Hello! I have very pleased to announce the publication of Marketing Management: 4th Edition with the help of Springer Publishing. I would like to give a special thank-you to Masaaki Kotabe, Demetris Vrontis, and Riad Shams for their collaboration.
Over the coming weeks, I will be releasing promotional summaries of the chapters of Marketing Management right here on this page. You can look for new Marketing Management posts every Wednesday!
If you are interested in purchasing a copy of the book and would like it signed, please contact me. For purchasing, please visit https://www.springer.com/gp/book/9783030669157
Marketing Management Chapter 1: An Overview of Marketing
Chapter 1: Summary
Marketing is a particularly practical business discipline. There may be many definitions of marketing, but all of them consider the customer to be the focus of decision making, and all of them describe the dialogue between the producer and the customer—increasingly as it takes place in a global context. Marketing efforts vary, depending on the different circumstances within which they are practiced.
It is important to see marketing’s role in an overarching context, reaching beyond the organization to encompass the entire client and supplier system in an outward-looking way that matches corporate capabilities with the requirements of customers and permits them to acquire desired benefits most efficiently.
The various elements of marketing that are employed in marketing campaigns are known as the marketing mix and are often described in terms of the 4 Ps: product, price, place, and promotion. This mix can be applied not just to the goods sector but also to services and the non-profit arena. The implementation of the marketing mix, however, is complex due to multiple decision makers and enormous flow of information, the interaction of multiple decision factors on the part of buyers, and global demand and supply linkages.
In light of the need to exercise growing responsiveness to changing societal demands and expectations in areas such as the environment and ethics and the expanding ability of marketers to use technology, focusing on the double bottom line-oriented approach to understand and contribute to the needs of customers, and the overall socio-economic and ecological setting where a company operates its business; a new marketing paradigm is emerging in which marketers are poised to become the strategic leaders of the corporate supply system.
For a complete list of all chapters so far, you can visit the Marketing Management Tab on the blog!
Chapter 2: Summary
In general, the use of plans conveys a number of advantages: (1) consistency, (2) responsibility, (3) communication, and (4) commitment.
The corporate plan should contain three main components: Where the organization is now? Where the organization intends to go in the future? How it will organize its resources to get there?
Corporate objectives, which are usually more complex than just financial targets, should reflect the corporate mission (including customer groups, customer needs, and technologies), which may reflect a strong corporate vision.
The starting point of the marketing planning process is the marketing audit, the output of which may be one or more facts books, covering a wide range of questions about internal (“product”-related) and external (“environmental,” as well as market) factors, and the marketing system itself, as well as the following basic questions:
Who are the customers? What are their needs and wants? What do they think of the organization and its products or services?
This step will lead to the production of marketing objectives and subsequently to marketing strategies (typically covering all elements of the Price, Product, Place, and Promotion).
A suggested structure for the marketing plan document itself might be as follows:
- Mission statement
- Summary of performance (to date, including reasons for good or bad performance)
- Summary of financial projections (for three years)
- Market overview
- SWOT analyses of major projects/markets (Strengths, Weaknesses, Opportunitites, Threats)
- Portfolio summary (a summary of SWOTs)
- Financial projections for three years (in detail)
All these detailed plans should be, as far as possible, (1) number-based and “deadlined,” (2) briefly described, and (3) practical. These programs must be controlled, particularly by the use of budgets, for which the overall figures may be derived by (1) affordable, (2) percentage of revenue, (3) competitive parity, or (4) zero-based budgeting.
Finally, the actual performance of the marketing strategy needs to be examined. The most important elements of marketing performance are (1) sales analysis, (2) market share analysis, (3) expense analysis, (4) financial analysis, and (5) relationship analysis. Although much of the relationship analysis may not be quantifiable, it has become an increasingly important determinant of a company’s long-term success.
Chapter 3: Summary
An understanding of the environment is important for the marketer. Social, technological, economic, political, and ecological factors can have a major impact on the firm’s opportunities and threats. Key social and cultural elements to consider are the redefinition of occupations, a societal trend toward postmaterialism, and major demographic shifts. In the area of technology, the outlook for marketers is likely to be thoroughly changed by transformations in information processing and the subsequent shifts in business practices as well as the emergence of new materials, new biotechnological products, and growing environmental concerns. In the economic area, increasing globalization, regional integration, and exchange rate effects represent major influences on marketing practice. The political environment is characterized by legislative and regulatory actions that influence the firm but that can also be influenced by the firm. However, the political arena is also increasingly defined by the activities of special-interest groups whose actions can have a major effect on firms. Furthermore, the marketer is likely to be required, either by regulation or by good marketing sense, to take into account various stakeholders beyond the shareholders if the firm and its products are to remain acceptable to society at large. The ecological background of the target market also needs to be considered, in order to satisfy contemporary ethical customers.
To deal with the environment, the firm must first analyze and understand it. Such analysis can be accomplished by environmental scanning, Delphi studies, and scenario building. To understand the competition, however, the firm must evaluate more specific issues such as market structure, products and production processes, and industrial changes taking place.
After understanding these dimensions, the firm can achieve a successful strategic position through economies of scale, political clout, and captive distribution systems. Firms that are unable to win the competitive battle in the field of commerce, in particular, are increasingly seeking victory in the halls of government. Building and maintaining a successful position also requires an understanding of the likely competitive response from adversaries and the different strategies that leaders and followers can employ. Overall, you should remember that as difficult as it may be to maintain a leadership position, it is even harder to be a profitable follower.
Chapter 4: Summary
Focus on the buyer is the key dimension of marketing and is what sets the discipline apart from all other business fields. The marketer must therefore understand how buyers come to the decision to purchase a product. This decision-making process is a complex one, both for consumers who are end-users and for industrial buyers. For consumers, the process includes the effects of experience, lifestyle, promotion, and price. More general factors influencing consumers may be culture, geography, social class, occupation, psychological factors, peer pressure, and the effect of globalization. Marketers have conducted a great deal of research to understand the consumer decision process better and, as a result, have developed the tools of lifestyle analysis and segmentation to be able to serve consumers more efficiently and more profitably.
On the industrial side, organizational purchasing is subject to a different set of influences, both because it is usually based on derived demand and because the decision is often split between decision-makers and influences. Other factors that affect buyers’ product acceptance are the diffusion of innovation, usage, and loyalty, and the existence of a customer franchise.
Marketing Management Chapter 5: Marketing Research and Information
Chapter 5: Summary
This chapter explored the search for information about the customer and the market. This constitutes the listening part of the marketing dialogue. Marketing research is also needed to assist managers in the decision-making process and to analyze organizational performance. To be viable, however, the benefits derived from marketing research need to exceed the cost of conducting such research.
A systematic research approach will lead to the development of a Market Information System (MIS) that contains information both internal and external to the firm. Important internal data sources are performance analyses, sales reports and employees’ ongoing experience. The more data the intelligence system receives and the more precisely the system can process the available data, the better it can serve the manager. It is therefore important to develop ways of entering nonnumerical reports, such as accounts from a sales conversation or information about customer interests. New technology can enable an MIS to alter communication and decision structures within a firm but also requires careful planning of information distribution and retention.
External information can be derived from either secondary or primary data. Secondary data, collected in response to someone else’s questions, are obtained through desk research and are available quickly and at a low cost. Main sources of secondary data are internal databases, libraries, directories, newsletters, commercial information providers, trade associations, and electronic information services. To ensure their usefulness, the researcher must determine the quality of the data source, the quality of the actual data, and the compatibility of the data with information requirements. Primary data are collected directly on behalf of a specific research project. Typical ways of obtaining such data are through syndicated research—such as retail audits, panel research, or omnibus surveys—and custom research.
The first step of primary marketing research is to clearly define the objectives to ensure the usefulness of the research. Next, the research level needs to be decided. Exploratory research helps mainly in identifying problems, descriptive research provides information about existing market phenomena, and causal research sheds light on the relationships between market factors. The research approach then determines whether qualitative or quantitative data will be collected. Observation, in-depth interviews, and focus groups are primary techniques to yield qualitative data, which may be very insightful but are not fully generalizable and cannot be analyzed statistically. Quantitative data overcome these problems but require the systematic collection of large numbers of data. Experimentation and survey research are the primary research tools. Good survey research must concentrate on question design and structure to elicit useful responses. Data can then be collected by mail (postal mail or e-mail), by using online applications e.g. SurveryMonkey, by telephone, or in-person after an appropriate sample frame is constructed. The data need to be analyzed with appropriate techniques to make the data set comprehensible, insightful, and useful for management. This usefulness is at the heart of the research report, which in essence is a communication process persuading recipients to use the information.
Chapter 6: Summary
Forecasts predict what may happen, all other things being equal. Budgets go beyond these forecasts to incorporate the effects of an organization’s planned actions. Both may be
• Short term—For capacity loading, information transmission, and control
• Medium term—For the traditional annual planning process
• Long term—For strategic planning, resource planning, and communication
Forecasts need to be dynamic. In other words, changes in the environment require modification of forecasts. From them, budgets may be derived at the sales, production, and profit levels.
Forecasting is based on, and derived from, some other data sources; and it is conducted at three different levels. Macro forecasts look at total markets and may be derived from national or global data available from the OECD or the U.S. government. However, the most important aggregate forecast for business is at the market or industry level. Microforecasts build on the predictions of individual or group (customer) behavior. Product forecasts may then be split into forecasts by product type and over time.
There are both qualitative and quantitative forecasting methods. Qualitative forecasting is normally employed for long-term forecasts. Techniques include expert opinion, expert panel method, technological forecasting, Delphi technique, decision tree, and scenario.
Quantitative forecasting techniques for short- and medium-term typically try to isolate the trend, cyclical, seasonal, and random fluctuations. The specific techniques used may be period actuals and percent changes, exponential smoothing, time-series analyses, multiple regression analysis, and more complex econometric modeling. Various leading indicators are also readily available from government sources to forecast the short- to medium-term conditions of the market. Although most forecasting techniques ignore the competitors’ possible reaction to one company’s competitive move, game theory is gaining popularity in recent years to address the likely impact of the competitors’ moves in forecasting.
With the widespread use of personal computers, spreadsheets have become a useful forecasting tool to model many hypothetical “what if” scenarios. By developing many scenarios, you can determine which factors are sensitive to changes in the conditions under investigation.
The primary role of forecasting is risk reduction. You should note that risk can also be reduced by purchasing insurance against unfavorable events, diversifying into a portfolio of different products and markets, or adopting flexible manufacturing to better cope with unexpected changes in the market. Finally, thanks to Internet use, many companies, emphasizing the needs of the customers with an ability to satisfy and serve them quickly and efficiently, have begun to adopt the “build to order” model of sales fulfillment with no forecasting error rather than the traditional “build to forecast” model.
Chapter 7: Summary
Markets can be defined in a number of ways, but for a marketer, the key definition is in defining who the customer is. Even so, there are different categories: (1) customers, (2) users, and (3) prospects. This categorization leads to the concepts of penetration and brand (market) share.
Within markets, there may be segments, which a producer may target to optimize use of scarce resources. The viability of these segments depends on (1) size, (2) identity, (3) relevance, and (4) access. The identification of market segments requires a number of activities including (1) background investigation, (2) qualitative research, (3) quantitative research, (4) analysis, (5) implementation, and (6) segmentation/positioning. A major aid to positioning is usually offered by two-dimensional maps based on two most critical dimensions identified by statistical analysis.
Branding is the most powerful marketing device for differentiation, which may, in effect, create a near-monopoly. Once established, a brand name has strong brand equity. Branding policies may be based on (1) company name, (2) family branding, and (3) individual branding. These policies may be developed further by brand extensions and multi-brands, but this approach may be limited by cannibalism. Co-branding by companies that market complementary products help fill market segments not met by them individually. Private brands and generic brands are also becoming increasingly important in price-sensitive markets.
Chapter 8: Summary
The good or service as seen by the consumer constitutes much more than just a physical core product; all the intangibles that accompany the product form the package. The product audit is used to explore what this package comprises. The Ansoff Matrix looks at the four main growth strategies and demonstrates the increase in risk as a company moves from penetration of the known market to diversification into a totally unknown market.
The theory of the product life cycle says that the stages of introduction, growth, maturity, decline, and postmortem that a product goes through are to be reflected in the corresponding marketing mix. Even though most attention is focused on new-product launches, most products are in the maturity stage, where they need careful management attention to either prolong their life cycle or to lead to graceful retirement.
A popular theoretical tool for structuring product portfolios is the Boston Consulting Group Matrix. Its four quadrants are based on market share and market growth: problem children (or question marks), stars, cash cows, and dogs. Because of its assumption of a significant product life cycle and economies of scale, the Boston Matrix may have less relevance than its advocates suggest. In any event, the use of the matrix requires a sound understanding of the complex interrelationship between market growth rate and relative share.
The development of a product mix needs to consider both the width and depth of product lines and may require line stretching or line rationalization. In doing so, the firm must carefully consider the implications of such product policies on sales, profits, and relationships with customers and suppliers.
When using a strategy of market expansion, the firm must consider whether and how to standardize or adapt its products. In addition, attention must be devoted to packaging. No longer simply driven by product protection, packaging must reflect market requirements, promotional opportunities, and distribution considerations.
Services, whether related to goods or pure services, have distinctive features. In particular, they are more dependent on people, which necessitates more, and higher, standards of management. The intangibility of services means that the associated physical elements may be used for promotion, and strong branding is important. The lack of storage capacity may require new efforts at smoothing out demand fluctuations through personnel management or pricing strategies.
Overall, even though all elements of the marketing mix are equally important, the product is the most visible component and serves as the focal point for all marketing mix aspects.
Chapter 9: Summary
The theory of new products or new services starts with a gap analysis, which looks to the following: (1) usage gap, (2) distribution gap, (3) product gap, and (4) competitive gap. In practice, much organizational development effort is devoted to the modification of existing successful products or services by feature modification, quality modification, style modification, and image modification. Potential new products need to be screened against a number of strategic dimensions, including production capabilities, financial performance, investment potential, human factors, materials supply, cannibalism, and time. Market factors, such as matching with existing product lines, price and quality, distribution patterns, and seasonality, also need to be considered.
Sources for generating new product ideas include customers and innovative imitation. In the Western approach, the product development process then is supposed to follow a number of formal steps, including gap analysis (for scanning and idea generation), strategic screening, concept testing, product development, product testing, test marketing, and product launch. A test market may take place in a television-viewing area, a test city, or a residential neighborhood. In industrial markets in particular, it may be restricted to test sites. All these approaches pose problems of effectiveness and cost, while possibly offering competitors advance warning.
It is worth remembering the major caveats mentioned in section 9.1, “Introduction.” Brand stability implies that there should be more emphasis on the further development of existing brands than on totally new ones, contrary to conventional teaching. The Japanese approach is to launch many new products without following any of the stages of testing described here.
Much of pricing theory is derived from economics, especially from supply and demand theory. This information is encapsulated in the famous demand and supply curves. The price is set by the point where the curves intersect. The degree to which demand is susceptible to price changes (price elasticity of demand) is another concept borrowed from economics but very useful to marketers.
Again in theory, but rarely in practice, these curves can be obtained from statistical analysis of historical data, survey research, and experimentation. Rather less theoretically, factors affecting the pricing policies of a specific organization include organization factors, product life cycle, product portfolio, product line pricing, segmentation and positioning, and branding. Factors derived from customers are demand, benefits, value, and distribution channels. Of these, perceived value is especially important because it defines what the customer should be prepared to pay.
Pricing new products offers a different set of challenges. In general, the two main opposing strategies are
• Skimming—High price, to skim off the short-term profit
• Penetration—Low price, to maximize long-term market share
Practical pricing policies for existing brands may include cost-plus pricing, target pricing, historical pricing, product line pricing, competitive pricing, market-based pricing, and selective pricing. The price can also be a major factor in determining a product’s or service’s image, ranging from quality-price to budget-price.
A wide range of discounts may be offered: trade, quantity, cash, allowances, seasonal, promotional, and individual.
Prices may also be set at levels that are judged to be “psychologically” appropriate ($9.95, for instance). Other ways of achieving a price effect may lie with other parts of the offer, such as product bundling, at one extreme, and charging separately for “options,” at the other. Alternatively, price may be negotiated, as it often is in capital goods markets.
Organizations may resort to price competition for several reasons, including volume sales, other stimuli, and minor brands. On the other hand, the dangers of initiating a price war include low-quality image, temporary advantage, and profit loss.
Distribution comprises channels and supply chain management. Channels deal with institutional linkages such as retailers and wholesalers, whereas supply chain management addresses the processes underlying these linkages, such as warehousing, transportation, and inventory management, and connects them from the supplier to the end user. The objective of both components is to provide a high level of customer service at a manageable cost.
Distribution channels take on various functions of the manufacturers because they can perform them more efficiently. Depending on the type of product and type of consumer, they can range from the zero level, where the contact between manufacturer and end user is direct, to multiple levels, from producer to wholesalers and retailers. The choice of channel is an important one because it has major strategic implications and is difficult to change. Within the channel choice, decisions also need to be made about channel compensation and control. To a large degree, effective channel management depends on close information linkages. The use of information analysis at the retail level increasingly makes other channel members dependent on these information sources. Overall, channel members need to add value to the distribution process—or be eliminated. This also applies to the purchasing process, which is an integral part of distribution, albeit an internally focused one.
Supply chain management benefits from a systems view of corporate activity and includes the development of close relationships with both suppliers and customers. Effective coordination between parties reduces cost and provides for competitive advantage through approaches such as just-in-time (JIT) delivery, electronic data interchange (EDI), and early supplier involvement (ESI). Production, transportation, facility, inventory, and communication decisions are the key areas within logistics, all of which require trade-offs and collaborative action among participants. Even though the optimizing activities of a firm provide for some benefits, competitive differentiation occurs mainly through coordination with other companies.
The firm may evaluate transportation based on transit time, reliability, and cost and achieve operational improvements, but a strategic collaborative approach with customers and suppliers can deliver even greater benefits. Such collaboration can include the use of third-party logistics providers. Logistics can also play a major role in making the firm more environmentally responsive by designing reverse distribution systems for the recycling of merchandise and by devising distribution processes that minimize risk and damage to the environment.
All channel and supply chain efforts are designed to increase customer service. The intent is to delight the customer. It is therefore important to understand the importance of customer complaints. Such complaints should be encouraged so that the firm learns early on about potential problem areas. In addition, they need to be resolved quickly so that customers are willing to return. Good customer service requires the orientation and commitment of the entire corporate culture so that the customer notices at each point of contact with the firm that customer service thinking is a part of the organization.