MARKETING PRINCIPLES LECT1 Dr.
Hesham Saeed
1.1 What is marketing?
Numerous definitions of marketing exist:
Marketing is a social and managerial process by which individuals and
groups obtain what they want and need through creating and exchanging
products and value with others. (Kotler et al., 1999). Marketing is the
management process responsible for identifying, anticipating and satisfying
customers’ requirements profitably. (Chartered Institute of Marketing –
CIM). Marketing is the process of planning and executing the conception,
pricing, promotion and distribution of ideas, goods and services to create
exchanges that satisfy individual and organizational objectives. (American
Marketing Association).
The above definitions would appear to place marketing as a process, which
looks to facilitate exchanges. To be sustainable, such exchanges must be
mutually beneficial. Economic prosperity depends on the generation of such
exchanges, assuming the CIM definition of ‘profitability’ can be defined in a
non-accounting sense (e.g. benefit or value). All the definitions emphasize
the generation of value. Value is the benefit each partner in the exchange
seeks (e.g. money, support, prestige). It drives the exchange process (see the
figure below)
Figure 1.1 also introduces the concept of time-scale into the equation. To be
successful, exchange relationships must endure over the long term. Short-
term or one-off transactions are sales, whereas building a long-term on-
going exchange relationship is marketing.
1.2 Marketing as a business philosophy
A number of generic business orientations exist. These orientations provide
an underlying route to business success. They highlight the fundamentally
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most important element in business success. No one orientation is right or
wrong. However, they may be inappropriate to a specific industry or business
environment. Five basic orientations exist: production, product, financial, sales
and marketing. Their key characteristics are summarized in Table 1.1.
Clearly all organizations will display elements of each. The question of
orientation relates to which is the most significant for an organization. For
example, no organization should neglect finance, but they may place greater (or
lesser) strategic emphasis on marketing.
Adopting a marketing approach to business can generate many benefits, as
products aim to provide solutions to specific customer needs. This approach:
● Generates products more likely to find a ready market.
● Encourages customer loyalty.
● Offers the opportunity to generate a price premium
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● Keeps organizations in-touch with ever changing customer needs.
● Promotes awareness of competitors’ actions and product offerings.
● Provides potential to create differentiation where none previously existed.
● Gives marketing a greater impact on strategic planning.
It should be noted that a marketing orientation is not confined to the marketing
department (if the organization has such a thing). It is a corporate-wide
approach, with all employees having a role to play in generating customer value.
For example, the office cleaner plays their part by creating a clean and efficient
working environment, where customer contact staff can deliver high levels of
customer care. As a simple exercise consider how the following employees
could contribute in creating satisfied customers: receptionist, invoice clerk,
canteen chief and managing director. Many organizations run customer care
programmes for all members of staff, as opposed to just those with direct
customer contact roles.
Narver and Slater (1990) were influential in the concept of market orientation
(as opposed to marketing orientation). Market orientation can be defined as:
The organizational culture that most effectively and efficiently creates the
necessary behaviours for the creation of superior value for buyers and, thus
continuous superior performance for the business. Narver and Slater proposed a
model (see Figure 1.2) that identified the components of market orientation as:
● Customer orientation Understanding customers and creating valued
solutions to actual customer needs.
● Competitor orientation Analysing the capabilities and ambitions of
competitors.
● Organizational culture Developing employee behaviour and actions, which
are customer focused.
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● Interfunctional coordination Develop interaction between internal
functional areas of the organization which best serve customer need and
satisfaction
● Long-term focus Consideration of how the above can be sustained, and
financially viable, over the long term.
Work by Kohli and Jaworiski) supports the above view of translating marketing
into a strategic orientation. Numerous studies have linked market orientation
with enhanced organizational performance and associated internal benefits, such
as increased staff morale.
Relationship marketing orientation
More modern approaches relating to marketing orientation, have suggested a
relationship marketing approach. This recognized the importance of retaining
existing customers and developing relationships with stakeholder groups (e.g.
suppliers, distributors, etc.). The theory is based on the premise of building a
relationship as opposed to simply generating transactions.
1.3 Creating customer value and satisfaction
Market-led organizations aim to generate customer value and satisfaction.
Success is based on the ability to selectively (within target markets) deliver
levels of customer satisfaction that exceed those provided by competitors. A
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precursor to this process is a detailed understanding of one simple question –
What market are we in?
Organizations need to examine their product offering from the customer’s
viewpoint and understand, not the product offering from a technical perspective,
but rather in terms of the benefits that are perceived by the potential customer.
By thinking like customers, marketing becomes an interface between the
provider and consumer. Ultimately, customers want benefits and these benefits
determine the level of customer value derived from a product offering.
Jobber (2001) defines customer value as being dependent on perception:
Customer value = Perceived benefits - Perceived sacrifice
Perceived benefits are determined by the product, associated services (e.g.
delivery, maintenance, etc.) and association/relationship with the provider,
whereas perceived sacrifices are factors like cost, risk/uncertainty and time
involved in purchase.
Adcock, Halborg and Ross (2001) suggest customers may use an intuitive 3As
framework in assessing potential benefits. These are:
● Acceptability Is this the right product and will it provide a solution to my need
while delivering some benefit?
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Many different product types can satisfy a need. For example: if the need is
transport, potential products solutions could be private car, taxi, bus or train.
These possible solutions are then considered in terms of the remaining As, as
follows
● Affordability is it available at the right price? Economic factors may override
the most desirable option.
● Availability Do I have access to this product/service at a convenient
time/place?
Benefits are what the customer actually receives from a product and the
product’s provider. (Note, the term product is taken to cover both goods and
services.) Satisfaction is determined by how well the product performs relative
to expectations.
If expectation is higher than resulting benefits, the customer is likely to be
dissatisfied. Conversely, satisfaction will exist when the benefits given by the
product match or exceed the expected level.
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1.4 An overview of the marketing mix
Given that the fulfilment of customer satisfaction is the key to business success,
how do organizations achieve this? McCarthy (1960) suggested the concept of
the marketing mix (the 4Ps) – product, price, place and promotion. These
variables form the key elements within the marketing function, and can be
adapted in order to generate, and sustain, customer satisfaction. Each ‘P’
contains various factors that can be emphasized to meet customer need. For
example, price can be discounted depending on the target customer group.
In simple terms, marketing strategy involves splitting the market into like
groups. This process is known as segmentation. Segmentation is the basis of
much marketing.
The following summarizes the key elements in the mix. Each will be discussed
more lately.
● Product As previously stated, products are solutions to customers’ needs. The
provider needs to make various product decisions, including functionality, range
offered, brand names, packaging, service and support. The product is normally
the critical element in the mix, with all other decisions relating to this element
● Price This element determines what a provider is paid. Various pricesetting
models exist, with decisions relating to factors like market penetration, credit
terms, discount policy and cost of provision. It should be noted that the price is
not always paid directly by the consumer. For example, a charity may receive a
government grant to provide services free of charge to worthy causes
● Place is perhaps more readily described as distribution. It is about making the
product available. Some form of structured network is normally required – a
distribution channel. However, true marketing power may lie with the control of
this channel as opposed to control of the product. For example, large
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supermarket chains can largely determine which goods are made available to the
consumer
● Promotion The promotional element of the mix provides communication with
the desired customer group. A range of mechanisms can be deployed for this
purpose: advertising, public relations, direct mail, Internet marketing, selling
and sales promotion. The blend of methods is often referred to as the
communications mix. Generally, promotion aims to make a target market aware
of a product offering, develop a long-term relationship with the customer and
create and stimulate demand. The effect of promotional techniques can be
difficult to evaluate and organizations need clear aims and goals to obtain
maximum benefit from a promotional budget.
The mix can be adapted to consider elements particularly relevant to
service-based products. Services display a number of characteristics, for
example:
Intangibility The service is not a physical object which can be examined, rather
it must be experienced. Therefore, evaluating quality and suitability prior to
purchase can be difficult. For example, the only real way to evaluate a hotel is to
go and stay there.
Inseparability Unlike physical goods, services are often consumed as they are
produced. They are inseparable from the provider. for example, getting a
haircut.
Perishability Normally, services cannot be stored. This means that service
supply needs to be carefully matched to demand. For example, if a hotel room is
not booked its sale is lost for that time period. However, a fully booked hotel
may need to turn away potential customers.
The above characteristics spurred the need to adapt the mix for servicebased
products. To this end, the mix can be expanded to the 7Ps by adding:
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● Physical evidence given the intangible nature of services, customers look for
reassurance relating to required benefits and quality. They look for physical
evidence (e.g. ambience, fixtures and fittings, appearance/ attitude of staff, etc.)
as an indicator of likely satisfaction.
● Process is the method by which the service is provided. It forms the
facilitation element of the service offering, which deals with the customer at the
point of contact.
● People Many services are people-based; therefore the quality of provision is
totally dependent on the people providing the service. Their skills, attitude and
motivation determine if the customer/staff interaction is positive or negative.
Table 1.2 summarizes key elements of the marketing mix
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1.5 Making the marketing mix effective
Figure 1.4 summarizes the factors that are normally deemed to create an
effective marketing mix. Consider the following points, when reading the
Ryanair illustrative example
Competitive advantage A competitive advantage is the generation of
distinctive competencies relative to the competition. The key factor is to create
an advantage, which creates customer value and is sustainable.
There are two fundamental routes to competitive advantage:
(1) Cost leadership – pursuing the lowest possible operating cost within an
industry; and
(2) Differentiation – creating a unique product offering which is seen by
consumers as differentiated from the competitors
Meeting customer expectations As stated above, expectations are vital to
marketing success. Organizations need to segment and target specific customer
groups, and then use the mix to create value. It is important to understand how
customers evaluate rival product offerings. The aim is to score higher than
competitors.
Integration of mix the final component of effectiveness is to ensure the mix is
well integrated. All the elements should support each other and have a common
theme, which relates to the desired competitive advantage. The entire marketing
mix provides a package of benefits to the consumer, and as such the benefits
should be communicated by all mix elements. For example, a high price
supports the assertion of a quality product
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Illustrative example
Ryanair: an effective marketing mix
Ryanair has become the third largest airline in the world, by market capitalization. Chief
executive Michael O’Leary transformed the company by understanding customer need and
applying fundamental business principles to a once-failing airline. Taking on board lessons
learned at Southwest Airlines, Ryanair was developed into a cheap, no-frills operation, giving
customers what they wanted – affordable air fares. Ryanair cut its costs at every opportunity
and developed a low cost business model that provides customer value.
Consider Ryanair in terms of the above principles of making the marketing mix effective:
1. Competitive advantage The Company has a clear low cost competitive advantage.
Costs are minimized at all stages of the operation. While flying to popular
destinations, Ryanair picks secondary airports. Such airports are far cheaper to operate
from, and in some cases even pay Ryanair to fly there. Flying from Stansted as
opposed to Heathrow saves an estimated £3 per passenger. Having aircraft on the
ground is expensive; therefore Ryanair has perfected fast-turnarounds. Turnaround
times are estimated to be half those of British Airways. Like most airlines, aircraft
purchase represents a major cost outlay. O’Leary is credited with obtaining substantial
discounts from Boeing. He states: ‘I wouldn’t even tell my priest what discount I got
off Boeing!’
2. Meeting customer expectations Ryanair is a ‘no-frills’ operation. As such, it
provides a basic service at a highly competitive price. For example, unlike traditional
airlines, passengers must pay for food and drink. The effect is to keep operating costs
down, and turn a potential cost into a source of revenue. At check-in, Ryanair does not
allocate seats. This speeds up boarding. Most customers feel the basic service is more
than compensated for by the price paid
3. Integration of the mix The Company displays a well-integrated marketing mix, with
low cost operations a key focal point. Consider promotional activity: Ryanair does not
use an advertising agency. It does the work in-house, with simple newspaper and
poster adverts emphasizing low fares. In terms of distribution, the company does not
use travel agents. Tickets are booked directly, via the Internet. This saves Ryanair
15% of the ticket price. Additional revenue is generated by commission on car hire,
hotel bookings, etc., made through the Ryanair website.
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1.6 Marketing and ethical issues
The 1990s saw the issue of ethics and corporate responsibility gaining
prominence in the business world. Moral and ethical behaviour was no longer a
peripheral issue. Rather, it became a ‘cornerstone’ of corporate policy. This was
driven by numerous factors: increased consumerism (organized group pressure
on behalf of consumers), legislative framework that enforced responsibility,
increasing levels of management education and research linking ethical
behaviour to positive business performance. Many situations required marketers
to make moral judgement, while faced with conflicting commercial pressures
and priorities. Ethics involves the application of moral principles as a guiding
framework for business decision-making.
Lambin (2000) defines ethical marketing as the organization embracing an
accountable marketing concept that defines clearly the rules of ethics it intends
to follow in its relationships with the market.
Reidenbach and Robin (1991) identify several types of ethical behaviour within
the organization. They term the final stage of this development as ‘developed
ethical’ – the organization has a clearly articulated values statement,
communicated, accepted and implemented by everyone in the organization.
The costs of non-ethical behaviour are summarized by Laczniack and Murphy
(1993) as being:
● Personal cost The individual can pay both a psychological (e.g. crisis of
conscience) and financial cost (e.g. loss of employment) for unethical behaviour.
● Organizational cost When ethical violations become public the price may be
heavy – legal prosecution, loss of goodwill and consumer boycotts
● External cost Society in general can pay the price of non-ethical behaviour –
pollution, waste and negative economic impact.
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Societal marketing
No discussion of ethics is complete without the consideration of societal
marketing. Here marketing approaches and techniques aim to enhance the
wellbeing of society in general. Marketers can benefit society via the marketing
of social ideas, concepts and values. Philip called for the marketing mix to
include long-term consumer welfare.
Illustrative example
Greenpeace: consumerism protects the forests
Environmental group Greenpeace has launched its ‘Save or Delete’ campaign, aiming to save
some of the world’s most ancient forests. The campaign highlights the threat to the world’s
rainforests and encourages consumers to buy wood and paper products bearing a Forest
Stewardship Council logo. The logo denotes socially responsible environmentally based forest
management. By providing such information and developing specific campaigns,
organizations such as Greenpeace act as a vehicle for active consumerism.
1.7 e-Marketing perspectives
Technology has had a fundamental impact on all aspects of business. Many of
today’s marketing activities are shaped by, and largely depend on, technology.
E-Marketing encompasses all aspects of technology: Internet, database
applications, text and mobile phone messaging.
E-Marketing is no different from any other form of marketing. It must be
customer-orientated. However, the technology provides a massive leap both in
capacity and capability. The benefits to the organization can be summarized as
follows:
● Lower costs On-line transactions can mean substantially lower operating
costs. For example, admin, people and promotional costs can all be reduced by
Web-based sales processing.
● Market access It is possible to target/access new markets via new technology.
For example, text messaging allows more direct communication with a desired
target group, with the potential to customize pro motional activity. The use of
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interactive technology can support marketing communication. For example, a
retailer can place their catalogue on-line, allowing potential buyers to search for
and combine items.
● Market research/information Information can be rapidly processed and
drawn from a variety of sources to provide a comprehensive understanding of
customers. Data mining techniques allow the analysis of large-scale databases in
order to determine potentially valuable links, associations and relationships.
Statistical techniques can model and predict customer behaviour. Systems can
be developed to aid customer relationship management (CRM). These
relationship management systems provide an integration of all aspects of
customer service and aim to build mutually beneficial relationships with
customers. For example, Amazon, the Internet book retailer, uses CRM to
suggest other titles buyers might be interested in.
Illustrative example
The Sunday Times: new media for new readers
The Sunday Times is reported to be developing plans to include a regular monthly CD-Rom
in its traditional Sunday newspaper package. Known as ‘The Month’, the CD-based section
will provide interactive entertainment (films, music, TV, etc.) coverage. From a marketing
perspective, this format aims to reach a younger readership. Such readers have grown up in
the digital/Internet age and regard traditional newspaper formats as outdate.
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