Marketing

Marketing can be described as the process of defining, anticipating, creating, and fulfill­ing customers’ needs and wants for products and services. There are seven basic functions of marketing: (1) customer analysis, (2) selling products and services, (3) product and service planning, (4) pricing, (5) distribution, (6) marketing research, and (7) cost/benefit analysis.¹⁵ Understanding these functions helps strategists identify and evaluate marketing strengths and weaknesses—a vital strategy-formulation activity.

1. Customer Analysis

Customer analysis—the examination and evaluation of consumer needs, desires, and wants— involves administering customer surveys, analyzing consumer information, evaluating market positioning strategies, developing customer profiles, and determining optimal market segmenta­tion strategies. Customer profiles can reveal the demographic characteristics of an organization’s customers. Buyers, sellers, distributors, salespeople, managers, wholesalers, retailers, suppli­ers, and creditors can all participate in gathering information to successfully identify customers’ needs and wants. Successful organizations continually monitor present and potential custom­ers’ buying patterns. Business analytics has become an integral part of customer analysis and strategic planning.

2. Selling Products and Services

Successful strategy implementation generally rests on the ability of an organization to sell some product or service. Selling includes many marketing activities, such as advertising, sales promo­tion, publicity, personal selling, sales force management, customer relations, and dealer rela­tions. The effectiveness of various selling tools for consumer and industrial products varies. Personal selling is most important for industrial goods companies, whereas advertising is most important for consumer goods companies. Determining organizational strengths and weaknesses in the selling function of marketing is an important part of performing an internal strategic- management audit.

Advertising can be expensive, a primary reason marketing is a major business function to be studied carefully. Without marketing, even the best products and services have little chance of being successful. Companies paid in excess of $4 million per 30-second spots during the 2015 Super Bowl. Anheuser-Busch just tallied its 28th year as the exclusive beer advertiser at the Super Bowl, buying a whopping 3.5 minutes of advertising time for Budweiser and Bud Light. George Parker argues that there may be no relationship at all between ads and sales:

If someone were to do a truly analytical study of the Super Bowls of the last 20 years, I guarantee there would be no correlation between the ads and increases or declines in sales. The only way you can directly measure the effect of advertising is in direct marketing, which is a targeted promotion that provides an immediate point of sale, like an email cam­paign that encourages recipients to make a direct purchase or inquiry.¹⁶

Recent research reveals that the most effective marketing methods for firms with fewer than 500 employees is the company website (50%), Facebook and/or other social media sites such as Twitter (27%), and yellow pages and other (23%).¹⁷ Nearly 2 million firms of all sizes now pay to advertise on Facebook, up from about 1 million 18 months ago. Spending on online advertise­ments globally is increasing about 25 percent annually, according to edMarketer, and represents about 39 percent of total advertising spending in the United States.¹⁸

Advertising on television is on a downward spiral, according to Time Warner, Discovery Communications, and Comcast. “Upfront” ads for the 2014-2015 TV season declined about 6 percent. Heavy marketers, such as Allstate and Mondelez International, now openly speak about shifting TV ad dollars to digital platforms. Allstate shifted 20 percent of its TV ad dollars to digital from 2013 to 2015 and that is typical. Ad giant Omnicom Group is advising its clients to shift 10 to 25 percent of their TV ad dollars to digital.

Chief marketing officers (CMOs), such as Eduardo Conrado at Motorola, now spend more than 50 percent of their budget on technology to manage activities such as online marketing and social media.¹⁹ Marketing is becoming technical, with software to track and target customers and manage customer relationships, predict consumer behavior, run online storefronts, analyze social media, manage websites, and craft targeted advertisements. In response to this trend, IBM is shifting its attention from CIOs to chief marketing officers (CMOs) as their primary clients.

The world’s largest social network, Facebook, may epitomize where the advertising indus­try is going. Facebook allows a company to “leverage the loyalty” of its best customers. If you have recently gotten engaged and updated your Facebook status, you may start seeing ads from local jewelers who have used Facebook’s automated ad system to target you. Facebook enables any firm today to effectively target its exact audience with perfect advertising.²⁰ In performing a strategic-planning analysis, in addition to comparing rival firms’ websites, it is important to compare rival firms’ handling of social media issues.

One of the last off-limit advertising outlets has historically been books, but with the prolif­eration of e-books, marketers are experimenting more and more with advertising to consumers as they read e-books. New ads are being targeted based on the book’s content and the demographic profile of the reader. Digital e-book companies such as Wowio and Amazon are trying to insert ads between chapters and along borders of digital pages. Random House says its e-books will soon include ads, but only with author approval.

3. Product and Service Planning

Product and service planning includes activities such as test marketing; product and brand positioning; devising warranties; packaging; determining product options, features, style, and quality; deleting old products; and providing for customer service. Product and service planning is particularly important when a company is pursuing product development or diversification.

One of the most effective product and service planning techniques is test marketing. Test markets allow an organization to test alternative marketing plans and to forecast future sales of new products. In conducting a test market project, an organization must decide how many cities to include, which cities to include, how long to run the test, what information to collect during the test, and what action to take after the test has been completed. Test marketing is used more frequently by consumer goods companies than industrial goods companies. The technique can enable an organization to avoid substantial losses by revealing weak products and ineffective marketing approaches before large-scale production begins.

4. Pricing

Procter & Gamble is currently embroiled in a shampoo price war with Unilever PLC in the U.S. hair care industry. Unilever’s TRESemme, Alberto VO5, Clear, and Dove brands have been tak­ing market share from P&G’s Pantene and Old Spice brands, but both firms are now simultane­ously cutting prices and spending heavily on advertising to “cripple” the other.

Five major stakeholders affect pricing decisions: consumers, governments, suppliers, dis­tributors, and competitors. Sometimes an organization will pursue a forward integration strategy primarily to gain better control over prices charged to consumers. Governments can impose con­straints on price fixing, price discrimination, minimum prices, unit pricing, price advertising, and price controls. For example, the Robinson-Patman Act prohibits manufacturers and wholesalers from discriminating in price among channel member purchasers (suppliers and distributors) if competition is injured.

Competing organizations must be careful not to coordinate discounts, credit terms, or con­dition of sale; not to discuss prices, markups, and costs at trade association meetings; and not to arrange to issue new price lists on the same date, rotate low bids on contracts, or uniformly restrict production to maintain high prices. Strategists should view price from both a short-run and a long-run perspective because competitors can copy price changes with relative ease. Often a dominant firm will aggressively match all price cuts by competitors.

Intense price competition, coupled with Internet price-comparative shopping, has reduced profit margins to bare minimum levels for most companies. Target recently joined Best Buy in offering to match online prices of rival retailers. Both companies are seeking to combat “showrooming” by shoppers who check out products in their stores but buy them on rival’s websites. Both Target and Best Buy are matching prices from Amazon.com, Walmart.com, and Toysrus.com.

In contrast to popular opinion, online sales are more expensive for companies than brick-and-mortar sales, after factoring in the cost of shipping, handling, and the higher rates of returns.²¹ For example, Kohl’s Corporation reports that its profitability online is less than half of its store business, and even WalMart reports that it will lose money online at least through 2016. Primark, the European discount retailer, avoids online retailing “because it deems it to be unprofitable.” However, online sales exceeded $294 billion, or 9 percent of all retail sales, in the United States in 2014, but analysts expect those numbers to increase to $414 billion and 11 percent by 2018.

During the 2014 Christmas shopping season, Amazon changed prices on as many as 80 million products during a single day, creating havoc for companies such as Walmart, Best Buy, and Toys “R” Us that had already announced they will not be undersold and would match any competitors’ prices in a printed flyer or website. Because of pricing flexibility and variation, retail shopping has become much more challenging for savvy customers, and much more work for brick-and-mortar store managers empowered to meet all competitor prices.

5. Distribution

Distribution includes warehousing, distribution channels, distribution coverage, retail site loca­tions, sales territories, inventory levels and location, transportation carriers, wholesaling, and retailing. Most producers today do not sell their goods directly to consumers. Various marketing entities act as intermediaries; they bear a variety of names such as wholesalers, retailers, brokers, facilitators, agents, vendors—or simply distributors. Some of the most complex and challenging decisions facing a firm concern product distribution. Intermediaries flourish in our economy because many producers lack the financial resources and expertise to carry out direct marketing. Manufacturers who could afford to sell directly to the public often can gain greater returns by expanding and improving their manufacturing operations.

Successful organizations identify and evaluate alternative ways to reach their ultimate mar­ket. Possible approaches vary from direct selling to using just one or many wholesalers and retailers. Strengths and weaknesses of each channel alternative should be determined according to economic, control, and adaptive criteria. Organizations should consider the costs and benefits of various wholesaling and retailing options. They must consider the need to motivate and con­trol channel members and the need to adapt to changes in the future. Once a marketing channel is chosen, an organization usually must adhere to it for an extended period of time.

6. Marketing Research

Marketing research is the systematic gathering, recording, and analyzing of data about prob­lems relating to the marketing of goods and services. Marketing researchers employ numerous scales, instruments, procedures, concepts, and techniques to gather information; their research can uncover critical strengths and weaknesses. Marketing-research activities support all of the major business functions of an organization. Organizations that possess excellent marketing research skills have a competitive advantage. According to the president of PepsiCo,

Looking at the competition is the company’s best form of market research. The majority of our strategic successes are ideas that we borrow from the marketplace, usually from a small regional or local competitor. In each case, we spot a promising new idea, improve on it, and then out-execute our competitor.²²

7. Cost/Benefit Analysis

The seventh function of marketing is cost/benefit analysis, which involves assessing the costs, benefits, and risks associated with marketing decisions. Three steps are required to perform a cost/benefit analysis: (1) compute the total costs associated with a decision, (2) estimate the total benefits from the decision, and (3) compare the total costs with the total benefits. When expected benefits exceed total costs, an opportunity becomes more attractive. Sometimes the variables included in a cost/benefit analysis cannot be quantified or even measured, but usually reasonable estimates can be made to allow the analysis to be performed. One key factor to be considered is risk. Cost/benefit analysis should also be performed when a company is evaluating alternative ways to be socially responsible.

The practice of cost/benefit analysis differs among countries and industries. Some of the main differences include the types of impacts that are included as costs and benefits within appraisals, the extent to which impacts are expressed in monetary terms, and differences in the discount rate. Government agencies across the world rely on a basic set of key cost/benefit indicators, including the following:

1. Net present value (NPV)
2. Present value of benefits (PVB)
3. Present value of costs (PVC)
4. Benefit cost ratio (BCR) = PVB/PVC
5. Net benefit = PVB – PVC
6. NPV/k (where k is the level of funds available)²³

8. Marketing Audit Checklist of Questions

The following questions about marketing must be examined in strategic planning:

1. Are markets segmented effectively?
2. Is the organization positioned well among competitors?
3. Has the firm’s market share been increasing?
4. Are present channels of distribution reliable and cost effective?
5. Does the firm have an effective sales organization?
6. Does the firm conduct market research?
7. Are product quality and customer service good?
8. Are the firm’s products and services priced appropriately?
9. Does the firm have an effective promotion, advertising, and publicity strategy?
10. Are marketing, planning, and budgeting effective?
11. Do the firm’s marketing managers have adequate experience and training?
12. Is the firm’s Internet presence excellent as compared to rivals?

Source: David Fred, David Forest (2016), Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Pearson (16th Edition).