The core marketing concepts and market targeting

There has been much discussion in literature over what marketing is. It is difficult to give simple definitions of marketing as analytic definitions of marketing seem to be abstract and controversial. O’Shaughnessy (1995, P4) mentions that ‘one definition that sees marketing as the skill of finding and securing customers. Another analytic definition views marketing as a business activity and directs of attention more toward promotion and distribution than anything else.’

Although none of these definitions of marketing are accepted universally, there are fundamental elements involved in the term “marketing” which are generally agreed to analyse all the different activities intended to make and attract a profitable demand for a product. These elements consists of some basic concepts of marketing and the four marketing mix (Product, Price, Promotion and Place). The analysis of these marketing elements would be able to give more concrete definitions of marketing.

To start with, this paper describes the core marketing concepts and market targeting which are essential for the understanding of marketing activities. Furthermore, this paper explores the marketing mix (Product, Price, Promotion and Place) in both theoretic and practical sides.

Core marketing concepts

According to Kotler et al (2002), the core marketing concepts might start with the explanation of human needs and wants. Human needs are ‘states of felt deprivation. Human wants are the form that a human need takes as shaped by culture and individual personality’ (Kotler et al, 2002, P6). For instance, people need drink to meet physical needs of thirst, but their wants might be different. Some people may want a glass of water, some people may want orange juice or a cup of tea.

In order to satisfy people’s needs and wants, the concept of product is introduced. A product is ‘anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. It includes physical objects, services, persons, places, organisations and ideas’ (Kotler et al, 2002, P7). Under this point of view, the ranges of product are defined broadly. A television can be seen as a product, a television program can be seen as a product as well, the after sale service of this television also is a product.

When customers decide whether to buy a product or service, they will weigh the value of what they receive. The customer value is defined as ‘the consumer’s assessment of the product’s overall capacity to satisfy his or her needs’ (Kotler et al, 2002, P7). Therefore, customer satisfaction depends on a product’s perceived performance that matches a buyer’s expectations. For example, there are many transport services available for customers who wish to travel from London to Paris. They could be Eurolines coach service, Eurostar train service or Easyjet flight service. The choice made depending on the perceived value that products offer to the customers.

‘Exchange’ and ‘transactions’ are two important concepts of marketing. Exchange is ‘the act of obtaining a desired object from someone by offering something in return’. And a transaction is ‘a trade between two parties that involves at least two things of value, agreed-upon conditions, a time of agreement and a place of agreement’ (Kotler et al, 2002, P9). Marketing occurs through exchange and is measured by a transaction.

The concepts of exchange bring us the concept of a market. A market is the set of all actual and potential buyers of a product or service. The concept of markets finally leads to the concept of marketing. Kotler et al (2002) also define that marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. Figure 1 shows the linkage of these core marketing concepts.

Figure 1: Core marketing concepts (source: Kotler et al, 2002)

Market targeting

O’Shaughnessy (1995) argues that the term ‘market’ has several senses. It can refer to the network of institutions, like wholesalers and brokers. It can also mean the demand, within some area. In general, the market is considered as the demand for those goods and services serving the same use function. A market consists of numerous buyers and their needs are varied. And thus businesses could not cover all segments of the market.

Hansen (1972) suggests that the marketer will improve his competitive position by dividing a larger market into smaller segments with different preferences. The product or service in the different segments will reduce the overall distance between what you are offering and what the market requires. Under this view, Hooley and Saunders (1993) conclude that modern markets have become segmented. Where there are differences in customer needs and wants towards the offerings on the market.

Market segmentation is the selection of groups of people who will be most receptive to a product. The most frequent methods of segmenting include demographic variables such as age, sex, race, income, occupation, education, household status, and geographic location; psychographic variables such as life-style, activities, interests, and opinions; product use patterns; and product benefits. (Thorson, 1989)

After evaluating different segments, the firm is able to decide how many and which segments to target. Kotler et al (2002) define that the ‘market targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter’.

There is a company called Bellsouth Corporation which is a successful example of market targeting. Bellsouth Corporation was a traditional telecommunications service company in United States. In 2001, Bellsouth realized that a key customer segment for the company was new broadband subscribers who expected high-speed Internet service. This group of people normally had previous experience of using Internet and they were interested in high technologies and anticipated in doing things online quickly and efficiently. In order to attract this huge group of people, Bellsouth invested in the broadband online order system which enabled customers to order and install the software through their web site. Customers were able to connect and run broadband service quickly by simply processing online. By the end of year, BellSouth broadband customer had increased from 200,000 to 660,000, within which, 90 percent of customers were using the online self-service. (O’Brien, 2002 and www.bellsouthcorp.com)

Product

Product can be simply viewed as problem solver that means to use ‘what we sell’ to match ‘what customers want’. (Chernatony and McDonald, 1998) They also hold that products should not be just viewed as tangible goods. Products could include physical objects, services, persons, places, organisations, ideas or mixes of these entities. Products can be classified variously in term of different aspects of views. For instance, there are ‘non-durable’ or ‘durable products’ in term of product durability. Or product can be divided into ‘consumer products’ or ‘industrial products’ based on the types of customers. (Kotler et al, 2002)

Kotler et al (2002) suggest that the attributes of product are very important as they significantly affect consumer reactions to a product. These product attributes are product quality, features, style and design. Product quality is defined as ‘the ability of a product to perform its functions; it includes the product’s overall durability, reliability, precision, ease of operation and repair, and other valued attributes’ (Kotler et al, 2002). Slack et al (1995) emphasise that the continual development of quality and designs help the firms to form their competitive position by meeting customers’ actual or anticipated needs and expectations. The mobile phone industry is a particular example that products are always redesigned with new styles and features in order to attract customers to buy.

Another important aspect of product that many marketers highly concerned is brand. Brand is a name, term, sign, symbol or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. (Peter, 1998) Chernatony and McDonald (1998) found evidence that brand personify the relationship with customers. The difference between a brand and a commodity is ‘added values’ which might generate inestimable benefit to a business. Strong, successful brands will attract customers to buy their products and help organizations to set up stable, long-term demand and help them to build and maintain better margins than either commodity products or unsuccessful brands. As can be seen from CoCa-Cola which forms the most popular and well-known brand over the world. It is more meaningful for a customer to consume CoCa-Cola products than other soft drinks. Many customers find it difficult to accept other soft drinks even though they are cheaper than CoCa-Cola products.

There has been a consensus that a product follows a life cycle (PLC). Figure 2 shows that sales and profit curve over product life with the stage of introduction, growth, maturity and decline.

Figure 2: Product life Cycle (Source: O’Shaughnessy, 1995)

According to Kotler et al (2002), there are different states of product during the different stages of product lifetime which enable the marketers to use different marketing strategies. In the stage of introduction, new product is launched with low sales growth and low or negative profits. A company should adopt a suitable launch strategy in this early stage in order to achieve its intended product positioning and build customers’ awareness of product. In the stage of growth, sales and profits climb up quickly as the early buyers will continue to buy and later buyers will start following their lead. Profit attract new competitors to enter the market therefore proper strategies should be use to help a company to capture an advanced position.

In the maturity stage, the sales and profit will slow down or level off. This stage normally lasts longer than the previous stages and it appears strong challenges to marketing strategy. A company should enhance its imagination and look for new ways to develop its market or product. In the final stage, the sales and profits are dropping down as the reason of technological advances or shifts in consumer tastes. A company need leave industry or seeks the way to reposition the product. O’Shaughnessy (1995) considers that product life cycle offers guidance for product planning and it should be highly aware by marketers for the development of marketing strategy of product.

Price

Price is one of the most flexible elements of the marketing mix. Katler et al (2002, P566) define that price is ‘the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service’.

Nagle and Holden (1995) present that costs, customers and competition are three basic considerations in developing an effective price strategy. They suggest a general framework that can be used both to set prices for new products and to adapt established prices to changing market conditions. The figure below illustrates the steps of this process.

Figure 3: Steps to more profitable pricing (source: Nagle and Holden, 1995)

According to Nagle and Holden (1995), in the stage of data collection, it is important to understand that good pricing decisions require information from three factors: costs, customers and competitors. In the cost measurement, marketers should be able to determine what total costs is for the product which include ‘incremental variable costs’, ‘semi-fixed costs’ and ‘avoidable fixed costs’. In the customer identification, marketers should collect information about potential customers and the reason they buy product, which means that the economic and perceived value of product to customers should be identified. In the competitor identification, marketers are expected to do research in competitors’ behaviour as the activities of current and potential competitors will affect the price strategy in the company.

In the stage of strategic analyses, marketers integrate the information of costs, customers and competition from the previous stage in order to generate final strategy of price. For example, in financial analysis, the accounting techniques will be used to find out the ‘Break-even position’ and ‘contribution margin’ (Dyson, 1997) of a product to support developing a price strategy. In segmentation analysis, marketers devote to communicate the value of product to customer segments and give different purchase motivations. In competitive analysis, marketers will be able to use the information of competitors collected previously and propose the firm’s objectives which are more achievable and profitable. Strategy formulation is the final stage of pricing, marketers will use the results of previous analysis to make decision of which price strategy for a particular product is the most reasonable.