Chapter Notes

Where Do Companies Do Their Business?

In today's world, a company's success doesn't just come from its customers. It also depends on a wide range of stakeholders—groups like the government, social activists, NGOs, and the media. A company must earn the satisfaction of these groups because they can influence the brand's reputation through word of mouth.

Embracing social values and corporate social justice strengthens a brand and builds strong customer relationships. These social concerns generally fall into two categories:

• Immediate Humanitarian Issues: This includes actions that require urgent attention, such as improving child nutrition, running old-age homes, fighting hunger, and providing aid during natural disasters.
• Long-term Societal Well-being: This involves efforts that make society a better place over time. Examples include promoting health awareness, supporting education, protecting the environment, empowering women, preventing discrimination, and preserving culture and ethics.

What is Marketing?

Many people have different ideas about what marketing is. Some think it's just 'shopping', while others confuse it with 'selling', believing it only starts after a product is made. These ideas are only partly correct; marketing is a much broader concept.

• Traditionally, marketing was seen as the business activities that direct the flow of goods and services from producers to consumers. This includes activities like product design, packaging, warehousing, transportation, branding, selling, and advertising.
• Modern View: Marketing is not just a post-production activity. It begins before a product is even made—with activities like identifying customer needs and designing the product—and continues after the sale with customer support to encourage repeat purchases.

Philip Kotler defined marketing as, "a social process by which individual groups obtain what they need and want through creating offerings and freely exchanging products and services of value with others". This highlights that marketing is fundamentally about exchange and satisfying needs.

Understanding Market

The term 'market' has also evolved.

• Traditional Sense: A market was a physical place where buyers and sellers gathered to exchange goods and services. We still use this term today when talking about a cotton market or a share market.
• Modern Marketing Sense: A market refers to a set of actual and potential buyers of a product or service. It’s not about a place, but about the people who are willing and able to buy something.

Features of Marketing

The modern concept of marketing has four key features:

Needs and Wants

The main goal of marketing is to satisfy the needs and wants of individuals and organizations.

• A need is a state of feeling deprived of something, like hunger or thirst. Needs are basic to all human beings.
• A want is the specific form a human need takes as shaped by culture, personality, and religion. For example, the need for food might become a want for dosa and rice for a South Indian, or chapatti and vegetables for a North Indian.

A marketer's job is to identify the needs of target customers and develop products that satisfy them.

Creating a Market Offering

Marketers create a market offering, which is a complete offer for a product or service. This includes details about its features (size, quality, taste), price, and where it's available. A good market offering is developed after carefully analyzing the needs and preferences of potential buyers.

Customer Value

Customers buy a product only if they believe it offers the greatest benefit or value for their money. The marketer's job is to add value to the product so that customers prefer it over competitors' offerings. This value is based on the customer's perception of how well the product satisfies their need in relation to its cost.

Exchange Mechanism

Marketing works through the exchange mechanism, where people obtain what they need and want by giving something of value in return. Exchange is the essence of marketing. For an exchange to happen, five conditions must be met:

1. There must be at least two parties (a buyer and a seller).
2. Each party must have something of value to offer the other.
3. Each party must be able to communicate and deliver their product or service.
4. Each party must have the freedom to accept or reject the other's offer.
5. Both parties must be willing to enter into the transaction voluntarily.

Marketing Management

Marketing management refers to the planning, organizing, directing, and controlling of activities that facilitate the exchange of goods and services. Its focus is on achieving desired exchange outcomes with target markets.

Philip Kotler defines it as "the art and science of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer values of management."

This process involves three key steps:

1. Choosing a target market: Deciding which specific group of customers the company will serve. For instance, a company might choose to make readymade garments for children up to five years old.
2. Getting, keeping, and growing customers: The goal is to create demand, attract new customers, and keep existing ones satisfied with the company's products.
3. Creating superior value: The primary job of a marketing manager is to create and communicate superior value to customers, persuading them to buy the product.

Marketing management is not just about creating demand but also about managing it effectively. If demand is too high (overfull demand), a manager might need to find ways to reduce it temporarily, perhaps by increasing prices. If demand is irregular, like for seasonal products, the goal is to change the timing of demand using incentives.

What can be Marketed?

A wide variety of things can be marketed, including:

• Physical Products: Motorcycles, mobile phones, televisions.
• Services: Insurance, healthcare, computer education.
• Ideas: Polio vaccination, family planning, blood donation.
• Persons: Candidates for political office.
• Places: Tourist destinations like 'Visit Agra - City of Love'.
• Events: Sports events, music concerts, film festivals.
• Information: Market research data, technology information.

Marketing Versus Selling

Many people use the terms 'marketing' and 'selling' interchangeably, but they are different. Selling is just one part of marketing.

• Marketing is a broad set of activities that includes planning, pricing, promoting, and distributing products that satisfy customer needs. It starts long before a product is ready for sale.
• Selling is a narrower function focused on promoting goods and services to transfer ownership from the seller to the buyer—in other words, converting a product into cash.

Marketing Management Philosophies

The philosophy or concept that guides an organization's marketing efforts has evolved over time. This guiding philosophy determines the emphasis placed on different factors.

The Production Concept

In the early days of the industrial revolution, demand for goods was higher than supply. The main focus was on production. It was believed that profits could be maximized by producing on a large scale to reduce the average cost. The key idea was that consumers would favor products that were widely available and affordable.

The Product Concept

As production capacity increased, mere availability was no longer enough. Customers began looking for products with superior quality, performance, and features. The focus shifted from the quantity of production to the quality of the product. The key to profit maximization became continuous product improvement.

The Selling Concept

With even more competition, product quality and availability alone couldn't guarantee success. The philosophy shifted again, this time to the belief that customers would not buy enough unless persuaded to do so. Firms began using aggressive selling and promotional efforts like advertising and personal selling to push their products. The focus was on making a sale by any means necessary.

The Marketing Concept

This philosophy holds that the key to success is focusing on satisfying customer needs. It assumes that a firm can achieve its profit goals by identifying the needs of its target market and satisfying them better than competitors. All decisions—what to produce, what features to include, what price to set—are made from the customer's point of view. The basic role of a firm becomes to 'identify a need and fill it'.

The marketing concept is based on five pillars:

1. Identification of a target market.
2. Understanding the needs and wants of that market.
3. Developing products to satisfy those needs.
4. Satisfying those needs better than competitors.
5. Doing all of this at a profit.

The Societal Marketing Concept

This concept extends the marketing concept by adding a concern for the long-term welfare of society. It holds that a company should identify the needs of its target market and deliver satisfaction in a way that also takes care of the well-being of consumers and society. This philosophy considers social, ethical, and ecological aspects of marketing, addressing issues like environmental pollution, deforestation, and resource shortages.

Functions Of Marketing

Marketing involves a number of activities or functions designed to facilitate the exchange of goods and services.

1. Gathering and Analysing Market Information: Marketers gather information to identify customer needs, analyze opportunities and threats, and understand the company's strengths and weaknesses. This helps in making successful marketing decisions.
2. Marketing Planning: This involves developing a marketing plan to achieve the organization's objectives. For example, a plan to increase market share would include strategies for production, promotion, and other areas.
3. Product Designing and Development: A good product design can make it more attractive to customers, improve its performance, and provide a competitive advantage.
4. Standardisation and Grading:
   • Standardisation means producing goods with predetermined specifications to ensure uniformity and consistency.
   • Grading is classifying products into different groups based on characteristics like quality or size, especially for agricultural products.
5. Packaging and Labelling:
   • Packaging involves designing the container or wrapper for a product.
   • Labelling is designing the label to be put on the package. Both are crucial for protection, identification, and promotion.
6. Branding: This is the process of giving a name, sign, or symbol to a product to distinguish it from competitors' products. Branding helps in building customer loyalty.
7. Customer Support Services: This includes after-sales services, handling complaints, providing credit, and offering technical support. These services are key to ensuring customer satisfaction and encouraging repeat sales.
8. Pricing of Product: This involves determining the amount of money a customer has to pay. Price affects demand and is a critical factor in the success of a product.
9. Promotion: This function involves communicating with customers to inform them about a product's features and persuade them to buy it. Tools include advertising, personal selling, and sales promotion.
10. Physical Distribution: This includes all activities required to move goods from the producer to the customer. It involves decisions about channels of distribution (intermediaries like wholesalers and retailers) and physical movement.
11. Transportation: This is the physical movement of goods from the place of production to the place of consumption.
12. Storage or Warehousing: Goods are often stored to bridge the time gap between production and sale, especially for products with seasonal demand or supply.

Marketing Mix

The marketing mix consists of the variables that a firm blends to pursue its marketing objectives in the target market. These are popularly known as the four Ps of marketing: Product, Price, Place, and Promotion.

Product

A product is anything of value, whether goods or services, that is offered to a market for sale. From a customer's perspective, it is a "bundle of utilities" that satisfies a need. This includes not just the physical item but also the benefits it offers and associated services like after-sales support.

Classification of Products

Products can be broadly classified into two categories: consumer products and industrial products.

Consumer Products These are products purchased by ultimate consumers for personal use. They are further classified into:

• Convenience Products: Purchased frequently, immediately, and with minimal effort (e.g., newspapers, toothpaste, medicines).
• Shopping Products: Consumers spend considerable time comparing quality, price, and style before buying (e.g., clothes, furniture, televisions).
• Speciality Products: Products with unique features for which buyers are willing to make a special purchase effort (e.g., rare artwork, specific brands for which customers have high loyalty).

Based on durability, consumer products can also be classified as:

• Non-durable Products: Consumed in one or a few uses (e.g., soap, detergents).
• Durable Products: Survive many years of use (e.g., refrigerators, bicycles).
• Services: Intangible activities or benefits offered for sale (e.g., hair cutting, watch repair).

Industrial Products These are products used as inputs for producing other products. They are meant for non-personal, business use.

• Materials and Parts: Goods that become part of the manufacturer's product completely (e.g., raw materials like cotton, manufactured parts like tires).
• Capital Items: Goods used in the production of finished goods (e.g., installations like elevators, equipment like computers).
• Supplies and Business Services: Short-lasting goods and services that facilitate managing the finished product (e.g., maintenance items like paint, operating supplies like lubricants).

Branding

Branding is the process of giving a name, term, sign, or symbol to a product to identify it and differentiate it from competitors.

• Brand: A name, term, sign, or symbol used to identify a seller's products.
• Brand Name: The part of a brand that can be spoken (e.g., Bata, Lifebuoy).
• Brand Mark: The part of a brand that can be recognized but not spoken, like a symbol or design.
• Trade Mark: A brand or part of a brand that is given legal protection, giving the firm the exclusive right to use it.

Characteristics of a Good Brand Name:

• Short, easy to pronounce, spell, and remember.
• Suggests the product's benefits and qualities.
• Distinctive.
• Adaptable to different packaging and advertising media.
• Versatile enough to accommodate new products.
• Capable of being legally registered and protected.

Packaging

Packaging is the act of designing and producing the container or wrapper for a product. It plays a vital role in marketing success.

Levels of Packaging

1. Primary Package: The product's immediate container (e.g., a toothpaste tube).
2. Secondary Packaging: Additional layers of protection that are removed before use (e.g., the cardboard box for the toothpaste tube).
3. Transportation Packaging: Further packaging necessary for storage, identification, or transport (e.g., a corrugated box containing 100 toothpaste units).

Importance and Functions of Packaging

Packaging has become increasingly important due to:

• Rising standards of health and sanitation.
• The growth of self-service outlets, where packaging must perform the 'selling' role.
• Innovational opportunities that allow for new ways to store and use products.
• Its ability to create product differentiation.

The main functions of packaging are:

• Product Identification: Helps customers easily identify the product.
• Product Protection: Protects contents from spoilage, breakage, and damage.
• Facilitating Use: Makes the product convenient to open, handle, and use.
• Product Promotion: Attracts attention at the point of purchase and communicates brand identity.

Labelling

Labelling involves designing and putting a label on the package. A label can range from a simple tag to complex graphics.

Functions of Labelling:

1. Describe the Product and Specify its Contents: Provides information on usage, cautions, and ingredients.
2. Identification of the Product or Brand: Helps customers identify their preferred brand. It also includes manufacturer details, net weight, manufacturing date, and MRP.
3. Grading of Products: Helps classify products into different categories based on quality or features.
4. Helps in Promotion of Products: A well-designed label can attract attention and carry promotional messages (e.g., '40% Extra Free').
5. Providing Information Required by Law: Certain products, like packaged foods and drugs, must display legally required information.

Price

Price is the amount of money a customer pays to obtain a product or service. It is a critical element of the marketing mix because it is the only one that generates revenue; all others represent costs.

Factors affecting Price Determination

1. Product Cost: This sets the minimum price, or floor price. A firm must cover its total costs (fixed, variable, and semi-variable) in the long run to survive.
2. The Utility and Demand: The utility a product provides and the intensity of customer demand set the upper limit for the price. According to the law of demand, higher prices usually lead to lower demand.
3. Extent of Competition in the Market: The price is also influenced by competitors' prices and strategies. In a highly competitive market, prices tend to be lower.
4. Government and Legal Regulations: The government can intervene to regulate the prices of essential commodities to protect public interest.
5. Pricing Objectives: A firm's objectives influence its pricing. Objectives might include maximizing short-term profit, gaining market share leadership (often with lower prices), or attaining product quality leadership (often with higher prices).
6. Marketing Methods Used: Other marketing elements, like the distribution system, advertising quality, and customer service, can affect pricing. Unique features in these areas can give a firm more flexibility in setting its price.

Place (Physical Distribution)

Physical distribution involves all the activities required to physically move goods from manufacturers to customers. The goal is to make products available at the right place, at the right time, and in the right quantity.

Components of Physical Distribution

1. Order Processing: This is the first step in the distribution cycle. An efficient system ensures accurate and speedy processing of orders to maintain customer satisfaction.
2. Transportation: This is the means of carrying goods from the point of production to the point of sale. The choice of transport mode depends on factors like cost, speed, and the nature of the product.
3. Warehousing: This refers to storing and assorting products to create time utility. Warehousing is needed to balance the time difference between production and consumption. The number and location of warehouses affect customer service levels and costs.
4. Inventory Control: This involves deciding the level of inventory to maintain. A higher inventory ensures better customer service but increases costs. A firm must strike a balance between cost and customer satisfaction.

Promotion

Promotion refers to the use of communication with the dual objective of informing potential customers about a product and persuading them to buy it. It is how marketers communicate with the target market.

Promotion Mix

The promotion mix is the specific combination of promotional tools an organization uses. The main elements are:

Advertising

Advertising is any paid form of impersonal communication by an identified sponsor to promote goods or services. Common modes include newspapers, television, magazines, and radio.

• Features: It is a paid form, it is impersonal (no face-to-face contact), and it has an identified sponsor.

• Merits:

  • Mass Reach: Can reach a large number of people over a vast area.
  • Enhancing Customer Satisfaction and Confidence: Assures buyers about product quality.
  • Expressiveness: Can use art, graphics, and special effects to be very persuasive.
  • Economy: The per-unit cost of reaching people is very low due to its wide reach.

• Objections to Advertising:

  • Adds to Cost: Critics argue it increases product costs, which are passed on to consumers. (Proponents argue it increases demand, leading to economies of scale that lower per-unit costs).
  • Undermines Social Values: Critics say it promotes materialism and creates discontent. (Proponents say it informs buyers about new and improved products).
  • Confuses the Buyers: The sheer number of ads making similar claims can be confusing. (Proponents argue that rational buyers can analyze the information to make a choice).
  • Encourages Sale of Inferior Products: It can persuade people to buy products that may not be of high quality. (Proponents state that quality is relative and buyers will only repurchase if the product meets their needs).

Personal Selling

Personal selling involves an oral presentation of a message in a conversation with one or more prospective customers for the purpose of making a sale.

• Features: It is a personal form (face-to-face dialogue) and allows for the development of relationships.
• Merits:
  • Flexibility: The sales pitch can be adjusted to the specific needs of the customer.
  • Direct Feedback: It allows for immediate feedback from the customer.
  • Minimum Wastage: Efforts can be focused on targeted prospects.

Sales Promotion

Sales promotion refers to short-term incentives designed to encourage the immediate purchase of a product or service. It supplements other promotional efforts like advertising.

• Merits:
  • Attention Value: Incentives attract customer attention.
  • Useful in New Product Launch: Encourages customers to try a new product.
  • Synergy in Total Promotional Efforts: Complements advertising and personal selling.
• Limitations:
  • Reflects Crisis: Frequent use may suggest the firm is unable to sell its product.
  • Spoils Product Image: May lead customers to believe the product is low quality or overpriced.

Commonly used Sales Promotion Activities:

• Rebate: Offering products at a special price to clear excess inventory.
• Discount: Offering products at less than the list price.
• Refunds: Refunding part of the price on proof of purchase.
• Product Combinations: Offering another product as a gift with a purchase.
• Quantity Gift: Offering extra quantity of the product (e.g., '40% extra').
• Sampling: Offering free samples of a new product.
• Contests: Competitive events involving skill or luck.

Public Relations

Public relations (PR) involves a variety of programs designed to promote or protect a company's image and its products in the eyes of the public. The goal is to manage public opinion and build goodwill.

The PR department performs five key functions:

1. Publicity: This is a non-paid, non-personal form of communication. It happens when favorable news about a product or company is presented in the mass media as a news item. Because it comes from an independent source, it has high credibility.
2. Press Release: The PR department provides positive information to the media to ensure facts are presented correctly.
3. Corporate Communication: Promoting the organization's image through newsletters, annual reports, and speeches.
4. Lobbying: Dealing with government officials and ministers on policies relating to business.
5. Counselling: Advising management on public issues and how the company can build goodwill by contributing to social causes.

Maintaining good public relations helps in building awareness and credibility, stimulating the sales force, and lowering promotion costs compared to advertising.