Marketing is defined by the American Marketing Association

QUESTION

DEFINING MARKETINGMarketing is defined by the American Marketing Association in the followingway: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.If you read the definition closely, you see that there are four activities, orcomponents, of marketing:1.Creating. The process of collaborating with suppliers and customersto create offerings that have value.2.Communicating. Broadly, describing those offerings, as well aslearning from customers.3.Delivering. Getting those offerings to the consumer in a way thatoptimizes value.4.Exchanging. Trading value for those offerings.Let’s look more closely at some of the components that make up thisdefinition.VALUEValue is at the center of everything that marketing does (Figure 1). Whatdoes value mean?Marketing is composed of four activities centered on customer value:creating, communicating, delivering, and exchanging value.When we use the term value, we mean the benefits buyers receive that meettheir needs. In other words, value is what the customer gets by purchasingand consuming a company’s offering. So, although the offering is created bythe company, the value is determined by the customer.Furthermore, our goal as marketers is to create a profitable exchange forconsumers. By profitable, we mean that the consumer’s personal valueequation is positive. The personal value equation is value = benefits received– [price + hassle]Hassle is the time and effort the consumer puts into the shopping process.The equation is a personal one because how each consumer judges thebenefits of a product will vary, as will the time and effort he or she puts intoshopping. Value, then, varies for each consumer.One way to think of value is to think of a meal in a restaurant. If you andthree friends go to a restaurant and order the same dish, each of you will likeit more or less depending on your own personal tastes. Yet the dish wasexactly the same, priced the same, and served exactly the same way.Because your tastes varied, the benefits you received varied. Therefore thevalue varied for each of you. That’s why we call it a personal value equation.Value varies from customer to customer based on each customer’s needs.The marketing concept, a philosophy underlying all that marketers do,requires that marketers seek to satisfy customer wants and needs. Firmsoperating with that philosophy are said to be market oriented. At the sametime, market-oriented firms recognize that exchange must be profitable forthe company to be successful. A marketing orientation is not an excuse tofail to make profit.Firms don’t always embrace the marketing concept and a market orientation.Beginning with the Industrial Revolution in the late 1800s, companieswere production orientation. They believed that the best way to competewas by reducing production costs. In other words, companies thought thatgood products would sell themselves. Perhaps the best example of such aproduct was Henry Ford’s Model A automobile, the first product of hisproduction line innovation. Ford’s production line made the automobile cheapand affordable for just about everyone. The production era lasted until the1920s, when production-capacity growth began to outpace demand growthand new strategies were called for. There are, however, companies that stillfocus on production as the way to compete.From the 1920s until after World War II, companies tended to be sellingorientation, meaning they believed it was necessary to push their productsby heavily emphasizing advertising and selling. Consumers during the GreatDepression and World War II did not have as much money, so thecompetition for their available dollars was stiff. The result was this pushapproach during the selling era. Companies like the Fuller Brush Companyand Hoover Vacuum began selling door-to-door and the vacuum-cleanersalesman (they were always men) was created. Just as with production, somecompanies still operate with a push focus.In the post–World War II environment, demand for goods increased as theeconomy soared. Some products, limited in supply during World War II, werenow plentiful to the point of surplus. Companies believed that a way tocompete was to create products different from the competition, so manyfocused on product innovation. This focus on product innovation is calledthe product orientation. Companies like Procter & Gamble created manyproducts that served the same basic function but with a slight twist ordifference in order to appeal to a different consumer, and as a resultproducts proliferated. But as consumers had many choices available to them,companies had to find new ways to compete. Which products were best tocreate? Why create them? The answer was to create what customerswanted, leading to the development of the marketing concept. During thistime, the marketing concept was developed, and from about 1950 to 1990,businesses operated in the marketing era.So what era would you say we’re in now? Some call it the value era: a timewhen companies emphasize creating value for customers. Is that reallydifferent from the marketing era, in which the emphasis was on fulfilling themarketing concept? Maybe not. Others call today’s business environmentthe one-to-one era, meaning that the way to compete is to buildrelationships with customers one at a time and seek to serve eachcustomer’s needs individually. For example, the longer you are customer ofAmazon, the more detail they gain in your purchasing habits and the betterthey can target you with offers of new products. With the advent of socialmedia and the empowerment of consumers through ubiquitous informationthat includes consumer reviews, there is clearly greater emphasis onmeeting customer needs. Yet is that substantially different from themarketing concept?Still others argue that this is the time of service-dominant logic and that weare in the service-dominant logic era. Service-dominant logic is an approachto business that recognizes that consumers want value no matter how it isdelivered, whether it’s via a product, a service, or a combination of the two.Although there is merit in this belief, there is also merit to the valueapproach and the one-to-one approach. As you will see throughout this book,all three are intertwined. Perhaps, then, the name for this era has yet to bedevised.Whatever era we’re in now, most historians would agree that defining andlabeling it is difficult. Value and one-to-one are both natural extensions of themarketing concept, so we may still be in the marketing era. To make mattersmore confusing, not all companies adopt the philosophy of the era. Forexample, in the 1800s Singer and National Cash Register adopted strategiesrooted in sales, so they operated in the selling era forty years before itexisted. Some companies are still in the selling era. Recently, manyconsidered automobile manufacturers to be in the trouble they were inbecause they work too hard to sell or push product and not hard enough ondelivering value.CREATING OFFERINGS THAT HAVE VALUEMarketing creates those goods and services that the company offers at aprice to its customers or clients. That entire bundle consisting of the tangiblegood, the intangible service, and the price is the company’s offering. Whenyou compare one car to another, for example, you can evaluate each ofthese dimensions—the tangible, the intangible, and the price—separately.However, you can’t buy one manufacturer’s car, another manufacturer’sservice, and a third manufacturer’s price when you actually make a choice.Together, the three make up a single firm’s offer.Marketing people do not create the offering alone. For example, when theiPad was created, Apple’s engineers were also involved in its design. Apple’sfinancial personnel had to review the costs of producing the offering andprovide input on how it should be priced. Apple’s operations group needed toevaluate the manufacturing requirements the iPad would need. Thecompany’s logistics managers had to evaluate the cost and timing of gettingthe offering to retailers and consumers. Apple’s dealers also likely providedinput regarding the iPad’s service policies and warranty structure. Marketing,however, has the biggest responsibility because it is marketing’sresponsibility to ensure that the new product delivers value.COMMUNICATING OFFERINGSCommunicating is a broad term in marketing that means describing theoffering and its value to your potential and current customers, as well aslearning from customers what it is they want and like. Sometimescommunicating means educating potential customers about the value of anoffering, and sometimes it means simply making customers aware of wherethey can find a product. Communicating also means that customers get achance to tell the company what they think. Today companies are findingthat to be successful, they need a more interactive dialogue with theircustomers. For example, Comcast customer service representatives monitorTwitter. When they observe consumers tweeting problems with Comcast, thecustomer service reps will post resolutions to their problems. Similarly,JCPenney has created consumer groups that talk among themselves onJCPenney-monitored Web sites. The company might post questions, sendsamples, or engage in other activities designed to solicit feedback fromcustomers.Mobile devices, like iPads and Droid smartphones, make mobile marketingpossible too. For example, if consumers check-in at a shopping mall onFoursquare or Facebook, stores in the mall can send coupons and other offersdirectly to their phones and pad computers.A BMW X5 costs much more than a Honda CRV, but why is it worth more? What makes up the completeoffering that creates such value? (Source: Wikimedia Commons)Companies use many forms of communication, including advertising on theWeb or television, on billboards or in magazines, through product placementsin movies, and through salespeople. Other forms of communication includeattempting to have news media cover the company’s actions (part of publicrelations [PR]), participating in special events such as the annualInternational Consumer Electronics Show in which Apple and othercompanies introduce their newest gadgets, and sponsoring special eventslike the Susan G. Komen Race for the Cure.DELIVERING OFFERINGSMarketing can’t just promise value, it also has to deliver value. Delivering anoffering that has value is much more than simply getting the product into thehands of the user; it is also making sure that the user understands how toget the most out of the product and is taken care of if he or she requiresservice later. Value is delivered in part through a company’s supply chain.The supply chain includes a number of organizations and functions thatmine, make, assemble, or deliver materials and products from amanufacturer to consumers. The actual group of organizations can varygreatly from industry to industry, and include wholesalers, transportationcompanies, and retailers. Logistics, or the actual transportation and storageof materials and products, is the primary component of supply chainmanagement, but there are other aspects of supply chain management thatwe will discuss later.EXCHANGING OFFERINGSIn addition to creating an offering, communicating its benefits to consumers,and delivering the offering, there is the actual transaction, or exchange, thathas to occur. In most instances, we consider the exchange to be cash forproducts and services. However, if you were to fly to Louisville, Kentucky, forthe Kentucky Derby, you could “pay” for your airline tickets using frequentflier miles. You could also use Hilton Honors points to “pay” for your hotel,and cash back points on your Discover card to pay for meals. None of thesetransactions would actually require cash. Other exchanges, such asinformation about your preferences gathered through surveys, might notinvolve cash.When consumers acquire, consume (use), and dispose of products andservices, exchange occurs, including during the consumption phase. Forexample, via Apple’s “One-to-One” program, you can pay a yearly fee inexchange for additional periodic product training sessions with an Appleprofessional. So each time a training session occurs, another transactiontakes place. A transaction also occurs when you are finished with a product.For example, you might sell your old iPhone to a friend, trade in a car, or askthe Salvation Army to pick up your old refrigerator.Disposing of products has become an important ecological issue. Batteriesand other components of cell phones, computers, and high-tech appliancescan be very harmful to the environment, and many consumers don’t knowhow to dispose of these products properly. Some companies, such as OfficeDepot, have created recycling centers to which customers can take their oldelectronics.Apple has a Web page where consumers can fill out a form, print it, and shipit along with their old cell phones and MP3 players to Apple. Apple then pullsout the materials that are recyclable and properly disposes of those thataren’t. By lessening the hassle associated with disposing of products, OfficeDepot and Apple add value to their product offerings.KEY TAKEAWAYSThe focus of marketing has changed from emphasizing the product,price, place, and promotion mix to one that emphasizes creating,communicating, delivering, and exchanging value. Value consistsof the benefits an individual receives minus the price the consumerpaid and the time and effort they expended making the purchase.LICENSES AND ATTRIBUTIONSReading: The Four Ps Of MarketingTHE FOUR PS OF MARKETINGThe traditional way of viewing the components of marketing is in termsof the four Ps:1.2.3.Product. Goods and services (creating offerings).Promotion. Communication.Place. Getting the product to a point at which the customer can purchase it(delivering).4.Price. The monetary amount charged for the product (exchanging).Introduced in the early 1950s, the four Ps were called the marketing mix, anda typical marketing plan would include a mix of these four components.Getting the four Ps right for any given marketing effort depends first onidentifying your target customer – who are you trying to sell to, and how willyou provide value to them? Once you know who you’re targeting, you canrefine decisions around product, promotion, place and price to ensure youare delivering something of value.Recall the American Marketing Association’s current definition of marketing,which emphasizes the four activitiesof creating, communicating, delivering, and exchanging. You might bewondering why this definition shifts away from the four Ps. The answer is thatthey are not exactly the same. Product, price, place, and promotionare nouns. As such, these words fail to capture all the activities of marketing.For example, exchanging requires mechanisms for a transaction, whichconsist of more than simply a price or place. Exchanging requires, amongother things, the transfer of ownership. For example, when you buy a car,you sign documents that transfer the car’s title from the seller to you. That’spart of the exchange process.Even the term product, which seems pretty obvious, is limited. Does theproduct include services that come with your new car purchase (such as freemaintenance for a certain period of time on some models)? Or does theproduct mean only the car itself? The following video expands upon theconcept of the four Ps and explains its more dynamic use today.LICENSES AND ATTRIBUTIONSReading: The Marketing EnvironmentTHE MARKETING ENVIRONMENT1.By and large, managers can control the four Ps of the marketing mix: theycan decide which products to offer, what prices to charge for them, how todistribute them, and how to reach target audiences. Unfortunately, there areother forces at work in the marketing world—forces over which marketershave much less control. These forces make up a company’s externalmarketing environment, which, as you can see in Figure 1, “The MarketingEnvironment,” can be divided into five sets of factors:Political and regulatory2.Economic3.Competitive4.Technological5.Social and culturalFigure 1. The Marketing EnvironmentThese factors—and changes in them—present both threats and opportunitiesthat require shifts in marketing plans. To spot trends and other signals thatconditions may be in flux, marketers must continually monitor theenvironment in which their companies operate. To get a better idea of howthey affect a firm’s marketing activities, let’s look at each of the five areas ofthe external environment.THE POLITICAL AND REGULATORY ENVIRONMENTFederal, state, and local bodies can set rules or restrictions on the conduct ofbusinesses. The purpose of regulation is to protect both consumers andbusinesses. Businesses favor some regulations (such as patent laws) whilechafing under others (such as restrictions on advertising). The tobaccoindustry, for example, has had to learn to live with a federal ban on TV andradio advertising. More recently, many companies in the food industry haveexpressed unhappiness over regulations requiring the labeling of trans-fatcontent. The broadcasting industry is increasingly concerned about finesbeing imposed by the Federal Communications Commission for offensesagainst “standards of decency.” The loudest outcry probably came fromtelemarketers in response to the establishment of “do-not-call” registries. Allthese actions occasioned changes in the marketing strategies of affectedcompanies. Tobacco companies rerouted advertising dollars from TV to printmedia. Food companies reduced trans-fat levels and began targeting health-conscious consumers. Talent coordinators posted red flags next to the namesof Janet Jackson (of the now-famous malfunctioning costume) and otherperformers. The telemarketing industry fired workers and scrambled toreinvent its entire business model.THE ECONOMIC ENVIRONMENTEvery day, marketing managers face a barrage of economic news. They mustdigest it, assess its impact, and alter marketing plans accordingly.Sometimes (but not recently), the news is cause for optimism—theeconomy’s improving, unemployment’s declining, consumer confidence isup. At other times (like today), the news makes them nervous—our economyis weak, industrial production is down, jobless claims are rising, consumerconfidence has plummeted, credit is hard to get. Naturally, business thriveswhen the economy is growing, employment is full, and prices are stable.Marketing products is easier because consumers are willing to buy. On theother hand, when the economy is slowing (or stalled) and unemployment isrising, people have less money to spend, and the marketer’s job is harder.Then there’s inflation, which pushes interest rates upward. If you’re trying tosell cars, you know that people facing higher interest rates aren’t so anxiousto take out car loans. Sales will slip, and to counteract the anticipatedslowdown, you might have to add generous rebates to your promotionalplans. Moreover, if you operate in foreign markets, you can’t focus on solelydomestic economic conditions: you have to monitor the economy in everyregion where you do business. For example, if you’re the marketing directorfor a U.S. company whose goods are manufactured in China and sold inBrazil, you’ll need to know as much as you can about the economies in threecountries: the United States, China, and Brazil. For one thing, you’ll have topay particular attention to fluctuations in exchange rates, because changeswill affect both your sales and your profits.THE COMPETITIVE ENVIRONMENTImagine playing tennis without watching what your opponent was doing.Marketers who don’t pay attention to their competitors are playing a losinggame. In particular, they need to monitor the activities of two groups ofcompetitors: the makers of competing brands and the makers of substituteproducts. Coke and Pepsi, for instance, are brand competitors who haveengaged in the so-called cola wars for decades. Each tries to capture marketshare by convincing people that its soft drinks are better. Because neitherwants to lose share to the other, they tend to resort to similar tactics. Insummer 2004, both companies came out with nearly identical new colasboasting half the sugar, half the calories, and half the carbohydrates ofregular colas. Coke called its product Coke C2, while Pepsi named itscompeting brand PepsiEdge. Both companies targeted cola drinkers whowant the flavor of a regular soda but fewer calories. (By the way, bothproducts failed and were taken off the market.) Meanwhile, Coke and Pepsihave to watch Nantucket Nectars, whose fruit drinks are substitute products.What if Nantucket Nectars managed to get its drinks into the soda machinesat more fast-food restaurants? How would Coke and Pepsi respond? What ifNantucket Nectars, which markets an ice tea with caffeine, introduced an icetea drink with mega amounts of caffeine? Would marketers at Coke and Pepsitake action? What if Nantucket Nectars launched a marketing campaignpromoting the health benefits of fruit drinks over soda? Would Coke andPepsi reply with campaigns of their own? Would they respond by introducingnew non-cola products?THE TECHNOLOGICAL ENVIRONMENTWhen’s the last time you rented a DVD of a new movie? And do you evenremember ever renting a videotape? Technology evolves rapidly and thesedays, videotapes are long since past. While DVDs are still common, Blu-ray,digital downloads and on-demand services are the more forward-lookingformats for people who want to watch movies at home. Hopefully onetime videotape makers monitored technological trends in the industry andtook steps to keep up or otherwise protect themselves from losses (maybeeven getting out of the market). In addition to making old products obsolete,technological advances create new products. Where would we be without thecell phone, digital cameras, text messaging, LASIK surgery, and globalpositioning systems? New technologies also transform the marketing mix inanother important way: they alter the way companies market their products.Consider the revolutionary changes brought about by the Internet, whichoffers marketers a new medium for promoting and selling a vast range ofgoods and services. Marketers must keep abreast of technological advancesand adapt their strategies, both to take advantage of the opportunities andto ward off threats.THE SOCIAL AND CULTURAL ENVIRONMENTMarketers also have to stay tuned to social and cultural factors that canaffect sales. The values and attitudes of American consumers are in a stateof almost constant flux; what’s cool one year is out of style the next. Thinkabout the clothes you wore five years ago: would you wear them today? A lotof people wouldn’t—they’re the wrong style, the wrong fit, the wrongmaterial, the wrong color, or just plain wrong. Now put yourself in the placeof a marketer for a clothing company that targets teenagers and youngadults. You wouldn’t survive if you tried to sell the same styles every year. Aswe said at the outset of this chapter, the key to successful marketing ismeeting the needs of customers. This means knowing what they want rightnow, not last year. Here’s another illustration. The last few decades havewitnessed monumental shifts in the makeup of the American workforce. Thenumber of women at all levels has increased significantly, the workforce hasbecome more diverse, and telecommuting is more common. More peopleplace more importance on balancing their work lives with the rest of theirlives, and fewer people are willing to sacrifice their health to the demands ofhectic work schedules. With these changes have come new marketingopportunities. As women spend more time at work, the traditional duties ofthe “homemaker” have shifted to day-care centers, nannies, house-cleaningservices, and (for those who can afford them) child chauffeurs, birthday-partycoordinators, and even family-photo assemblers. The number of gyms hasmushroomed, the selection of home office furniture has expanded, andMcDonald’s has bowed to the wishes of the health-conscious by eliminatingits “super-size” option.[1]1.Sandra Tsing Loh, “Nannyhood and Apple Pie,” The Atlantic, October 1, 2003, 122–23. ↵LICENSES AND ATTRIBUTIONSReading: Generation Effects And Consumer BehaviorGENERATION GAPSClothiers who target teens and young adults (such as Gap and Abercrombie& Fitch) must estimate the size of both current and future audiences. Somust compan…

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