over time because of developments in the envi- cations for the product and the consistent delivery ronment, and so does the nature of the supplying to the customers of products of that specification.
organization. Management’s problem is to find Such consistent delivery is achieved only through ways of ensuring that there is a ‘match’ between the expenditure of substantial sums of money on its organization’s capabilities and the market’s a wide range of activities, such as training staff, needs—a match that will enable it to achieve its supplier development, quality control, product objectives (see Chapter 15). The challenge is to development, development of manufacturing pro- strike a balance between the apparent advantage cesses, control of distribution and distributors, of adapting to market developments and the need to exploit as fully as possible investments made in Sometimes as a market develops and changes it its asset base. Consequently, as Davidson stated, is relatively easy for the management of an or- ganization to ensure that its capabilities evolve in introduction: what is marketing about? 15 such a way that it can continue to put a product tures. For example, Heinz Beans is a powerful on the market that satisfies customers’ require- brand name that is a major asset. However, it has ments. This might require some retraining of been created by expenditure on a wide range of ac- existing staff or some additions to its production tivities, including: the continuous and careful im- facilities, but overall nothing very dramatic or ex- provement of Heinz’s recipe for baked beans; the pensive. However, a difficult problem arises when maintenance of quality standards in all aspects of the change in the market demand is so dramatic the purchasing, manufacturing, and distribution that the organization has to question whether it of the product; developments in appropriate pro- can follow the market because the changes that it cessing technologies. Heinz used to have an adver- will need to make to do so are so radical. For ex- tisement in Great Britain stating ‘A million people ample, to follow the market it might need to in- every day say “beans means Heinz” ’—the implica- vest in new technologies that are totally outside tion being that at least a million people consume Heinz beans each day and the consequence being A good illustration of this type of problem arose that the maintenance of the Heinz brand name re- within Great Britain with the switch from the use quires the consistent delivery of a quality product of aluminium to plastic frames for domestic dou- to at least a million people a day. This can only be ble glazing. Originally, domestic double glazing achieved through the development and imple- used aluminium frames and therefore the firms mentation of advanced manufacturing, distribu- that marketed double-glazing were expert extrud- tion, and management systems, all of which are ers of aluminium. (At first plastic frames were not costly. If this is true for a ‘simple’ product like a success, as they tended to warp and discolour in baked beans, it is obviously even more of a warm weather.) However, once the market found challenge for complex items such as personal plastic frames more acceptable, the challenge for the companies was which of the four policies to The term ‘asset-based marketing’ has some- times been used to describe this approach of tak-ing account of the organization’s asset base when ■ invest in plastic-moulding technology—to them making marketing decisions. Davidson’s view was a totally new and very different technology—and quoted above; Webster has stated: ‘It is often un- continue to use their existing sales force to sell reasonably constraining to define a firm’s distinc- double glazing; at the same time find another tive competence in terms of the customer need market in which their expertise with aluminium satisfied. The firm’s unique competence, espe- would be valued and develop a new and additional cially for an industrial marketer, may be defined sales force with skills appropriate to that market; more appropriately by its internal strengths, ■ invest in plastic moulding technology and con- and especially its technical competence, rather tinue to use their existing sales force, but divest than its market relationships’ (Webster 1979: 256).
themselves of their aluminium capability; Many marketing academics and professionals are ■ find another market in which their expertise ill at ease with this approach because they foresee with aluminium would be valued and retrain their the danger of companies that follow this approach sales force with skills appropriate to that market; slipping back into a product orientation, but ‘com- ■ find another market in which their expertise panies have to be production-oriented to be with aluminium would be valued and replace the market-oriented’ (Ford 1998: 47). However, all that existing sales force with one that had the skills is being asserted is that marketing creates value by utilizing the activities of other parts of the organization. As one commentator suggested, Each of these alternatives presented different marketing takes devices made in the factory and difficulties, challenges, risks, and costs. Further- converts them into products that satisfy cus- more, each of the several companies that faced tomers. Furthermore, it is being suggested that this dilemma made their decision as to which to circumstances external to the organization will pursue on the basis of a different assessment of determine the appropriate emphasis to give to the the importance of each of these factors.
creation of value by marketing as against other It is very important to recognize that the devel- opment of any asset incurs considerable expendi- viding even their basic needs are rare indeed. Most 8 What does it mean to
people, therefore, have to resort to paying othersto provide them with even those goods and ser- have ‘enough
vices needed to meet their basic physiologicalneeds.
customers’?
There is, of course, in principle a difference be- tween a need and a want, but in practice there is The idea of having ‘enough customers’ (a phrase often a difficulty in making the distinction. The used above (see Section 2) ) sounds simple but usual distinction is that a need is a generic condi- in fact needs careful examination. If a firm is to be tion—for example, ‘I need a drink because I am profitable, it needs to have customers who place thirsty’—and a want is the specific form of satisfac- sufficient value on the product it offers them for tion that the individual is seeking—for example, ‘I them to feel it is worth paying a price that is need a drink and I want to satisfy that need with a higher than the costs the firm incurs in supplying Coke.’ However, it is not possible to classify items them. However, the costs of supplying the product unequivocally as either ‘need satisfying’ or ‘want will, in most cases, be related to the total volume satisfying’. For example, while people will often of sales, and so the numbers of customers to- say that they need a ‘Big Mac and a Coke’, from the gether with the amount that they each purchase point of view of the human body’s essential needs, are also important. In other words, the customers all that is needed is a sufficient and regular supply have to be willing to pay a price per unit and to of food and potable liquid. Thus for most people it purchase enough units to provide the firm with is impossible to claim that beer satisfies a need, sufficient income to cover the costs of supplying for clearly for most people beer satisfies ‘wants’ that number of units. Obviously, if a firm finds and not ‘needs’ (even though people may state that it is not covering its costs at its current level ‘I’m dying for a beer!’). However, alcoholics do of sales, and raises its prices, there is a danger that need alcohol or they can become unwell, and thus sales will fall and actually exacerbate the situa- for them any beer may satisfy a need.
tion. On the other hand, if a firm lowers it prices, The distinction between needs and wants gets it may turn out that its sales increase but still do even more complex as one considers those needs not provide sufficient revenue to enable the firm other than the basic physiological ones. To try to argue that a person needs a Walkman would seem, This balancing of costs and prices is a complex in a world where so many do not have even their managerial problem, and it is not just a matter of nutritional needs met, to trivialize the concept of juggling prices around to achieve a profitable vol- need. Yet, in the so-called developed world, to be ume of sales, as other elements of the company’s the only child in a school class who does not own products also affect sales levels—indeed some a Sony Walkman can, to a child who already lacks non-price factors may have a greater impact on self-esteem (and having a sense of one’s worth is sales levels than do price changes. Moreover, mak- surely a need), mean that for that child owning a ing changes to the product usually means that the Walkman, and specifically a Sony, comes close to supplier will incur extra costs, and so the process of attempting to balance the numbers of units However, in some societies there are products sold at a given price relative to the price of supply- that individuals do need but that they do not pro- ing those products begins all over again.
vide for themselves or purchase directly; instead,these are provided by the state as a public good.
Such products typically include the police, ambu-lance, and fire services. Of course, the public, as awhole, do ‘pay’ for such services through the tax 9 Customers’ needs
system. But it is important to remember that it isnot always the nature of the product itself that and wants
determines whether or not it is provided by the state, but each society’s view, as expressed Customers make purchases to satisfy their through its political system, as to what the state’s needs and wants, but people living in a mod- ern economy who are themselves capable of pro- National security is a public good, so in most introduction: what is marketing about? 17 countries the state determines what size the army 10.1 Marketing
should be and the members of the armed forces Marketing is the exchange process that occurs between are employees of the state directly answerable to individuals; between an organization and individuals; or the government. However, if, instead of national between organizations as they seek to satisfy their needs security, the case of health services is considered, and wants. It does not, however, deal with ex- then a different picture emerges. For example, in changes of all types of needs and wants. Indeed, Eastern Europe before the collapse of the commu- most people who practise or teach about market- nist state system the state was the sole provider of ing would not seek to apply it to exchanges related health services. Yet in other societies mixed sys- to what Maslow (1954) called ‘social needs’ (see Fig.
tems exist in which many people rely totally on 1.5). In other words, though it would be legitimate state-run hospitals, state provision of dental care, to study how a marriage guidance service is mar- and so on, but in which it is also legal for all those keted, it would be a step too far to argue that mar- citizens who so wish and who can afford it to pay keting has anything to say about the process of to be treated outside the state system. The same situation exists with regard to education. An in- Both parties to an exchange have something to between situation can also exist where the public offer and while, from the point of view of market- pay for a service through the tax system but ing, it is the supplier’s offering that is the dom- the authorities contract for its provision with a inant concern, the customer’s ‘offering’ is also profit-making organization rather than provide critically important. For example, individual cus- it from within their own resources. This is illus- tomers do not just offer to pay for an item—they trated by the example of Falck in Denmark (see can offer to pay in different ways, each of which has a different degree of attraction for the seller.
Thus a bottle of wine can be purchased with cash,with a credit or charge card, by using electronic A private fire service?
fund transfer at point of sale (EFTPOS), by having Falck Redningskorps A/S, Copenhagen, was foundedin 1906, being owned by the original family until 1985.
It is something of an anomaly in Denmark—a countryof strong social-democratic traditions—because it isthe major provider of fire and ambulance services. In- Figure 1.5 Maslow’s hierarchy of needs
deed it is responsible for the fire services in 60 percent of the local municipalities, and ambulance ser-vices to 90 per cent of the Danish population. Falckalso provides other services such as road breakdownand rescue, emergency and alarm control, and security.
Some eighteen Danish insurance companies now hold the majority of its shares. The company in 1992 made a profit of Dkr. 34 million on a turnover of Dkr.
1,900 million. Over 80 per cent of the Danes have indi- cated that they are satisfied with the services that it 10 Marketing defined
What then is marketing? It is useful to define both ‘marketing’ and ‘marketing manage- ment’ for, although they are interconnected, they it charged to an account, and so on. These alter- too easy for any organization—especially large natives are not all equally attractive to either the ones—to forget that the only justification for its customer or the shop. So some customers are existence is that it has customers who place suffi- more attractive to the shopkeeper than others and cient value on what it produces to pay a price that indeed some customers (perhaps those asking for provides enough revenue for the organization to credit) may not be wanted at all—unless they can keep running. It is easy because in a big organiza- be persuaded to adapt their behaviour. Similarly tion too many employees have no direct contact in business markets a customer may also offer a with the customers. Marketing should always be range of benefits to a potential supplier. For ex- listening to the customers. It should always be ample, as well as offering to pay in a variety of seeking to ensure that everybody in the firm rec- ways, a customer might offer the supplier the ognizes the centrality of satisfying customers if status of being associated with a well-respected customer, technical insights, and so on.
Through the short period of time that market- So, while it is obvious that from a particular ing has been identified as a separate function customer’s point of view not all potential sup- there have been several occasions when it has pliers are equally attractive, it is also essential been necessary to remind both academic and busi- to recognize that not all customers are equally ness marketers of the centrality of the customer.
attractive to a particular supplier. Indeed, a Thus in a 1981 paper Webster bemoaned the way central marketing concept is that a supplier in which an overemphasis on strategic issues had should determine which customers it prefers to led firms to forget the customer. In 1998 the same deal with (which in the case of organizational anxiety was still evident and other authors were marks can mean the identification of individual still finding it necessary to reiterate that ‘All com- panies which show robust growth focus consis-tently on solving customer problems—they arecustomer led rather than financially led’ (Doyle 10.2 Marketing management
1998: 259). Without doubt, human nature beingwhat it is, this need will recur. For example, it is Marketing management is the function that, by as- too easy to allow the exciting and challenging de- sessing customer needs and initiating research and devel- velopments in information technology (IT) and its opment to meet them, has a major role in determining the associated developments to distract people from form that an organization’s goods and services should the acceptance that IT is merely a tool. Certainly IT take to secure optimal acceptance by customers. It is also is a tool of immense value, but it is only a tool the major influence in determining the price and whose development is not necessarily totally ben- the quantities of the good or service that is offered eficial and to which negative reactions do occur if to the market. In addition, it decides the forms of it is used inappropriately when dealing with cus- advertising and publicity that will support the pre- tomers. A simple example is the irritation of many sentation of the product to the customers and the customers when confronted with a customer call mechanism by which the product is made avail- centre (sometimes light-heartedly called a cus- tomer service centre) that uses an automated A useful summary statement about marketing management is that its role is to ensure that the New technologies, both in IT and elsewhere, organization identifies, anticipates, and satisfies will without doubt transform the processes by which firms both keep close to the customer andmeet the customer’s needs. Marketing’s role willcontinue to be to ensure that this legitimate con-centration on efficient processes does not dis- 11 The future
tract from the purpose of the process that is nomore and no less than understanding the cus- Arguably the distinctive contribution that mar- tomer’s need. Drucker’s (1968: 52) comment will keting has made to the conduct of business has remain its credo: ‘There is only one valid defini- been constantly to reiterate and remind organ- tion of business purpose: to create a satisfied izations of the importance of the customer. It is introduction: what is marketing about? 19 notes, identify the factors that have influenced the demand for your product over the last twenty years.
7 What are the problems in using the idea of ‘exchange’
Coviello, N. E., Brodie, R. J., and Munro, H. J. (1997), as a basis for a definition of ‘marketing’? 8 What would you say to a group of managers in a high-
Development of a Classification Scheme’, Journal of technology firm who asked you to explain the benefits Marketing Management, 13/6: 501–22.
that would accrue to their firm if they tried to implement Doyle, P. (1995), ‘Marketing in the New Millennium’, European Journal of Marketing, 29/13: 23–41.
Lehman, D. R., and Jocz, K. E. (1997) (eds.), Reflections of the Futures of Marketing (Cambridge, Mass.: MarketingScience Institute).
Lilien, G. L., and Rangaswamy, A. (1998), Marketing Engineering (Reading, Mass.: Addison-Wesley).
Rayport, J. F., and Sviokla, J. J. (1994), ‘Managing in the Marketspace’, Harvard Business Review, 72 (Nov.–Dec.),141–50.
Webster, F. E. (1988) ‘The Rediscovery of the Marketing Concept’, Business Horizons, 31 (May–June), 29–39.
1 What are the fundamental features of modern
lifestyles that make exchanges such an important
subject of study?
2 Critically evaluate Townsend’s view that: ‘ “Marketing
Departments”—like planning departments, personnel
departments, management development departments,
advertising departments, and public relations
departments—are usually camouflage designed to
cover up for lazy worn-out executives. Marketing, in the
fullest sense of the word, is the name of the game. So it
had better be handled by the boss and his line, not by
staff hecklers’ (Townsend 1971: 96).
3 Is it the case that management has become obsessed
with efficiently producing products at just the time
when customers are prepared to pay more for products
that meet their needs more effectively?
4 What lessons can be learnt from the fact that many
products, such as Post-its and the Sony Walkman, that
are now recognized as successes were initially in great
danger of being rejected by the companies that
developed them because of a lack of consumer interest?
5 Are changes in fashions predictable and/or
manageable?
6 If your company’s business was (legally) printing bank

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