Marketing Fundamentals: Concepts, Strategies, and the Mix
Understanding the Nature of Marketing
Marketing is a group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas. It creates value by allowing individuals and organizations to obtain what they need and want. Importantly, marketing is not about manipulating consumers or merely selling and advertising.
The Exchange Relationship in Marketing
Exchange is the act of giving up one thing in return for something else. This includes the tangible product itself, services, or ideas.
Key Functions of Marketing
The core functions of marketing include:
- Buying
- Selling
- Transporting
- Storing
- Financing
- Marketing Research
- Risk Taking
Creating Value with Marketing: Value is a customer’s subjective assessment of benefits relative to costs in determining the worth of a product.
Customer Value = Customer Benefits – Customer Costs
Understanding the Marketing Concept
The marketing concept emphasizes that customer-contact employees must understand what customers truly want. It extends beyond merely selling goods and services to encompass:
- Ideas
- Benefits
- Philosophies
- Experiences
Defining Your Target Market
A target market is a specific group of consumers on whose needs and wants a company focuses its marketing efforts.
Total-Market Approach
An approach whereby a firm attempts to appeal to every potential customer.
Market Segmentation
A strategy whereby a firm divides the total market into groups of people who have relatively similar product needs.
Multisegment Approach
A market segmentation approach whereby the marketer aims its efforts at two or more distinct segments.
Niche Market
A smaller, more precisely defined segment of the market.
Effective Market Segmentation Criteria
When defining a target market or segmenting, consider these criteria:
- Not too small or narrow: The segment must be substantial enough to be profitable.
- Not too large: A segment that is too broad (e.g., ‘the Chinese market’ with 2 billion people) can make it difficult to understand and satisfy specific needs effectively.
- Able to cover and satisfy consumer needs: The firm must have the resources and capability to serve the segment.
- Able to be kept updated: The segment’s characteristics should be monitorable over short, medium, and long terms.
- Controllable: The firm should be able to effectively manage and reach the segment.
The Marketing Mix: Product and Price Strategies
Product: Defining Your Offering
The product encompasses the total offering, including its physical characteristics, branding, quality, service, and symbolic attributes.
Added Value: The extra benefits or features that enhance the product’s appeal.
Product Levels
- Core Product: The basic benefits or problem-solving service that the consumer is really buying.
- Generic Product: The general characteristics and features of the product.
- Augmented Product: Additional value-added features, services, or benefits.
- Potential Product: All the augmentations and transformations the product might undergo in the future.
- Perceived or Expected Product: The consumer’s expectations regarding the product’s attributes and performance.
Pricing Objectives and Strategies
Key Pricing Objectives
Companies set pricing objectives to guide their pricing decisions. Common objectives include:
Attracting New Customers
- Reduce price
- Lower profit margin
- Reduce costs
Achieving Desired Positioning
- Building a specific brand image (e.g., low cost or premium)
Maximizing Profits
- Aim for a high profit margin
- Link quality to a higher price
Responding to Competition
- Adjusting prices in highly competitive markets
- Aligning prices with competitors
Covering Costs
- Ensuring prices cover production and operational expenses.
Common Pricing Strategies
Penetration Pricing
Description: Setting a very low initial price to quickly gain a high market share.
Benefits: Consumers become aware of the product faster, and more people can afford it.
Disadvantages: Can make it difficult to reach a break-even point; increasing costs can pose challenges.
Price Skimming
Description: Setting a higher initial price and gradually reducing it over time.
Advantages: Allows for higher profit margins initially; can target different market segments.
Disadvantages: Can affect brand image; may lead to lower market share at the beginning due to high price.
Cost-Plus Pricing
Description: Calculating costs and adding a desired profit margin.
Advantages: Safer, as profit is set; consistently covers costs, ensuring financial stability.
Disadvantages: May limit potential benefits if market allows for higher pricing.
Price Discrimination
Description: Setting different prices for the exact same product across different markets or customer segments.
Examples:
- Location-based pricing: Price varies depending on where the product is purchased.
- Time/Schedule-based pricing: Price changes based on when the product is purchased (e.g., plane tickets being cheaper in the early morning).