What is marketing?

1. What is marketing?

2. Outline • What is marketing? • What is marketed (scope of marketing)? • What is a market (where does marketing take place, markets and competition)? • Company orientation toward the marketplace • The age of customer capitalism

3. Defining Marketing • Needs and wants • Facilitate Exchange • “Marketing is the activity, set of institutions and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” AMA, 2008. Einar Breivik, einar.breivik@nhh.no

4. Defining Marketing • Marketing as Exchange • Marketing as Tactics • 4 P framework • Marketing as Value Delivery

5. Marketing as ValueDelivery • ”Sense and respond” Haeckel (2004), not “make and sell” • Marketing process as any activity which generates or uses information about customers to organize and deploy resources for providing solutions to customer problems (Webster 2002) and hence….. • Marketing is any business process that gathers and disseminates information about customers, guides value creation and delivery with information about customers, or produces information evaluated and used by customers.

6. What customer value : What is our reason to be? • Customer expectations (what do customers want?) • Core competencies (how can we match this?) • Selecting target markets (heterogeneity, not all customers and firms are created equal) Einar Breivik, einar.breivik@nhh.no

7. Marketing Processes • Value-defining processes • What customer value is at the core of our business? • Analyzing market opportunities • Market research (study of customer needs, preferences, expectations, buying behavior, etc.) • Analysis of the firm’s core competencies • Selecting target markets and positioning • Value-developing processes • Product development and product management • Design of distribution channel • Developing pricing strategy • Developing value proposition (communication strategy) • Sourcing strategy, vendor selection • Value-delivering processes • Managing distributions and logistics • Order-entry, credit, post-sales services • Advertising and sales promotions • Product upgrades and recalls, Applications engineering, Customer training

8. Scope of marketing • What is marketed? • Goods • Services • Events • Experiences • Persons • Places • Properties • Organizations • Information • Ideas

9. The marketing concept(Cites From Peter Drucker) • The only valid definition of business purpose is to create a customer. • What the business thinks it is producing is not as important as what the customers think they are buying; what they consider to be ’value’ is decisive. • Any business has only two basic functions: marketing and innovation; all the rest are costs. • It is not enough to entrust marketing to the sales department. • The aim of marketing is to understand the customer so well the product or service fits him or her and sells itself. • Marketing is the whole business seen from the point of view of its final result, that is, from the customer’s point of view. • “Marketing is too important to be left to marketing people” Frederick E. Webster

10. Markets and Competition • Markets • A collection of buyers and sellers who transact over a particular market offering • Competition • Neoclassical explanation • Resource-Advantage explanation (Hunt & Morgan 1995)

11. Neoclassicalexplanation • Perfect competition • Demand is homogenous for every industry’s products • Consumers assumed to have perfect information (which also is costless) • Consumers motivated by utility maximization (self interest) • Firms objective profit maximization • Role of marketing: ”creators of market imperfections”

12. ResourceAdvantageExplanation • Reexamines foundations of perfect competition • Demand is heterogeneous and dynamic within industries (product classes) • Consumers assumed to have imperfect information (and obtaining information comes at a cost) • Consumers motivated by constrained self interest • Firms objective superior financial performance • Role of marketing • Market opportunity analysis (identifying needs based on customer value, segments) • Selecting target markets • Developing marketing strategies to deliver customer value

13. Company OrientationTowardtheMarketplace • Production Concept • Product Concept • Selling Concept • Marketing Concept • Societal Marketing Concept

14. Production concept • Idea of mass market • Consumers prefer products that are widely available and inexpensive • Focus on efficiency (in production) • Typical for growing markets (ex. Industrial revolution, scientific management) • T-Ford • Refrigerators in their infancy • Calculators

15. Product concept • Quality, performance, innovative features, enough to sell products? • Defining your business by the product you sell rather than by what your customer needs is the classic “Better Mousetrap” trap. Just because you build it does not mean they will come.

16. Selling concepts • Saturated markets, compete for attention • Requires demand stimulation • Role of the customer?

17. Societal marketing concept • Marketing today includes the obligation to examine societal issues as well • Customers have a life after the purchase

18. Marketing Myopia • Define business in terms of need satisfied instead of product made (Levitt, 1960) • Movies • Railroads • Xerox • Coke • Kodak • . • . Einar Breivik, einar.breivik@nhh.no

19. The Age ofCustomerCapitalism (Roger Martin, 2010) • Managerial capitalism (Berle & Means 1932) • Managers substituted for owners – entrepreneurs not good CEOs • Customer capitalism (Martin 2010)

20. Shareholder value capitalism • (Jensen & Meckling 1976, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure) • Owners were getting short shrift from professional managers, who enhanced their own financial well-being rather than that of the shareholders. This was bad for shareholders and wasteful for the economy. Hence, CEO’s had to confirm to the idea of maximizing shareholder value. Typically you could see arrangements such as stock-based compensations to align interests of senior managers and shareholders. Einar Breivik, einar.breivik@nhh.no

21. CustomerCapitalism • Can not simultaneously maximize two different things (shareholder value and customer satisfaction) • It is possible to maximize shareholder value given a minimum hurdle for customer satisfaction and vice versa, but not both • Shareholder maximization • Shareholders have a residual claim on a firm’s assets and earnings • Hence, the value of their shares is the discounted value of all future cash flows minus payments to other claimants • Since the future is unknowable, potential shareholders must estimate what that cash flow will be, their collective expectations about the future determine the stock price • Also, subject to future optimism and pessimism -> Stock markets more volatile than the earnings of the companies in them • What should managers do? • Satisfaction maximization • Focus on customer value

22. CustomerSatisfaction and Financial Performance • High levels of customer satisfaction grow shareholder value • Customer satisfaction positively associated with credit ratings and negatively associated with debt costs

23. R & D Customer Wants + Needs OFFERING Product Segmentation Positioning Promotion Distribution Service New Customers Marketing Concept Satisfaction Environment Retention Rate Customer Base Brand Equity Value of Customer Competition Lost to Competition Value of The Firm “On Balance Sheet” Einar Breivik, einar.breivik@nhh.no

24. Sources • Kotler, P. & K.L. Keller: Ch. 1 & Ch. 2 • Webster, F.E. (2002): ”The Role of Marketing and the Firm”, in Handbook of Marketing (eds. B.A. Weitz & R. Wensley), SAGE, 66-82. • Haeckel, S.H. (2004): ”Peripheral Vision: Sensing and Acting on Weak Signals Making Meaning out of Apparent Noise: The Need for a New Managerial Framework”, Long Range Planning, 37, 181-89. • Hunt, S.H. & R.M. Morgan (1995): ”The Competitive Advantage Theory of Competition”, Journal of Marketing, 59(April),1-15 • Martin, Roger (2010): ”The Age of Customer Capitalism”, Harvard Business Review, January-February, 58-65.