Marketing is the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires. It defines, measures, and quantifies the size of the identified market and the profit potential. It pinpoints which segments the company is capable of serving the best and its designs and promotes the appropriate products and services.
– Philip Kotler
In this process, businesses examine their capabilities and the needs, wants, and demands of the marketplace to determine which customers they want to serve and how they want their products to be perceived by those customers. This involves market segmentation, targeting, and product positioning, where segmentation and targeting identify customers the business will try to serve, and product positioning creates the product’s or service’s desired image in customers’ minds. More concisely, marketing is the process of creating value for customers through the exchange.
Next, marketers design and implement marketing plans and programs to reach the target market and create the desired position in customers’ minds. Marketing programs and the marketers’ decisions revolve around the traditional marketing mix variables – like the product, price, place, and promotion.
Finally, businesses manage their marketing process by monitoring results obtained (e.g., sales or lack thereof) and adapting programs to stay on track as customer and market conditions change. Marketing is used to create, keep and satisfy the customer.
2. Customer Needs
Although many variations of the definition of marketing exist, all include the primary determinant for marketing: Success is achieved by meeting customer needs. Though this might seem too simplistic, truly all the time, effort, and money put into the marketing process aim to meet customer needs.
The most basic needs are those inherent to human existence. For example, people have physiologic needs for food, water, and sleep in addition to safety, social, and personal needs.
As individuals grow in their environment and into their own personality, these needs become wants. For example, when a person is hungry, perhaps the individual does not want a piece of bread with water but a pizza with juice because he just saw a commercial for it.
The next question is whether this person can actually afford to purchase a deal. If so, this then creates demand for the product. A want combined with the ability to pay creates demand.
When multiple purchase options are available, a multitude of factors plays into the consumer’s decision, such as price and personal tastes and preferences. Ultimately, though, a consumer most likely chooses the option that provides the most value. Value is typically viewed as the subjective relationship between the perceived benefits and perceived costs of a product or service.
In the quest to meet customer needs, wants, and demand while providing maximum value, companies employ a wide array of activities to make their marketing more effective. Through their own interactions with their customer base as well as the feedback through now mostly online media, companies can gauge the pulse of their customers on a day-to-day, real-time basis.
Truly successful marketing organizations use this market intelligence and their own operational efficiency to adapt to any situation while continually focusing their energy and strategy on meeting customer needs.
3. STP Process
The STP process is an important concept in the study and application of marketing. The STP process demonstrates the links between an overall market and how a company chooses to compete in that market. STP stands for the 3 main steps: segmentation, targeting, and positioning.
Step 1: Segment your market
Your organization, product or brand can’t be all things to all people. This is why you need to use market segmentation to divide your customers into groups of people with common characteristics and needs. This allows you to tailor your approach to meet each group’s needs cost-effectively, and this gives you a huge advantage over competitors who use a “one size fits all” approach. There are many different ways to segment your target markets. For example, you can use the following approaches:
Demographic Segmentation – By personal attributes such as age, marital status, gender, ethnicity, sexuality, education, or occupation.
Geographic Segmentation – By country, region, state, city, or neighborhood.
Psychographic Segmentation – By personality, risk aversion, values, or lifestyle.
Behavioral Segmentation – By how people use the product, how loyal they are, or the benefits that they are looking for.
Market segmentation is the process of dividing a broad market into sub-groups of consumers (known as segments) based on some type of shared characteristics.
The Adventure Travel Company is an online travel agency that organizes worldwide adventure vacations. It has split its customers into three segments because it’s too costly to create different packages for more groups than this. Segment A is made up of young married couples, who are primarily interested in affordable, eco-friendly vacations in exotic locations. Segment B consists of middle-class families, who want safe, family-friendly vacation packages that make it easy and fun to travel with children. Segment C comprises upscale retirees, who are looking for stylish and luxurious vacations in well-known locations such as Paris and Rome.
Step 2: Target your best customers
Next, you decide which segments to target by finding the most attractive ones. It can take a lot of effort to target a segment effectively. Choose only one segment to focus on at any one time. There are several factors to consider here.
First, look at the profitability of each segment. Which customer groups contribute most to your bottom line?
Next, analyze the size and potential growth of each customer group. Is it large enough to be worth addressing? Is steady growth possible? And how does it compare with the other segments? (Make sure that you won’t be reducing revenue by shifting your focus to a niche market that’s too small.)
Last, think carefully about how well your organization can service this market. For example, are there any legal, technological or social barriers that could have an impact? Conduct an environmental analysis to understand the opportunities and threats that might affect each segment.
Targeting involves concentrating your marketing efforts on one or a few key segments.
The Adventure Travel Company analyzes the profits, revenue and market size of each of its segments. Segment A has profits of $8,220,000, Segment B has profits of $4,360,000, and Segment C has profits of $3,430,000. So, it decides to focus on Segment A, after confirming that the segment size is big enough.
Step 3: Position your offering
In this last step, your goal is to identify how you want to position your product to target the most valuable customer segments. Then, you can select the marketing mix that will be most effective for each of them. According to Michael Treacy and Fred Wiersema, two famous marketing experts, most successful firms fall into one of three categories:
Operationally excellent firms, which maintain a strong competitive advantage by maintaining exceptional efficiency, thus enabling the firm to provide reliable service to the customer at relatively low costs.
Customer intimate firms, which excel in serving the specific needs of the individual customer well. There is less emphasis on efficiency, which is sacrificed for providing more precisely what is wanted by the customer.
Technologically excellent firms, which produce the most advanced products currently available with the latest technology, constantly maintaining leadership in innovation.
Positioning refers to the place that a brand occupies in the mind of the customers and how it is distinguished from products from competitors.
The Adventure Travel Company markets itself as the “best eco-vacation service for young married couples”. It hosts a competition on various social media platforms to reach its desired market because these are the channels that these people favor. It asks customers to send in interesting pictures of past eco-vacations, and the best one wins an all-inclusive trip. The campaign goes viral and thousands of people send in their photos, which helps build the Adventure Travel Company mailing list. The company then creates a monthly e-newsletter full of eco-vacation destination profiles.
4. Marketing Mix (4P)
The Marketing Mix is a tool invented by the American professor Neil Borden to describe the different kinds of choices organizations have to bring a product or service to market.
The basic principles of Borden’s model were refined over the years until professor and author E. Jerome McCarthy reduced them to four elements called the “Four Ps” of Marketing.
As a company evolves, it must continually assess customer needs so as to know whether it is providing the right product. In this course (as in the world of marketing) “products” can be both tangible goods or intangible services. In assessing which customers it wants to serve, a company gains direction in terms of the products or services it will offer.
The “product life cycle” is a frequently used model for analyzing a product. It identifies the stages of a product by observing sales volumes over time. Traditionally, the product life cycle charts the following four stages:
1. Introduction Stage
This stage of the cycle could be the most expensive for a company launching a new product. The size of the market is still small, although it will be increasing. However, the cost of producing, development and marketing can be very high, especially if it’s a competitive sector.
2. Growth Stage
The growth stage is typically characterized by strong growth in sales and profits, and the company starts to benefit. This makes it possible for businesses to invest more money in the promotional activity to maximize the potential of this growth stage.
3. Maturity Stage
During the maturity stage, the product is established and the aim for the manufacturer is now to maintain the market share they have built up. This is probably the most competitive time for most products and businesses need to invest wisely in any marketing they undertake.
4. Decline Stage
Eventually, the market for a product will start to shrink, and this is what’s known as the decline stage. This shrinkage could be due to the market becoming saturated (i.e. all the customers who will buy the product have already purchased it), or because the consumers are switching to a different type of product.
It is important to pay attention to how the life cycle applies to the products you sell. If most of your revenues come from products in the mature or decline phases of their life cycles, for example, you’ll be hard-pressed to grow your sales in the teeth of stable or declining demand. At the other extreme, if you’re too reliant on new products, the lack of an established cash cow to pay for those products’ marketing and R&D could sink you. Keeping a good mix of new, refreshed and established products can help stabilize your revenues, and give you predictable growth.
Now more than ever, consumers are price-conscious in almost all their purchases. For companies trying to market their goods or services, understanding customers’ needs and wants as they relate to the price variable is essential to survival. A great product priced too high will struggle, while a product priced too low might be devalued in the marketplace and hamper the company’s profit and/or growth potential. Thus, it is important for companies to find the right price point that meets both customer and company needs.
Marketers generally choose from one of the following four pricing strategies, or create some successive combination of these strategies:
1. Penetration Pricing
Marketers often use penetration pricing to introduce a new product. In a penetration strategy, marketers set the price of an item as low as possible to generate the greatest possible volume of sales for that product. The company uses penetration pricing to motivate consumers to make their purchase decision based on price.
2. Perceived Value Pricing
Perceived value is a pricing strategy where marketers set the price to how valuable the customer believes the item to be, and hence how much the customer will pay for it. The gap between the cost to produce and the perceived value is irrelevant to this strategy. Because of this, it is most often used for luxury goods, like prestige fragrances.
3. Skimming Pricing
In a skimming strategy, marketers set the price of the new product as high as the market will allow. Once the population segment that is not price-sensitive has been saturated, or the product has reached almost all those consumers who were ever going to buy it, marketers progress to incorporate a different pricing strategy.
4. Target Return Pricing
Some companies measure the success or failure of a product based on the relationship of how much revenue, or in some cases profit, a product generates in relation to how much it costs to make the product. This measure is called return on investment, or ROI.
Today, beyond promotions and discounts, producers are able to use dynamic pricing strategies on the Internet to capture even greater profits. Dynamic pricing is a “real-time” change in price based on customer preferences and past purchasing habits. However, different prices for the same product can backfire if consumers become aware of it.
From a marketing perspective, place, also labeled as “distribution”, refers to any activity designed to create value and utility by making the product(s) available. In any manufacturing industry products must be made, packaged, and then through some mechanism delivered to the point of sale.
If a product is a consumer product, it needs to be available as far and wide as possible. On the other hand, if the product is a premium consumer product, it will be available only in select stores. Similarly, if the product is a business product, you need a team which interacts with businesses and makes the product available to them.
A company could make the best product, but if it cannot get that product into the hands of the customers, then the company’s potential success is at risk.
Important questions are:
Where do buyers look for your product or service?
If they look in a store, what kind? A specialist boutique or in a supermarket, or both? Or online?
How can you access the right distribution channels?
Do you need to use a sales force? Or attend trade fairs? Or make online submissions?
Finally, promotion, is the marketing mix variable most commonly recognized by the consumer, given its visual nature, such as in television advertising. Promotion, however, is not just a short television commercial or a massive billboard. It functions as a company’s communication arm, transmitting to consumers the other Ps – product, price, and place.
In today’s world of digital and mobile technology, promotion takes many new forms while still including traditional media. Companies use a variety of outlets to promote their products and/or services. The most common promotional methods used include the following:
Advertising consists of the promotion of a given product, service, or message through mass media channels, such as newspapers, billboards, magazines, radio, internet, and television, and is used to both inform a given target market and persuade them in a manner leading to increased use or sale of the company’s products or services.
Sales promotions are found everywhere in society, such as 50% off, 0% financing, and the ever-popular “buy one, get one free.” Sales promotions are used to entice consumers to buy the product or service at that specific moment in time, or while the sales promotion is going on.
Personal selling involves a one-on-one interaction between an individual salesperson and a prospective client. Generally speaking, a company’s sales force is meant for personal selling. For years, companies have employed sales personnel to develop solid relationships with the customers they serve.
Direct marketing is much more focused and targeted promotion than advertising. In the current market, direct marketing has greatly expanded its reach as a result of the Internet and mobile technology. These always-expanding channels enable message customization and personalized marketing messages to be directed at a specific person, place, and time.
Public relations (PR)
As its name implies, PR involves relating with the public, or those considered to be company stakeholders. PR efforts, including communications such as press releases, sponsorship, and corporate literature, are used to generate positive attitudes and feelings, or goodwill, toward the company and its products and services.
5. New Models: 7P and 4C
While the marketing mix was predominately associated with the 4P’s of marketing, new models such as the 7P’s of service marketing, and the 4 Cs theory try to build upon the 4P’s model while increasing its explanatory power.
The Extended 7P’s
In the late 70’s it was widely acknowledged by marketers that the Marketing Mix should be updated. This led to the creation of the Extended 7Ps Marketing Mix in 1981 by Booms & Bitner which added 3 new elements to the 4 P’s Principle. The three new factors focus not on physical products but services, that’s why the 7Ps model is also called “service marketing mix”.
The three new factors are:
All companies are reliant on the people who run them from front line Sales staff to the Managing Director. Having the right people is essential because they are as much a part of your business offering as the products/services you are offering.
The delivery of your service is usually done with the customer present so how the service is delivered is once again part of what the consumer is paying for.
Almost all services include some physical elements even if the product is intangible. For example, a travel agency would give their customers some form of printed material. Even if the material is not physically printed (in the case of PDFs) they are still receiving a piece of “physical evidence”.
Though in place since the 1980’s the 7 P’s are still widely taught due to their fundamental logic being sound in the marketing environment and marketers abilities to adapt the Marketing Mix to include changes in communications such as social media, updates in the places which you can sell a product/service or customers expectations in a constantly changing commercial environment.
The 4C Model
The 4Cs marketing model was developed by Robert F. Lauterborn in 1990. It is a modification of the 4Ps model. It is not a basic part of the marketing mix definition, but rather an extension. Here are the four original 4P components and the new 4C elements:
A company should only sell a product that addresses consumer demand. So, marketers and business researchers should carefully study the consumer wants and needs.
According to Lauterborn, the price is not the only cost incurred when purchasing a product. Cost of conscience or opportunity cost is also part of the cost of product ownership.
The product should be readily available to consumers. Marketers should strategically place the products in several visible distribution points.
According to Lauterborn, “promotion” is manipulative while communication is “cooperative”. Marketers should aim to create an open two-way dialogue with potential clients based on their needs and wants.
6. Marketing Strategies
Identifying the right strategy to market your business can be challenging. How do you get your message to the right audience effectively and how do you beat your competitors? In this chapter, we will discuss how to choose the best marketing strategy for your product or service.
Three Main Marketing Strategies
There are different types of marketing strategies and every marketing manager has to decide what’s the appropriate one. This step is important as this has a big impact on the marketing mix. A manager needs to pick one of the following marketing strategies:
1. Mass Marketing
This is a push market strategy in which segmentation is completely ignored and an attempt is made to reach the largest number of potential customers possible. This technique relies on the persuasion potential of communication. Traditional mass marketing method are radio, television, and print advertising.
Coca Cola’s original marketing strategy was based on this format when they offered one product, which they believed had universal appeal. However now that Coca Cola has introduced other products, it has changed its marketing strategy to differentiated marketing.
2. Differentiated Marketing
This marketing strategy is also known as a multi-segment marketing strategy. Each customer segment is handled uniquely so that you target different customer segments with different solutions. This strategy keeps your team more focused and is more efficient in spending your marketing dollars.
An airline company offering first, business, and economy class tickets, with separate marketing programmes to attract customers for each of the ticket types, is an example of a differentiated marketing strategy.
3. Concentrated Marketing
This strategy targets a single well-defined segment of the customer population. The marketing costs are low, but so is your sales potential. It is particularly effective for small companies with limited resources as it does not believe in the use of mass production, mass distribution and mass advertising.
The car-manufacturer Rolls Royce only targets the premium segment of the car market.
Perceptual mapping is a diagrammatic technique used by marketers in an attempt to visually display the perceptions of customers or potential customers. Typically the position of a product, product line, brand, or company is displayed relative to their competition. This kind of visual representation can give valuable information about the current position as well as the future strategy of a company.
Some perceptual maps use different size circles to indicate the sales volume or market share of the various competing products. Perceptual maps commonly have two dimensions. For example, in this perceptual map, you can see consumer perceptions of various automobiles on the two dimensions of financial effectiveness and prestigious.
Such a visual display can reveal important information about the current reception of a product or brand. For example:
This sample of consumers felt that Mercedes cars were the most financially effective and prestigious cars in the study.
Cars that are positioned close to each other were seen as similar on the relevant dimensions by the consumer. For example, consumers saw Toyota and Ford as similar. They are close competitors and form a competitive grouping.
A company considering the introduction of a new model will look for an area on the map free from competitors.
Perceptual mapping is a diagrammatic technique used by asset marketers that attempts to visually display the perceptions of customers or potential customers.
7. Marketing Performance
Marketing effectiveness is the measure of how effective a marketing strategy is toward meeting the goal of maximizing their spending to achieve positive results in both the short- and long-term.
One way to assess whether a company successfully practices marketing is to assess its overall level of marketing effectiveness. Marketing effectiveness is based on five dimensions, including a firm’s degree of holding to a customer-oriented philosophy, strategic marketing orientation, ability to gather relevant and timely market intelligence, level of integration of the marketing organization, and operational efficiency.
1. Customer Orientation
Successful marketing is based on being able to meet customer needs. Marketing is highly dependent on knowing, analyzing, and meeting customer needs as opposed to a singular focus on the product or general sales. Does the company respond quickly to customer issues or distress?
2. Strategic Orientation
From a strategic point of view, the marketing professionals in a company must function with the long-term strategy and success in mind. This typically takes the form of formal marketing planning and a culture of strategic, long-term thinking.
3. Market Intelligence
To serve customer needs, a company and its marketing professionals should have as much objective information regarding its status in the marketplace as possible. In addition to having the necessary information for planning and resource allocation from their own internal data and sources, key decision makers should also have at their disposal up-to-date information about the external market.
4. Organizational Integration
Based on the competitive intelligence the company gains, a company must react in an integrated and efficient manner to maintain its level of customer service and, if necessary, adjust its strategy. Integration focuses on how well marketing and other departments in an organization communicate and work together.
5. Operational Efficiency
Operational efficiency speaks to how effective the organization is at its business. How well are the decisions made at the higher levels of marketing filtered throughout the organization? How responsive is the marketing department for problems and issues? How responsive is the organization to customer requests?
Marketing performance metrics or key performance indicators (KPIs) are useful not only for marketing professionals but also for non-marketing executives. From the chief executive officer to the vice president of sales, the senior management team needs marketing KPIs to gauge how marketing activities and spending impact the company’s bottom line. This is particularly important since companies are prone to reduce marketing budgets during economic downturns, downsizing, and mergers.
As marketers face more and more pressure to show a return on investment (ROI) on their activities, marketing performance metrics help measure the degree to which marketing spending contributes to profits. It also highlights how marketing contributes to and complements, initiatives in other areas of the organization, such as sales and customer service.
Other reasons why companies evaluate marketing performance include:
Monitoring marketing’s progress towards its annual goals
Determining what areas of the marketing mix – product, price, place, and promotion – need modification or improvement to increase some aspect of performance
Assessing whether company goods, services, and ideas meet customer and stakeholder needs
Establishing marketing performance metrics is integral to helping brands satisfy customers, establishing a clear company image, being proactive in the market, and fully incorporating marketing into the company’s overall business strategy.
To measure the effectiveness of a marketing campaign, a business needs to agree upon the goals of the campaigns and the KPIs (key performance indicators) that it needs to track. For example, the goal of a campaign could be the increase in a company’s online brand reputation. A good KPI to measure the success of this campaign would be “number of website visitors.”
The heart of your business success lies in its marketing. Marketing does not start with a new idea or innovative product. It begins with the customer – these are the people who make your business successful and this is where the right marketing can really make a difference.
The marketing mix definition is simple: It is about putting the right product in the place, at the right time, and at the right price. The difficult part is doing this well, as you need to know every aspect of your business plan.
The STP model helps you position a product or service to target different groups of customers more efficiently. This three-step approach helps you quickly zoom in on the most profitable parts of your business so that you can fully exploit the opportunities these offers.
To use the model, start by segmenting your market into groups. Next, choose which of these you want to target. Last, identify how you want to position your product, based on the personality and behavior of your target market.
This course shows that marketing is not just a single advertisement or public relations campaign; it is a continual process of creating value for customers and meeting their needs. Through managing and manipulating the four primary marketing mix variables (product, price, place, and promotion), identifying appropriate customers (segmentation and targeting), and placing the desired product or service image in the minds of those customers (positioning), marketing professionals put their companies in a position to succeed.