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What is marketing?
What is marketing? What is marketed (scope of marketing)? What is a market (where does marketing
take place, markets and competition)? Company orientation toward the
marketplace The age of customer capitalism
Outline
Needs and wants Facilitate Exchange “Marketing is the activity, set of institutions
and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” AMA, 2008.
Defining Marketing
07.07.2010Einar Breivik,
einar.breivik@nhh.no
Marketing as Exchange Marketing as Tactics
◦ 4 P framework Marketing as Value Delivery
Defining Marketing
”Sense and respond” Haeckel (2004), not “make and sell”
Marketing process as any activity which generates or uses information about customers to organize and deploy resources for providing solutions to customer problems (Webster 2002) and hence…..
Marketing is any business process that gathers and disseminates information about customers, guides value creation and delivery with information about customers, or produces information evaluated and used by customers.
Marketing as Value Delivery
What customer value : What is our reason to be?
Customer expectations (what do customers want?)
Core competencies (how can we match this?)
Selecting target markets (heterogeneity, not all customers and firms are created equal)
07.07.2010Einar Breivik,
einar.breivik@nhh.no
Value-defining processes◦ What customer value is at the core of our business?◦ Analyzing market opportunities
Market research (study of customer needs, preferences, expectations, buying behavior, etc.)
Analysis of the firm’s core competencies Selecting target markets and positioning
Value-developing processes◦ Product development and product management◦ Design of distribution channel◦ Developing pricing strategy◦ Developing value proposition (communication strategy)◦ Sourcing strategy, vendor selection
Value-delivering processes◦ Managing distributions and logistics◦ Order-entry, credit, post-sales services◦ Advertising and sales promotions◦ Product upgrades and recalls, Applications engineering, Customer
training
Marketing Processes
What is marketed?◦ Goods◦ Services◦ Events◦ Experiences◦ Persons◦ Places◦ Properties◦ Organizations◦ Information◦ Ideas
Scope of marketing
The only valid definition of business purpose is to create a customer.
What the business thinks it is producing is not as important as what the customers think they are buying; what they consider to be ’value’ is decisive.
Any business has only two basic functions: marketing and innovation; all the rest are costs.
It is not enough to entrust marketing to the sales department.
The aim of marketing is to understand the customer so well the product or service fits him or her and sells itself.
Marketing is the whole business seen from the point of view of its final result, that is, from the customer’s point of view.
“Marketing is too important to be left to marketing people” Frederick E. Webster
The marketing concept (Cites From Peter Drucker)
Markets◦ A collection of buyers and sellers who transact
over a particular market offering Competition
◦ Neoclassical explanation◦ Resource-Advantage explanation (Hunt & Morgan
1995)
Markets and Competition
Perfect competition◦ Demand is homogenous for every industry’s
products◦ Consumers assumed to have perfect information
(which also is costless)◦ Consumers motivated by utility maximization (self
interest)◦ Firms objective profit maximization
Role of marketing: ”creators of market imperfections”
Neoclassical explanation
Resource Advantage Explanation Reexamines foundations of perfect
competition◦ Demand is heterogeneous and dynamic within
industries (product classes)◦ Consumers assumed to have imperfect
information (and obtaining information comes at a cost)
◦ Consumers motivated by constrained self interest◦ Firms objective superior financial performance
Role of marketing◦ Market opportunity analysis (identifying needs
based on customer value, segments)◦ Selecting target markets◦ Developing marketing strategies to deliver
customer value
Production Concept Product Concept Selling Concept Marketing Concept Societal Marketing Concept
Company Orientation Toward the Marketplace
Idea of mass market Consumers prefer products that are widely
available and inexpensive Focus on efficiency (in production) Typical for growing markets (ex. Industrial
revolution, scientific management)◦ T-Ford◦ Refrigerators in their infancy◦ Calculators
Production concept
Quality, performance, innovative features, enough to sell products?
Defining your business by the product you sell rather than by what your customer needs is the classic “Better Mousetrap” trap. Just because you build it does not mean they will come.
Product concept
Saturated markets, compete for attention Requires demand stimulation Role of the customer?
Selling concepts
Marketing today includes the obligation to examine societal issues as well
Customers have a life after the purchase
Societal marketing concept
Define business in terms of need satisfied instead of product made (Levitt, 1960)
Movies Railroads Xerox Coke Kodak . .
Marketing Myopia
07.07.2010Einar Breivik,
einar.breivik@nhh.no
Managerial capitalism (Berle & Means 1932)◦ Managers substituted for owners – entrepreneurs
not good CEOs
Customer capitalism (Martin 2010)
The Age of Customer Capitalism (Roger Martin, 2010)
(Jensen & Meckling 1976, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure)
Owners were getting short shrift from professional managers, who enhanced their own financial well-being rather than that of the shareholders. This was bad for shareholders and wasteful for the economy. Hence, CEO’s had to confirm to the idea of maximizing shareholder value. Typically you could see arrangements such as stock-based compensations to align interests of senior managers and shareholders.
Shareholder value capitalism
07.07.2010Einar Breivik,
einar.breivik@nhh.no
Can not simultaneously maximize two different things (shareholder value and customer satisfaction) It is possible to maximize shareholder value given a minimum hurdle for
customer satisfaction and vice versa, but not both Shareholder maximization
◦ Shareholders have a residual claim on a firm’s assets and earnings◦ Hence, the value of their shares is the discounted value of all future
cash flows minus payments to other claimants◦ Since the future is unknowable, potential shareholders must estimate
what that cash flow will be, their collective expectations about the future determine the stock price
◦ Also, subject to future optimism and pessimism -> Stock markets more volatile than the earnings of the companies in them
◦ What should managers do?
Satisfaction maximization◦ Focus on customer value
Customer Capitalism
High levels of customer satisfaction grow shareholder value
Customer satisfaction positively associated with credit ratings and negatively associated with debt costs
Customer Satisfaction and Financial Performance
07.07.2010Einar Breivik,
einar.breivik@nhh.no
R & DOFFERING
ProductSegmentationPositioningPromotionDistributionService
MarketingConcept
“On Balance Sheet”
CustomerWants +Needs
Environment
Competition
Satisfaction
RetentionRate
Lost toCompetition
New Customers
CustomerBase
Value ofCustomer
BrandEquity
Value of The Firm
Kotler, P. & K.L. Keller: Ch. 1 & Ch. 2 Webster, F.E. (2002): ”The Role of Marketing and
the Firm”, in Handbook of Marketing (eds. B.A. Weitz & R. Wensley), SAGE, 66-82.
Haeckel, S.H. (2004): ”Peripheral Vision: Sensing and Acting on Weak Signals Making Meaning out of Apparent Noise: The Need for a New Managerial Framework”, Long Range Planning, 37, 181-89.
Hunt, S.H. & R.M. Morgan (1995): ”The Competitive Advantage Theory of Competition”, Journal of Marketing, 59(April),1-15
Martin, Roger (2010): ”The Age of Customer Capitalism”, Harvard Business Review, January-February, 58-65.
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