MB0046-Unit-01-Introduction to Marketing Structure

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MB0046-Unit-01-Introduction to Marketing

Unit-01-Introduction to Marketing


1.1 Introduction

Learning Objectives

1.2 Market and Marketing

1.3 The Exchange Process

1.4 Core Concepts of Marketing

1.5 Functions of Marketing

1.6 Importance of Marketing

1.7 Marketing Orientations

1.8 Summary

1.9 Terminal Questions

1.10 Answers

1.11 Mini-case

1.1 Introduction

Marketing is one activity which all of us seem to observe around us. Any time you try to buy something, marketing has a role to play. It is often viewed by many as being advertising or sales promotion or marketing research. But it is a concept much larger than any of them or all of them

put together. Marketing consists of all those activities designed to create exchanges which satisfy human or organizational needs or wants in a way that brings profit for the firm. It performs the task of both identifying and satisfying customer needs. This helps business enterprises in anticipating customer demand and creating satisfied customers through conception, production, promotion and physical distribution of goods and services. No example can better illustrate this than the popular mobile phone. The need to communicate from anywhere to anywhere gave way to a portable device without the requirement of wires.

This unit deals with the meaning, importance and functions of marketing. You will be able to read in some detail the earlier concepts of marketing under which companies have been conducting marketing activities and the modern concepts which are now being used are explained in detail.

Learning Objectives

This introductory unit will help you get familiar with important concepts in marketing. After reading this unit you should be able to

· Define market and marketing.

· Understand the concepts and functions of marketing.

· Explain the importance of marketing.

· Differentiate between types of marketing orientations.

· Evaluate how marketing function has changed over a period of time.

1.2 Market and Marketing

What is Market?

Originally, a “Market” was a public place in a town or village, where household provisions and other objects were available for sale. The definition of market has expanded in this globalized world. The traders may be spread across a whole town, or city or region or a country and yet form a market. For example, stock market, Oil & Oilseeds market, Steel or Metals market etc. where people across the countries can participate in the business without being face to face.

The essential features of a market are (i) existence of a commodity / item which is to be dealt with, (ii) the existence of buyers and sellers, (iii) a place; be it a certain region, a country or the entire world and even a virtual place like the internet and (iv) interactions between buyers and sellers to facilitate transactions.

1. On the basis of Geographic Area

Local Market is the place where the purchase and sale of goods / services involve buyers and sellers of a small local area. The example of local market is a village or a town market. In this market, day to day requirements like vegetables, fruits, meat and fish are sold.

National Market

When the trading involves both buyers and sellers of the entire nation then it is called as a national market. The Cotton & Textiles Market located in Mumbai, Tea and Jute Markets located in Kolkata are examples of this. .

Global or World Market

Many manufactured products and specialized services are also sold across the globe by many companies. Producers of Coca-cola and Sony brand sell their products in the global market in almost all countries. Indian companies like TCS, Infosys, and WIPRO sell and provide their IT enabled services to many companies in different parts of the world. They operate in a Global Market.

2. On the basis of Nature of Competition in the market

Perfect Market

It refers to a market or market situation where there is perfect competition. Competition is said to be perfect when (a) the sellers & buyers of a particular product are so many that none of them have to sell or buy at a single uniform price. (b) Price is determined by the market forces of supply & demand. This could be an ideal situation for all marketers. It may not happen in its pure form. But we can see that there would a large number of small traders and even manufactures in specific area dealing in similar products and following more or less the characteristics mentioned above. You may have seen traders of plastic products or warm clothes or hardware in a specific local area.

Imperfect Market

In contrast to the perfect competition, the imperfect market will have imbalance between number of buyers and sellers. This market is further divided into three parts. They are Monopoly, Monopolistic and oligopoly. In case of monopoly, single seller dominates the entire market where as in oligopoly few sellers dominate the market. The details of these types of markets will be discussed in the pricing unit.

3. On the basis of Nature of Goods Sold

Consumer Goods Market

Definition: A Consumer Goods Market is defined as a market where the final output of the firm goes for the consumption by individuals or institutions.

Consumer Goods Market

This is a market, where the buyers who are individuals and institutions purchase a variety of products and services to satisfy their needs and wants. For example, an individual buys a chocolate for his personal consumption whereas a family buys a refrigerator for household or family consumption. Products sold in consumer goods market are classified as non-durables, which are frequently purchased such as bathing soap, detergent etc. and durables such as refrigerator, TV set, washing machine, car, clothing etc. Non-durables are also known as FMCG – Fast Moving Consumer Goods, e.g. soap, detergent etc.

Industrial Goods Market

Definition: A business market is defined as a market where output of one firm goes either as raw material, goods in process or as consumables of another industry.

This market is also known as organizational or B2B market. It is made up of organizations including manufacturing units, service firms, government departments and other business enterprise. The products which are sold in the industrial goods market are typically, raw materials, machines, machine tools, equipments, components and spares etc. Generally, the buyers of industrial goods, purchase products and services either for producing other products and services which can be sold in the consumer markets or for using them to facilitate the operation of business enterprise. In many such cases, the buyer is an organization whose consumption will depend on how the end user’s demand will change. Hence, in business markets, the demand is a derived demand. Demand for steel will depend on the consumption of steel equipments, rods and other accessories in the construction and real estate sector.

Non-Profit and Government Markets

This market which consists of Non-Profit organizations such as social-service agencies, educational organizations, charitable organizations and Government Departments and agencies needs special skills to sell to them. These buyers have limited purchasing power which is why pricing for this market needs to be planned carefully. The Government, which is a large buyer, makes purchases on the basis of tenders, bids and negotiation.

What is Marketing?

Simply seen marketing is a set of business activities that facilitate movement of goods and services from producers to consumers. It is an ongoing process of 1. Discovering and translating consumer needs into products and services, 2. Creating demands for them, serving the customer and his demand through a marketing programme of promotion and

3. Distribution to fulfill the company’s marketing goals in a competitive environment.

It is evident that the customer, needs and wants are very important aspects of marketing as of today. Customer focus is the very essence of marketing.

In this era of rapid changes, it is marketing which keeps the business in close contact with its economic, political, social and technological environment, as it informs the business of events and changes that take place in the environment.

American Marketing Association (AMA) offers the following definition of Marketing. (AMA 2004)

Definition: Marketing is an organization function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stake holders.

The Chartered Institute of Marketing defines Marketing as:

Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements, profitably.

Having understood what a Market is and what is Marketing, we will now look at what is an exchange and also the exchange process.

1.3 The Exchange Process

Today’s marketing system has evolved from the time of a simple barter of goods through the stage of a money economy to today’s complex marketing. Throughout all these stages, exchanges have been taking place. In small town and villages there were artisans such as carpenters, weavers, potters blacksmiths, barbers and others such service providers who produced goods and services not only for their own consumption but also for exchanging with others what they could not produce but needed. This was barter system of exchange. For a transaction to take place between two parties, it was necessary that there be needs and wants on both sides. The development of money came to act as a common medium, and the exchange process became very easy and convenient. Fig.1.1. below shows the exchange process under money economy in which products and services flow to the market from the producers and sellers and money, the value of the products and services, flow from the buyers to the sellers.

Figure 1.1

Thus, exchange is an act of obtaining a desired product or service from someone by offering something in return. This exchange process will continue as long as human society exists because satisfying one’s needs is the basic instinct of human beings and no one can produce everything that he /she needs. For an exchange process to take place, between two or more parties, few conditions have to be met. They are:

1. Each party has something that could be of value to other party.

2. Each party has desire, willingness and ability to exchange.

3. Each party is capable of communicating and delivering.

4. Each party has the freedom to accept or reject the offer.

Activity 1:

Identify all the elements in the exchange process that were involved when you visited a new restaurant to have your food. Compare the same with any of the previous restaurants that you visited. Which factors did you find unique or similar in the exchange process?

Self Assessment Questions

1. Marketing is often considered to be synonymous with _____________.

2. In perfect competition, price is determined by the market forces of ____________ and ______________.

3. In the case of ______________, a few sellers dominate the market.

4. The industrial goods market is also known as _____________market.

5. ______________________ is the very essence of marketing.

1.4 Core Concepts of Marketing

There are certain fundamental concepts and tasks which one needs to know to fully understand the marketing function. These concepts provide foundation for a marketing orientation and to manage the marketing function.

1. Needs and Wants

The marketer’s task lies in satisfying human needs and wants through the exchange process. It is alleged that “marketing creates needs” and makes people buy things they do not actually need. In reality, marketing or marketers do not create “needs”, but they create “wants”. Some needs are the basic human requirements of food, clothing, shelter, water and air. There are other needs such as social needs, esteem needs etc. When we desire certain specific objects or items to fulfill these needs, they are called wants. For example, when a person is hungry, he can satisfy his hunger by taking a simple meal at home. Instead, if he wants to eat a Pizza or a Hamburger or a 5-Star Hotel meal, it is not a ‘need’ but a ‘want’. This difference between wants and needs is not the same as understood in the subject matter of ‘economics’. The marketer identifies the need which may lie unexpressed by the customer.

The task of a marketer is to influence our wants rather than needs. He does so along with other influential factors such as socio-cultural forces and institutions such as family, religion, and different reference groups.

Marketers, suggest to consumers that a particular car would satisfy the person’s need for esteem. They do not create the need for esteem, but try to point out how a particular product would satisfy that need.

2. Demand

Human wants are unlimited, but their resources are limited. When a want for an object is backed or supported by buying ability, willingness to spend and desire to acquire a product / service, it becomes a potential demand. The task of assessing or estimating demand is very crucial for a marketer. He should understand the relationship of the demand for his product with its price. Demand forecasting is essential for allocation of resources in a company. This is the reason why marketers segment consumers on the basis of their earning capacity. The income of the consumer indicates the potential to buy.

3. Product and Services

‘Product is a generic term used to describe what is being offered by a seller or marketer. It may be a good, a service or idea, which can be marketed by offering a set of benefits it offers to customers to satisfy their needs. However, there is a distinction between products and services. When we say ‘product’, we mean a physical or a tangible product such as a tooth paste, a refrigerator or a mobile phone, whereas ‘service’ refers to an act, performance, a benefit and indicates intangibility and absence of ownership or possession. Services can include banking service, hospitality service, airlines service, health service, entertainment service etc. Thus, a product can be defined as anything that can be offered to market to satisfy a need or want. Today, many types of entities such as goods, services, experiences, events, persons, places and ideas are being marketed.

4. Target Market

Very few products can satisfy everyone in the market. Therefore, marketers divide the market into distinct groups of buyers who have similar preferences. These groups are called segments with their own specific demographic, psychographic and behavioral characteristics. The marketer decides as to which of these segment or segments offer highest opportunity for his company. For each of these target markets, the firm develops a product / service suited to their needs. TATA group has recently designed an economy car called ‘NANO’ which is priced around Rs. 1 Lakh. The target market for this car is all aspirants who dream of owning a car but cannot afford cars, which are currently available for minimum Rs. 2.5 Lakh. A Target Market is the group of people at whom a marketer targets his marketing efforts to sell his goods and services.

5. Marketing Management

Marketing Management which is also the title of this course refers to all the activities which the marketing managers, executives and personnel have to undertake to carry out the marketing function of the firm. It involves

(i) analyzing the market opportunities by undertaking consumer needs and changes taking place in the marketing environment, (ii) planning the marketing activities, and (iii) implementing marketing plans and settings control mechanism to ensure smooth and successful accomplishment of the organizations goals. Marketing Management is a critical function, especially in highly competitive markets. It provides competitive edge to an organization through strategic analysis and planning.

6. Values and Satisfaction

In developed and developing economies, consumers have several products or brands to choose to satisfy his/her need. Consumers’ perceptions about value which they can expect from different products or services depend upon several factors. Sources that build the customer expectations include, own experience with products, friends, family members, consumers’ reports and marketing communications. Customer value is the difference between total benefits received and total costs incurred by him in acquiring the product or services. The types of benefits could be product’s functional value, or its brand related image value and any accompanying service value. The types of costs a customer can incur may be monetary cost and energy cost.

Value is primarily a function of quality, service and cost. Value increases with increase in quality and service and decreases with increase in cost. Value is an important marketing concept and the task of marketing is to identify, create, communicate, deliver and monitor customer value.

Customers generally experience satisfaction when the performance level meets minimum performance expectations of a product or service. When the performance as perceived exceeds the expected performance level, the customer will be not just satisfied, but delighted. Thus customer satisfaction or delight with respect to a product or service encourages customers to come back and repurchase the product or service in future. Satisfied customers can be an asset to the marketing company over a period of time, as they will spread favorable word-of-mouth information or opinions.

Self Assessment Questions

Are the following statements true or false?

6. The task of a marketer is to influence needs.

7. A want becomes a demand when it is backed by purchasing power.

8. A group of people to whom a marketer targets his marketing efforts is known as a market segment.

9. The difference between total benefits received and the total costs incurred by a customer is known as customer satisfaction.

1.5 Functions of Marketing

The delivery of goods and services from producers to their ultimate consumers or users includes many different activities. These different activities are known as marketing functions. Different thinkers have described these functions in different ways. Some of the most important functions of marketing are briefly discussed below:-

1. Marketing Research and Information Management

Marketers need to take decisions scientifically. Marketing research function is concerned with gathering, analyzing and interpreting data in a systematic and scientific manner. The types of market information could be analysis of market size and characteristics, consumer tastes and preferences and changes in them from time to time, channels of distribution and communication and their effectiveness, economic, social, political and technological environment and changes therein. A company can procure such information from specialized market research agencies, government or can decide to collect themselves.

2. Advertising and Sales Promotion – Advertising is a mass media tool used to inform, persuade or remind customers about products or services. It is an impersonal form of communication targeted at a chosen group through paid space or time.

Sales Promotion is a short-term incentive given to customers or intermediaries to promote sales. It supplements advertising and personal selling and can be used at the time of launching a new product or even during its maturity period.

3. Product Planning and Management – A Marketer should identify the needs and wants of consumers, develop suitable products / services and make them available. Marketer is also required to maintain the product and its variations in size, weight, package and price range according to the changing needs and requirements of his customers. Information available through Market Research helps product management in taking appropriate decisions while planning the marketing efforts.

4. Selling – This function of marketing is concerned with transferring of products to the customer. An important part of this function is organizing sales force and managing their activities. Sales force management includes recruitment, training, supervision, compensation and evaluation of salesmen. They need to be assigned targets and territories where they can operate. The salesmen interact with prospective purchasers face-to-face in order to sell the goods. The purchaser may be end customer or an intermediary, such as a retailer or a dealer.

5. Physical Distribution – Moving and handling of products from factory to consumers come under this function. Order processing, inventory, management, warehousing and transportation are the key activities in the physical distribution system.

6. Pricing – This is perhaps the most important decision taken by marketer, as it is the only revenue fetching function and success and failure of the product may depend upon this decision. Therefore, the decision regarding how much to charge should be taken such that the price is acceptable to the prospective buyers and at the same time fetches profits for the company. While deciding on the price, the factors to be considered are competition, competitive prices, company’s marketing policy, government policy, and the buying capacity of target market etc.

Activity 2:

Take a nearby departmental store and list out the various marketing schemes (old and new) undertaken by the store to promote its products and services. Did you find any drastic changes in the marketing efforts or is the store continuously improving its marketing?

1.6 Importance of Marketing

Peter Drucker, the famous management thinker in one of his classic articles has said “Marketing is everything”. All other activities in the organization are support services to the marketing strategy that the company pursues. Marketing is important not only to the company but to the consumers and society and to the economy.

Consumer stands to benefit from marketing activities. He has more alternatives to choose from, improved and better quality products are available and he is able to buy goods at convenient locations. Thanks to much improved customer service, a consumer is able to complain and expects his complaint to be attended in reasonable time. He can now buy with credit or debit card or cash or on installments.

For the society as a whole, marketing is important because it acts as a change agent making people use latest products and improves the standard of living of the people. As we know, the main objective of marketing is to produce products and services for the society as per their needs and tastes, and while doing so it creates demand for these goods and services, encourages using them, thus leading to higher demand and sales. This higher demand allows the company to achieve economies of scale in both production and distribution, resulting in decrease in production and distribution costs which can be used to reduce prices to consumers.

For a company in any business, marketing is considered to be the most important activity. It helps an organization to keep abreast of changes taking place in the market and consumer tastes and preferences through market research. Based on this reliable data, it responds to these changes by rectifying any drawbacks in its products or changing its competitive strategy. Thus the company’s decision- making and planning are not based on just hunches but on sound market information. The firm that follows such practices is sure to prosper under all conditions. Marketing provides an effective channel of communication to the company with its consumers by way of advertising and sales promotion. Marketing thus brings revenue and earns goodwill for the company.

Successful operation of marketing activities creates, maintains and increases the demand for goods and services in the economy. It results in the increased level of production. This, in turn, increases the national income, which is beneficial to the economy. Marketing operations require the services of intermediaries such as wholesalers, retailers, transporters, and service provides for storage, finance, insurance and advertising. These services provide employment in large numbers.

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