Chapter 1. Defining Marketing for the New Realities PDF

CHAPTER 1 Defining Marketing...

CHAPTER 1 Defining Marketing for the New Realities Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr Riders in global markets can access an affordable, non-polluting Bird e-scooter via smart phone (or have it brought to their home or business), wisk across town, and drop it off at a public space. Source: Alexander Chernev F ormally and informally, people and organizations engage in a vast number of activities that we call marketing. In the face of the digital revolution and other major changes in the business envi- ronment, effective marketing today is both increasingly vital and radically new. Consider the rapid market success of the start-up Bird. >>> Bird is an electric-scooter-sharing company dedicated to offering affordable, environmentally friendly commuter transportation. It aims to give riders looking to take a short journey across town, or from the subway or bus to their destination, a convenient mode of transportation that does not pollute the air or add to traffic. Founded in September 2017 and headquartered in Venice, California, Bird provides a fleet of shared electric scooters that can be accessed via smartphone. Rather than requiring dedicated docking areas, Bird scooters can be picked up and dropped off on sidewalks throughout the city. The company’s business model has proved immensely popular; in its first year of operation its scooters were available in over 100 cities throughout North America, Europe, and Asia, and they logged 10 million rides. Facing growing competition from other dockless scooter-sharing 28 Pearson Deutschland  PART 1 | FUNDAMENTALS OF MARKETING MANAGEMENT start-ups, such as Lime and Spin, Bird’s business model has constantly evolved. It introduced Bird Delivery service, which enables consumers to request a Bird to be delivered to their home or business early in the morning to ensure that they have guaranteed transportation throughout the day. To speed up adoption, Bird also introduced Bird Platform, a suite of products and services that gives entrepre- neurs the opportunity to become independent operators and manage a fleet of shared e-scooters in their community. Independent operators have the option to add their own logo to Bird scooters and are given logistical support to charge, maintain, and distribute the e-scooters each day.1 Good marketing is no accident. It is both an art and a science, and it results from careful planning and execution using state-of-the-art tools and techniques. Skillful marketers are continually updating classic practices and inventing new ones to find creative, practical ways to adapt to new marketing realities. In this chapter, we lay the foundation for sound marketing practices by reviewing important marketing concepts, tools, frameworks, and issues. Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr The Scope of Marketing To be a successful marketer, one must have a clear understanding of the essence of marketing, what can be marketed, and how marketing works. We discuss these three aspects of marketing next. WHAT IS MARKETING? Marketing is about identifying and meeting human and social needs in a way that harmonizes with the goals of the organization. When Google recognized that people needed to more effectively and efficiently access information on the internet, it created a powerful search engine that organized and prioritized queries. When IKEA noticed that people wanted good furnishings at substantially lower prices, it created knockdown furniture. These two firms demonstrated marketing savvy and turned a private or social need into a profitable business opportunity.2 The American Marketing Association offers the following formal definition: Marketing is the activ- ity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.3 Coping with these exchange processes calls for a considerable amount of work and skill. Marketing management takes place when at least one party to a potential exchange thinks about the means of achieving desired responses from other parties. Thus marketing management is the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. We can also distinguish between social and managerial definition of marketing. A social defini- tion of marketing shows the role marketing plays in society; for example, one marketer has said that marketing’s role is to “deliver a higher standard of living.” Our social definition of marketing: Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others. Co-creation of value among consumers and with Learning Objectives After studying this chapter you should be able to: 1.1 Define the scope of marketing. 1.4 Illustrate how to organize and manage a modern marketing department. 1.2 Describe the new marketing realities. 1.5 Explain how to build a customer-centric 1.3 Explain the role of marketing in the organization. organization. 29 Pearson Deutschland  30 PART 1 | FUNDAMENTALS OF MARKETING MANAGEMENT businesses, and the importance of value creation and sharing, have become important themes in the development of modern marketing thought.4 Managers sometimes think of marketing as “the art of selling products,” and many people are surprised when they hear that selling is not the most important part of marketing. Selling is only the tip of the marketing iceberg. Peter Drucker, famed management theorist, put it this way: There will always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available.5 When Nintendo released its Wii game system, when Apple launched its iPad tablet computer, and when Toyota introduced its Prius hybrid automobile, these manufacturers were swamped with orders. Their success cannot be attributed merely to the great selling skills of retailers. Rather, their runaway success stemmed from the fact that they had designed the right product, based on careful marketing homework about consumers, competition, and all the external factors that affect cost and demand. WHAT IS MARKETED? Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr Marketing is ubiquitous—it permeates all aspects of the society. Specifically, marketing typically involves 10 different domains: goods, services, events, experiences, persons, places, properties, orga- nizations, information, and ideas. Let’s take a quick look at these categories. Goods. Physical goods constitute the bulk of most countries’ production and marketing efforts. Each year U.S. companies market billions of fresh, canned, bagged, and frozen food products and millions of cars, refrigerators, televisions, machines, and other mainstays of a modern economy. Services. As economies advance, a growing proportion of their activities focus on the produc- tion of services. The U.S. economy today produces a services-to-goods mix of roughly two-thirds to one-third. Services include the offerings of airlines, hotels, car rental firms, barbers and beauti- cians, maintenance and repair people, accountants, bankers, lawyers, engineers, doctors, software programmers, and management consultants. Many market offerings mix goods and services, such as a fast-food meal. Events. Marketers promote time-based events, including major trade shows, artistic perfor- mances, and company anniversaries. Global sporting events such as the Olympics and the World Cup are promoted aggressively to companies and fans. Local events include craft fairs, bookstore readings, and farmers’ markets. Experiences. By orchestrating several services and goods, a firm can create, stage, and market experiences. Walt Disney World’s Magic Kingdom lets customers visit a fairy kingdom, a pirate ship, or a haunted house. Customized experiences include a week at a baseball camp with retired baseball greats, a four-day rock-and-roll fantasy camp, and a climb up Mount Everest. Persons. Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals often get help from marketers.6 Many athletes and entertainers have done a master- ful job of marketing themselves—former NFL quarterback Peyton Manning, talk show veteran Oprah Winfrey, and rock-and-roll legends The Rolling Stones. Management consultant Tom Peters, himself a master at self-branding, has advised each person to become a “brand.” Places. Cities, states, regions, and whole nations compete to attract tourists, residents, facto- ries, and company headquarters.7 Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public rela- tions agencies. The Las Vegas Convention & Visitors Authority has met with much success with its provocative ad campaign “What Happens Here, Stays Here,” portraying Las Vegas as “an adult playground.” Properties. Properties involve intangible rights of ownership to either real property (real estate) or financial property (stocks and bonds). They are bought and sold, and these exchanges require marketing. Real estate agents work for property owners and sellers, or they buy and sell residential and commercial real estate. Investment companies and banks market securities to both institu- tional and individual investors. Organizations. Museums, performing-arts organizations, corporations, and nonprofits all use marketing to boost their public image and compete for audiences and funds. Some universities Pearson Deutschland  CHAPTER 1 | DEFINING MARKETING FOR THE NEW REALITIES 31 have created chief marketing officer (CMO) positions to better manage their school identity and image, encompassing everything from admission brochures and Twitter feeds to brand strategy. Information. Information is disseminated knowledge. It is produced, marketed, and distributed by TV and radio news, newspapers, the internet, think tanks, government and business entities, and schools and universities. Firms make business decisions using information supplied by organizations such as Nielsen, R.R. Donnelley & Sons, comscore, Gartner, J.D. Power and Associates, GfK, and Ipsos. Ideas. Social marketers promote such ideas as “Friends Don’t Let Friends Drive Drunk” and “A Mind Is a Terrible Thing to Waste.” Political parties promote social causes such as gun con- trol, tax reform, and affordable health care. As part of their corporate social responsibility activi- ties, many organizations promote causes focused on issues such as poverty, climate change, civil rights, social justice, racial discrimination, gender inequality, health care availability, and child- hood obesity. THE MARKETING EXCHANGE A marketer is someone who seeks a response—attention, a purchase, a vote, a donation—from another party. Marketers are skilled at stimulating demand for their products; however, that’s a lim- ited view of what they do. They also seek to influence the level, timing, and composition of demand to meet the organization’s objectives. Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr Traditionally, a “market” was a physical place where buyers and sellers gathered to buy and sell goods. Economists describe a market as a collection of buyers and sellers who negotiate transactions that involve a particular product or product class (such as the housing market or the grain market). There are five basic markets: resource markets, manufacturer markets, consumer markets, inter- mediary markets, and government markets. The five basic markets and their connecting flows of goods, services, and money are shown in Figure 1.1. Manufacturers go to resource markets (raw mate- rial markets, labor markets, money markets), buy resources and turn them into goods and services, and sell finished products to intermediaries, who sell them to consumers. Consumers sell their labor and receive money with which they pay for the goods and services they purchase. The government collects tax revenues to buy goods from resource, manufacturer, and intermediary markets and uses these goods and services to provide public services. Every nation’s economy, and the global economy itself, all consist of interacting sets of markets linked through exchange processes. Marketers view industry as a group of sellers and use the term market to describe customer groups. There are need markets (the diet-seeking market), product markets (the shoe market), demographic markets (the “Millennium” youth market), and geographic markets (the Chinese market), as well as voter markets, labor markets, and donor markets. Figure 1.2 shows how sellers and buyers are connected by four flows. Sellers send goods and services and communications such as ads and direct mail to the market; in return, they receive money and information such as data on customer attitudes and sales. The inner loop shows an exchange of money for goods and services; the outer loop shows an exchange of information. Resources Resources FIGURE 1.1 Resource Structure of Goods, Money markets Money Services, and Money Flows in a Modern Taxes, Services, Exchange Economy goods money Services, money Taxes Manufacturer Government Consumer markets markets markets Taxes, goods Services Services, Taxes, money goods Money Money Intermediary Goods and services markets Goods and services Pearson Deutschland  32 PART 1 | FUNDAMENTALS OF MARKETING MANAGEMENT FIGURE 1.2 Communication A Simple Marketing System Goods/services Industry Market (a collection of sellers) (a collection of buyers) Money Information Finance, operations, accounting, and other business functions won’t really matter without suffi- cient demand for products and services that enable a firm to make a profit. In other words, there must be an effective top line for there to be a healthy bottom line. Thus, financial success often depends on marketing ability. Marketing’s value extends to society as a whole. It has helped introduce new or enhanced products that ease or enrich people’s lives. Successful marketing builds demand for products and services, which, in turn, creates jobs. By contributing to the bottom line, successful marketing also allows firms to more fully engage in socially responsible activities.8 In an online- and mobile-fueled environment where consumers, competition, technology, and eco- Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr nomic forces change rapidly and consequences quickly multiply, marketers must choose features, prices, and markets and decide how much to spend on advertising, sales, and online and mobile marketing. There is little margin for error in marketing. Just a short time ago, MySpace, Yahoo!, Blockbuster, and Barnes & Noble were admired leaders in their industries. What a difference a few years can make! All of these brands have been completely overtaken by upstart challengers—Facebook, Google, Netflix, and Amazon, respectively—and they now struggle, sometimes unsuccessfully, for mere survival. Firms must constantly move forward. At greatest risk are those companies that fail to carefully monitor their customers and competitors and thus fail to continually improve their value offerings and marketing strategies, in the process satisfying their employees, stockholders, suppliers, and channel partners. Innovation in marketing is critical. Imaginative ideas on strategy exist in many places within a company. Senior management should identify and encourage fresh ideas from three generally under- represented groups: employees with youthful or diverse perspectives, employees far removed from company headquarters, and employees new to the industry. Each group can challenge company ortho- doxy and stimulate new ideas. British-based RB (formerly Reckitt Benckiser) has been an innovator in the staid household cleaning products industry by generating 35 percent of sales from products under three years old. Its multinational staff is encouraged to dig deeply into consumer habits and is well rewarded for excellent performance. The New Marketing Realities The marketplace is dramatically different from even 10 years ago, with new marketing behaviors, opportunities, and challenges emerging.9 The new market realities can be divided into three main categories: the market forces that shape the relationships among the different market entities, the market outcomes that stem from the interplay of these forces, and the emergence of holistic market- ing as an essential approach to succeeding in the rapidly evolving market. Figure 1.3 summarizes the four major market forces, three key market outcomes, and four fun- damental pillars of holistic marketing that help to capture the new marketing realities. With these concepts in place, we can identify a specific set of tasks that make up successful marketing manage- ment and marketing leadership. THE FOUR MAJOR MARKET FORCES The business environment today has been profoundly influenced by four main forces: technology, globalization, the physical environment, and social responsibility. We discuss these four transforma- tive forces in more detail next. Technology. The pace of change and the scale of technological achievement can be staggering. The rapid rise of e-commerce, online and mobile communication, and artificial intelligence has offered marketers increasing capabilities. Massive amounts of information and data about almost everything are now available to both consumers and marketers. Pearson Deutschland  CHAPTER 1 | DEFINING MARKETING FOR THE NEW REALITIES 33 Market forces Market outcomes Holistic marketing FIGURE 1.3 The New Marketing Relationship Realities Technology New marketing consumer capabilities Integrated Globalization marketing New company Physical capabilities Internal environment marketing New Social Performance competitive responsibility marketing environment Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr Technological developments have given birth to new business models that take advantage of the new capabilities stemming from these technologies. Companies like Netflix, Amazon, Airbnb, and Uber that have embraced the new technologies have disrupted markets and become major players in the industries in which they compete. Advances in data analytics, machine learning, and artificial intelligence have enabled companies not only to better understand their customers but also to tailor their offerings to consumers’ needs Exponentially increasing computing power—coupled with complex data analysis algorithms that include natural language processing, object recognition, and affective computing—have provided marketers with unprecedented knowledge about their customers and enabled them to interact with these customers on a one-to-one basis. The growth of data analytics and artificial intelligence platforms have democratized these technologies by making them available to smaller companies that typically would not have had the resources to implement these technologies on their own. Even traditional marketing activities have been profoundly affected by technology. To improve sales force effectiveness, drug maker Roche issued iPads to its entire sales team. Though the com- pany had previously used a sophisticated customer relationship management software system, it still depended on sales reps to input data accurately and in a timely fashion, which, unfortunately, did not always happen. With iPads, however, sales teams can do real-time data entry, improving the quality of the data entered while freeing up time for other tasks. Globalization. The world has become a level playing field that offers competitors across the globe an equal opportunity to succeed. Geographic and political barriers have been eroded as advanced telecommunication technologies and workflow platforms that enable all types of comput- ers to work together continue to create almost limitless opportunities for communication, collabora- tion, and data mining. The notion that the world has become a smaller place connecting businesses and customers across the globe is well captured by the phase “The World Is Flat” coined by Thomas Friedman in his book of that name.10 Friedman illustrates the impact of globalization with the following example: The person taking your order at a McDonald’s in Missouri might be working at a call center 900 miles away in Colorado Springs. She then zaps your order back to the McDonald’s so that it’s ready minutes later as you drive to the pickup window. Friedman warns of the consequences of ignoring the rapid pace of global advances that will necessitate changes in the way companies do business, including the loss of American jobs to skilled employees who will work for less. In order to succeed in this “flattened” world, the U.S. work- force must continually update its specialized skills and create superior products. Globalization has made countries increasingly multicultural. U.S. minorities have expanding eco- nomic clout, with their buying power growing faster than that of the general population. Demographic trends favor developing markets with populations whose median age is below 25. In terms of growth of the middle class, the vast majority of the next billion people who join the middle class are likely to be Asian.11 Pearson Deutschland  34 PART 1 | FUNDAMENTALS OF MARKETING MANAGEMENT Globalization changes innovation and product development as companies take ideas and lessons from one country and apply them to another. After years of little success with its premium ultra- sound scanners in the Chinese market, GE successfully developed a portable, ultra-low-cost version that addressed the country’s unique market needs. Later, it began to successfully sell the product throughout the developed world for use in ambulances and operating rooms where existing models were too big.12 Physical Environment. The physical environment in which companies operate has changed dramatically during the past decade. Two particularly far-ranging changes in the physical environment deserve special attention: climate change and changes in global health conditions. Climate change—a term referring to lasting changes in Earth’s global climate as well as changes in regional climates—can have a significant impact on a company’s business activities. Climate change is not limited to global warming; it can also involve lower rather than rising temperatures (global cool- ing). In addition, the effects of climate change go beyond lasting changes in the temperature to trigger more frequent and more extreme weather events, fluctuations in humidity and rainfall, and rising sea levels resulting from thermal expansion of ocean waters and unprecedented melting of glaciers and the polar ice caps. Climate change can have a profound effect on the business models of virtually all companies Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr regardless of their size or the industry in which they operate. For example, an increase in the average annual temperature can lead to lower yields of fruits and vegetables that are accustomed to cooler temperatures and to higher yields of warm-climate vegetation. As the warm season lengthens, warm- weather activities tend to grow, whereas winter sports tend to suffer. Rising sea levels are creating major disruptions in global commerce as well as in people’s daily lives. As a result of rising seas and extreme weather caused by climate change, Indonesia’s government announced plans to move its endangered national capital from Jakarta to a new location on the island of Borneo. The impact of rising sea levels not only entails frequent flooding; it also means higher rates of erosion, greater damage from storms, and saltwater contamination of drinking water. Health conditions range from short-term illnesses that are confined to a particular geographic area to pandemics that spread across the globe. Changes in health conditions can influence not only the operations of pharmaceutical, biotechnology, and health management companies but also companies that are not directly related to health care. Pandemics, such as avian influenza and swine flu, can have a profound effect on all areas of business, including food, tourism, hospitality, and transportation. A truly global pandemic such as COVID-19 could effectively paralyze most, if not all, business transactions, leading to a virtual standstill of global commerce. Because the process of globalization and the related increase in global travel have magnified the probability of localized diseases becoming pandemics, managers must be prepared to adapt their business models to account for changing health conditions that threaten their customers, employees, and the company’s bottom line. Social Responsibility. Poverty, pollution, water shortages, climate change, social injustice, and wealth concentration demand our attention. The private sector is taking some responsibility for improving living conditions, and firms all over the world have elevated the role of corporate social responsibility. Because marketing’s effects extend to society as a whole, marketers must consider the ethi- cal, environmental, legal, and social context of their activities.13 The organization’s task is thus to determine the needs, wants, and interests of target markets and satisfy them more effectively and efficiently than competitors, while preserving or enhancing consumers’ and society’s long-term well-being. As goods have become more commoditized and consumers have grown more socially conscious, some companies—including The Body Shop, Timberland, and Patagonia—have incorporated social responsibility as a way to differentiate themselves from competitors, build consumer preference, and achieve notable sales and profits.14 In making these shifts in marketing and business practices, firms also face ethical dilemmas and perplexing trade-offs. Consumers may value convenience but find it difficult to justify disposable products or elaborate packaging in a world trying to minimize waste. Increasing material aspirations can defy the need for sustainability. Smart companies are creatively designing with energy efficiency, carbon footprints, toxicity, and disposability in mind. Pearson Deutschland  CHAPTER 1 | DEFINING MARKETING FOR THE NEW REALITIES 35 The “Inspired by Iceland” campaign har- nessed the social media power of citizens, visi- tors, and celebrities to overcome the negative publicity caused by a volcanic eruption that decimated both air travel and Iceland’s image. Source: travellinglight/Alamy Stock Photo Pearson Deutschland  CHAPTER 1 | DEFINING MARKETING FOR THE NEW REALITIES 41 Marketing succeeds only when all departments work together to achieve customer goals: when engineering designs the right products, finance furnishes the right amount of funding, purchasing buys the right materials, production makes the right products in the right time horizon, and accounting measures profitability in the right ways. Such interdepartmental harmony can truly coalesce, how- ever, only when senior management clearly communicates a vision of how the company’s marketing orientation and philosophy serve customers. The following hypothetical example highlights some of the potential challenges in integrating marketing. The marketing vice president of a major European airline wants to increase the airline’s traffic share. Her strategy is to build customer satisfaction by providing better food, cleaner cabins, better- trained cabin crews, and lower fares, yet she has no authority in these matters. The catering department chooses food that keeps food costs down; the maintenance department uses inexpensive cleaning services; the human resources department hires people without regard to whether they are naturally friendly and service oriented; the finance department sets the fares. Because these departments gener- ally take a cost or production point of view, the vice president of marketing is stymied in his efforts to create an integrated marketing program. Internal marketing requires vertical alignment with senior management and horizontal alignment with other departments so everyone understands, appreciates, and supports the marketing effort. For example, the frustrated airline marketing VP might first enlist the help of senior management and Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr department heads by illustrating how mounting a coordinated company effort to enhance the com- pany’s image will make a difference in its bottom line. This might be accomplished by making data on competitors available, as well as by compiling customer reviews of their experiences with the airline. Management’s engagement will be central in this integrated marketing effort, which must involve and motivate all employees—from reservations clerks and maintenance workers to catering depart- ment employees and cabin crews—by engaging them in a team effort to reinvigorate the airline’s mis- sion to provide excellent service. In addition to ongoing employee training that emphasizes customer service, regular internal communications to keep everyone abreast of the company’s actions and single out employees who provide outstanding ideas or service can be part of the effort to get the entire company involved. Performance Marketing. Performance marketing requires understanding the financial and nonfinancial returns to business and society from marketing activities and programs. As noted previ- ously, top marketers increasingly go beyond sales revenue to examine the marketing scorecard and interpret what is happening with market share, customer loss rate, customer satisfaction, product quality, and other measures. They are also considering the legal, ethical, social, and environmental effects of marketing activities and programs. When they founded Ben & Jerry’s, Ben Cohen and Jerry Greenfield embraced the performance marketing concept by dividing the traditional financial bottom line into a “double bottom line” that also measured the environmental impact of their products and processes. That later expanded into a “triple bottom line” to represent the social impact, negative and positive, of the firm’s entire range of business activities. Patagonia As one of a small number of benefit (B) corporations in the United States that must each year explain how their mission is benefiting both stakeholders and society, Patagonia aims to combine environmental consciousness with maximizing shareholder returns. True to its mission and corporate culture, Patagonia not only helped develop a natural rubber material for its wetsuits (to replace petroleum-based neoprene) but also encouraged other companies to use this bio-rubber product for wetsuits and other products such as yoga mats and sneakers.22 The company seems to have found a winning combination. According to climber, surfer, self-taught blacksmith, and Patagonia founder Yvon Chouinard, every decision he’s made that was right for the environment has in the long run made the company money. Many firms have failed to live up to their legal and ethical responsibilities, and consumers are demanding more responsible behavior.23 One research study reported that at least one-third of con- sumers around the world believe that banks, insurance providers, and packaged-food companies should be subject to stricter regulation.24 Given the new marketing realities, organizations are chal- lenging their marketers to find the best balance of old and new and to provide demonstrable evidence of success. Pearson Deutschland  42 PART 1 | FUNDAMENTALS OF MARKETING MANAGEMENT >> From its inception, Patagonia has striven to successfully balance an acute societal com- mitment to preserve the environment with its goal of ensuring ongoing benefits for company shareholders. Source: Sundry Photography/Alamy Stock Photo Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr Marketers are increasingly asked to justify their investments in financial and profitability terms, as well as in terms of building the brand and growing the customer base.25 Organizations recognize that much of their market value comes from intangible assets, especially brands, the customer base, employees, distributor and supplier relations, and intellectual capital. They are thus applying more metrics—brand equity, customer lifetime value, return on marketing investment—to understand and measure their marketing and business performance and are employing a broader variety of financial measures to assess the direct and indirect value their marketing efforts create.26 The Role of Marketing in the Organization A key task for any business is defining the role that marketing will play in the organization. A com- pany must decide what overarching philosophy will guide a company’s marketing efforts, determine how to organize and manage the marketing department, and, ultimately, find the best means to build a customer-centric organization that can deliver value to company stakeholders.27 What philosophy should guide a company’s marketing efforts? Let’s first review the evolution of marketing philosophies. The production concept is one of the oldest concepts in business. It holds that consumers prefer products that are widely available and inexpensive. Managers of production-oriented businesses concentrate on achieving high production efficiency, low costs, and mass distribution. This ori- entation has made sense in developing countries such as China, where the largest PC manufac- turer, Legend (principal owner of Lenovo Group), and domestic appliances giant Haier have taken advantage of the country’s huge and inexpensive labor pool to dominate the market. Marketers also use the production concept when they want to expand the market. The product concept proposes that consumers favor products offering the highest quality, the best performance, or innovative features. However, managers are sometimes caught in a love affair with their products. They might succumb to the “better-mousetrap” fallacy, believing a bet- ter product will by itself lead people to beat a path to their door. As many start-ups have learned the hard way, a new or improved product will not necessarily be successful unless it is priced, distributed, advertised, and sold properly. The selling concept holds that consumers and businesses, if left alone, won’t buy enough of the organization’s products. It is practiced most aggressively with unsought goods—goods buyers don’t normally think of buying, such as insurance and cemetery plots—and when firms with overcapacity aim to sell what they make rather than make what the market wants. Marketing based Pearson Deutschland  CHAPTER 1 | DEFINING MARKETING FOR THE NEW REALITIES 43 TABLE 1.1 Product-Oriented versus Market-Value-Oriented Definitions of a Business Company Product Definition Market-Value Definition Union Pacific Railroad We run a railroad. We move people and goods. Xerox We make copying equipment. We help improve office productivity. Hess Corporation We sell gasoline. We supply energy. Paramount Pictures We make movies. We market entertainment. Encyclopedia Britannica We sell encyclopedias online. We distribute information. Carrier We make air conditioners and furnaces. We provide climate control in the home. on hard selling is risky. It assumes that customers who are coaxed into buying a product not only won’t return or bad-mouth it or complain to consumer organizations, but might even buy it again. The marketing concept emerged in the mid-1950s as a customer-centered, sense-and-respond philosophy. The job of marketing is not to find the right customers for your products but to Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr develop the right products for your customers. Dell doesn’t prepare a PC or laptop for its target market. Rather, it provides product platforms on which each person customizes the features she desires in the machine. The marketing concept holds that the key to achieving organizational goals is being more effective than competitors in creating, delivering, and communicating supe- rior customer value to your target markets. Harvard’s Theodore Levitt drew a perceptive contrast between the selling and marketing concepts:28 Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and finally consuming it. The market-value concept is based on the development, design, and implementation of market- ing programs, processes, and activities that recognize their breadth and interdependencies. The value-based view of marketing acknowledges that everything matters in marketing—and that a broad, integrated perspective is often necessary. Traditionally, marketers played the role of inter- mediary, charged with understanding customers’ needs and transmitting their voice to various functional areas.29 In contrast, the market-value concept implies that every functional area should be actively focused on creating value for customers, the company, and its collaborators. The market-value concept implies that companies should define their business as a customer- satisfying process rather than in terms of their products or industries. Products are transient; basic needs and customer groups endure forever. Transportation is a need; the horse and carriage, automo- bile, railroad, airline, ship, and truck are products that meet that need. Viewing businesses in terms of customer needs can suggest additional growth opportunities. Table 1.1 lists companies that have moved from a product definition to a market-value definition of their business. The market-value view of a company’s activities can redefine the market in which a company competes. For example, if Pepsi adopted a product-focused view of its business, it would define its target market as everyone who drinks carbonated soft drinks, and its competitors would therefore be other carbonated soft drink companies. However, if Pepsi adopted a market-value view, it would define its market in much broader terms, targeting everyone who might drink something to quench his or her thirst. Thus, its competition would also include companies that market noncarbonated soft drinks, bottled water, fruit juices, tea, and coffee. Organizing and Managing the Marketing Department The structure of the marketing department plays a major role in a company’s ability to create market value. Company success is determined not only by the skills of the individual marketers but also, and to a large degree, by the way the marketers are organized to create a high-performing marketing team. In this context, organizing and managing the marketing department are of utmost importance in creating a modern marketing organization. Pearson Deutschland  44 PART 1 | FUNDAMENTALS OF MARKETING MANAGEMENT ORGANIZING THE MARKETING DEPARTMENT Modern marketing departments can be organized in a number of different, sometimes overlapping ways: functionally, geographically, by product or brand, by market, or in a matrix. Functional Organization. In the most common form of marketing organization, functional specialists report to a chief marketing officer who coordinates their activities. Figure 1.5 shows seven specialists. Other specialists might include a marketing planning manager, a market logistics manager, a direct marketing manager, a social media manager, and a digital marketing manager. The main advantage of a functional marketing organization is its administrative simplicity. However, it can be quite a challenge for the departments to develop smooth working relationships, which can result in inadequate planning as the number of products and markets increases and the functional groups vie for budget and status. The marketing vice president constantly weighs competing claims and faces a difficult coordination problem. Geographic Organization. A company selling in a national market often organizes its sales force (and sometimes its marketing) along geographic lines. The national sales manager may supervise four regional sales managers, who each supervise six zone managers, each of whom supervises eight district sales managers, who supervise 10 salespeople apiece. Lizenziert für Universität Wien, 131.130.169.5 am 19.05.2024 um 12:24 Uhr Some companies are adding area market specialists (regional or local marketing managers) to sup- port sales efforts in high-volume markets. To illustrate, consider how one such market might work in Miami–Dade County, Florida, where almost two-thirds of households are Hispanic and Latinos. The Miami specialist would know Miami’s customer and trade makeup, help marketing managers at head- quarters adjust their marketing mix for Miami, and prepare local annual and long-range plans for sell- ing all the company’s products there. Some companies must develop different marketing programs in different parts of the country, because geography substantially alters their brand development activities. Product or Brand Organization. Companies producing a variety of products and brands often establish a product- or brand-management organization. This does not replace the functional organization but serves as another layer of management. A group product manager supervises product category managers, who in turn supervise specific product and brand managers. A product-management organization makes sense if the company’s products are quite different or if there are more products than a functional organization can handle. This form is sometimes char- acterized as a hub-and-spoke system. The brand or product manager is figuratively at the center, with spokes leading to various departments representing working relationships (see Figure 1.6). A manager’s functions involve developing a long-range and competitive strategy for the offering; preparing an annual marketing plan and sales forecast; working with advertising, digital, and merchan- dising agencies to develop copy, programs, and campaigns; managing support of the product among the sales force and distributors; gathering continuous intelligence about the product’s performance, customer and dealer attitudes, and new problems and opportunities; and initiating product improve- ments to meet changing market needs. The product-management organization lets the product manager concentrate on developing a cost-effective marketing program and react more quickly to new products in the marketplace; it also FIGURE 1.5 Functional Organization Chief Marketing Officer Market research Product Service Communication manager manager manager manager Sales Public relations Brand manager manager manager Pearson Deutschland  CHAPTER 1 | DEFINING MARKETING FOR THE NEW REALITIES 45 FIGURE 1.6 The Product Manager’s Interactions R&D Product Legal design Customer Communication service Brand/Product