The Role of Marketing and the Marketing Mix: A Comprehensive Guide

Posted on May 20, 2024 in Economy

The Role of Marketing and Its Relationship with Other Business Activities

Marketing is the function of a business responsible for understanding customer needs and developing the right products, setting the right price, and promoting and distributing products effectively.

Marketing is an ongoing process because:

  • Customer needs change over time.
  • The business environment can change (for example, laws, economic climate).
  • Competitors enter the market.
  • A firm’s own strengths change.

Marketing is an exchange process: the customer gets a good/service, and the business gets money.

Both sides should benefit from the exchange. Anticipate customer needs to delight customers.

Marketing must work with other functions of the company, such as:

  • What is produced
  • What price is set
  • How many products are distributed
  • The range of products offered

Marketing Objectives

  • Sales targets
  • Market share (a company’s portion of the market)
  • Brand awareness

Marketing strategy is used to achieve marketing objectives.

Supply and Demand

Supply depends on:

  • Number of firms producing it
  • Time period
  • Technology
  • Costs

Demand depends on:

  • Income of buyers
  • Price of competitors
  • Price of complementary products
  • Marketing activities

Segmentation Methods

A market segment exists when there is a group with clearly identifiable needs and wants.

Different ways of segmenting:

  • Geographic segmentation: Factors such as location or climate.
  • Demographic segmentation: Factors such as age, gender, income, occupation, marital status, and stage in the family life cycle.
  • Psychographic segmentation: Factors such as personality, lifestyle, values, social class, and attitudes.
  • Behavioral segmentation: Factors such as whether you are a regular or heavy consumer, brand loyalty, and why you buy the product.

For a segment to be appealing, it must be:

  • Measurable
  • Accessible
  • Profitable

Benefits and Limitations of Market Segmentation

When studied and understood well, it can increase sales and boost brand loyalty.

Focusing on too many small groups makes production more expensive.

Different Types of Products

  • Consumer product:
    • Convenience items (such as milk)
    • Shopping items (such as clothes/electric products)
    • Specialist products (such as Rolex watches)
  • Industrial product:
    • Installations (such as new office space)
    • Materials (used in the production process)
    • Supplies (basic items such as paper/light bulbs)

Marketing Mix

The marketing mix comprises all elements associated with a product that influence whether or not a customer decides to buy it.

4 P’s:

  • Place (distribution)
  • Price
  • Product
  • Promotion

Extra 3 P’s:

  • People (staff)
  • Physical environment (layout, decor, parking)
  • Process (ease of ordering and paying)

Perspective of the Customer

4 C’s:

  • Cost (Price)
  • Convenience (Place)
  • Communication (Promotion)
  • Customer solution (how it meets a customer’s need) (Product)

Meeting Customer Expectations

  • Know what those expectations are
  • Communicate; stress the positive
  • Don’t promise too much
  • Know what your competitors are offering (price, quality)
  • Follow up after sales (know what your customers think)
  • Look for ways to build relationships with customers

Product

When businesses review their product, they consider:

  • The core benefit that the product meets
  • The nature of the product or service itself (products must be developed according to how people want to use them)
  • The augmented features (guarantee, additional technical support, etc.)

Differentiate your products from competitors by having a unique selling point (something about the product that your competitors don’t have).

Product Life Cycle

A product typically has five stages.

  1. Research and development
  2. Introduction; launch
    • Promotion costs are high; a loss is still likely to be made.
  3. Growth
    • Sales grow
  4. Maturity
    • The product has been on the market for some time. Competitors have launched the same product.
  5. Decline
    • Sales eventually fall

Managers may use the product life cycle to adjust promotion strategy and price.

Extension strategies may be enforced to prevent a product from going into decline:

  • Increasing usage of the product (for example, shampoo; wash twice)
  • Encouraging use of products on more occasions
  • Reducing price
  • Adapting the product; keep the product interesting
  • Introducing promotional offers; having competitors or offers boost sales
  • Changing the image of the product; appeal to a new group

Product Life Cycle and Capacity Utilization

In different stages of the product life cycle, companies may produce fewer or more products. This means that for each stage in the product life cycle, the capacity utilization may differ.

Product Life Cycle and Cash Flow

Cash flow also differs for each stage of the cycle. It normally starts negative, so you need to monitor cash flow well to make sure cash does not run out.

Companies often have more than one product. The range of products is called a product portfolio. Companies will analyze the position of products in the market; portfolio analyses. One of the most famous models is known as the Boston Matrix. This model focuses on market share and the growth of markets being operated in.

Types of Products in the Boston Matrix:

  • Cash cows: Products that have a high market share but are selling in a slow-growing market.
  • Question marks (problem children): Small market share in a fast-growing market. Most products start as question marks as their future is uncertain.
  • Stars: High market share; fast-growing market. Highly successful products. Marketing must be invested in highly, so this is very expensive.
  • Dogs: Low market share; slow-growing market. A firm may want to get rid of these products. Sometimes it can be revived, and a product becomes successful again.

This model gives companies a clear overview of whether they have a balanced portfolio or not.

Pricing

Factors determining the price of a product:

  • Type of product (price elasticity)
  • Cost of producing a unit
  • Ability of customers to pay (income)
  • Demand for a product
  • Competitors
  • Pricing points
  • A firm’s objectives
  • Stage in the product life cycle
  • Rest of the marketing mix

Pricing Strategies for New Products:

  • Penetration pricing: Low price to enter the market and gain market share.

    This makes sense when there are cost advantages from producing on a larger scale.

  • Price skimming: High price to enter the market; people will buy anyway. Then cut the price to reach a new group of customers, then again.

    Makes sense when the product is price inelastic or companies can ensure competitors cannot enter the market and sell for less.

  • Competitive pricing: Set the same price as competitors or just below their price.
  • Price taking: Firms that accept the price that dominates the market/is set by major sellers.

Price Elasticity of Demand

Price elasticity of demand measures the sensitivity of demand to a change in price.

Percentage change in quantity demanded / percentage change in price

Influenced by:

  • Availability of similar products
  • Time; short-term customers tend to be loyal, long-term they become more critical.
  • The type of product
  • Proportion of income spent on the product
  • Demand for a brand versus demand for the product

When demand is elastic, a business can increase its revenue by lowering the price (take into account production costs).

When demand is inelastic, revenue will fall when the price is cut because sales won’t be going up.

Price discrimination happens when firms charge different prices at different times of the day, to different age groups, to different customer groups.

Promotion Methods

Promotion of a product is communicating this to customers: to inform, persuade, and reassure them.

Promotion mix; different ways in which a company can communicate with its customers:

  • Advertising
  • Sales promotions (for example, price cuts)
  • Personal selling
  • Public relations (for example, sponsors)
  • Direct mail
  • Branding (hoping to make customers more loyal)
  • Merchandising (using the name of a product on a range of other items)

Choosing the Promotional Mix:

  • Nature of the product
  • Marketing budget
  • Available options

Above-the-line promotion: mainstream advertising such as TV and posters.

Below-the-line: promotional activities such as free gifts or special offers.

Above-the-line pulls customers into a store, and below-the-line pushes them to buy the product.

Channels of Distribution (Place)

The distribution channel describes how the ownership of a product moves from the producer to the customer.

The distribution outlet is where the product is actually sold.

  • Zero-level channel: producer – customer
  • One-level channel: manufacturer – retailer – customer
  • Two-level channel: manufacturer – wholesaler – retailer – customer

Choosing a channel depends on:

  • Access to markets; targeting a mass market -> you need more intermediaries
  • Desired degree of control; every intermediary can change things about the product.
  • Costs; the more intermediaries, the higher the cost is likely to be.

Using the Internet for the 4 P’s/C’s

The internet has had a huge impact on marketing activities, for example:

  • Stores can trade globally 24/7
  • Monitoring customer behavior very accurately
  • Dynamic prices; changing prices depending on where people are searching from and when.
  • Zero-level channel easy to use; electronic distribution without a physical product (example: music)