Business Studies
HSC Course
Topic 3:
Section 3.1:
Marketing
Nature and Role of Markets and Marketing
Section Overview:
3.1.1
The role of marketing in the firm and in society
3.1.2
Types of markets — resource, industrial, intermediate, consumer, mass, niche
3.1.3
Production–selling–marketing orientation
3.1.4
The marketing concept — customer orientation, relationship marketing
3.1.5
Marketing planning process
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Section 3.1
Nature and Role of Markets and Marketing
A simple definition of MARKETING is that it is the process of satisfying consumers’ wants
and needs at a profit. A more formal definition is: ‘Marketing is a total system of
business activities designed to plan, price, promote and distribute want-satisfying
products and services to markets in order to achieve the objectives of the business’.
3.1.1 The Role of Marketing in the Firm and in Society
The key role of marketing is to identify consumer demand and communicate to customers
how the products or services of the business can satisfy this demand. Marketing is the
process that involves identifying consumer wants and needs, establishing how the business
can satisfy those wants and needs, closing a sale, and building a relationship. Marketing plays
an important role in achieving an organisation’s prime function or core activity. It is the
channel through which all aspects of business are connected to the external environment.
Some people have argued that marketing has had a detrimental effect on society as a whole
as it has led to higher levels of MATERIALISM and a significant increase in waste in tips
and land fills.
Others would see that marketing maximizes consumer satisfaction by providing the goods
and services that most meet the varying wants of consumers. They also believe that new
products create jobs and improve people’s quality of life.
3.1.2 Types of Markets – Resource, Industrial, Intermediate,
Consumer, Mass, Niche
A MARKET can be defined as the set of all actual and potential buyers of a product. There
are various different types of markets: resource, industrial, intermediate, consumer,
mass and niche. Marketers need to have an understanding of these different markets so
that they can tailor their marketing to meet the needs of each group.
A)
Resource Markets
Manufacturing businesses require raw resources to transform into finished or
intermediate goods. Resource markets provide the raw (untouched) resources for
the manufacturing process, such as the aluminium for cans. These raw inputs can be
split into two categories:
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Section 3.1
B)
Nature and Role of Markets and Marketing
i)
Direct resources: Those resources that form part of the final product,
such as aluminimum in cans.
ii)
Indirect resources: Those resources that do not form part of the final
product but are involved in the value chain that creates it, such as land
and labour.
Industrial Markets
Industrial markets include all businesses that are involved in the manufacture of
products. Businesses in the industrial market transform raw materials provided by
the resource market. These transformed products are then sold, either as
intermediate goods to other manufacturers or as finished products to retailers. For
example: Kraft buys peanuts and jars (glass and plastic) to make and supply peanut
butter.
C)
Intermediate Markets
The intermediate market provides the link between producers and the marketplace
where consumers make their purchase decisions. Often, producers in either the
resource or industrial markets will not want to take on the extra challenge of
distributing their product to other businesses or consumers. The intermediate
market is made up of businesses that sell or distribute products from industrial
markets to consumer markets or other industrial markets. Woolworths is part of the
intermediate market because the business resells the goods made by other businesses.
D)
Consumer Markets
The consumer market is made up of all the individuals and households who buy (or
rent) goods and services for personal use. You and your family are part of the
consumer market. Products sold on consumer markets are bought as final products
– not as inputs into other production processes.
E)
Mass Markets
Mass markets refer to the market for goods and services that appeal to the vast
majority of customers. For example, power companies sell the same electricity
‘product’ to most customers, whether they are households or businesses. The power
companies don’t have to tailor their products to cater for the varying needs of
buyers.
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Section 3.1
F)
Nature and Role of Markets and Marketing
Niche Markets
Niche markets are the smaller markets for more specialized goods and services that
only a few people are interested in or can afford. For example, Rolls Royce makes
very expensive motor cars for very wealthy people. The company can make a car to
cater for the wants of individual buyers. Goods and services for niche markets tend
to be more expensive, because there are only relatively few buyers.
3.1.3 Production – Selling – Marketing Orientation
Since the industrial revolution and the start of the 20th century, the marketing focus of
business has progressed through three distinct ideologies. Each of these different marketing
ideologies focused the attention of the business on different areas, from production, to sales
and the consumer.
A)
Production Orientation
Production orientation is where a business primarily focuses upon ways in which
production levels can be increased and the costs associated with production can be
reduced. Businesses concentrated on making as much as possible at the lowest cost,
with little or no concern for customer preferences. Henry Ford embraced this
ideology. He was determined to reduce the cost of production of his Model T so
that more people could afford to purchase one. He left us with a famous quote:
“People can buy a Ford car in any colour as long as it is black”. This quote
highlights his lack of concern for customer preferences.
B)
Selling Orientation
The Great Depression of the late 1920’s dealt a swift blow to the production
orientation ideology. The recovery that followed this period saw the establishment
of many new businesses. This in turn resulted in the availability of products on offer
outstripping the demand for them. Businesses were confronted with competition
and had to face up the question: “How do we sell our products?”
The focus of business changed in the 1930’s from a production to a sales orientation.
Businesses concentrated on strategies that would help create demand for their
products over their competitors.
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Section 3.1
Nature and Role of Markets and Marketing
Techniques such as sales promotions, advertising and public relations were
increasingly developed to capture consumer attention and business in the
marketplace. Marketing exploded through mediums such as newspapers, magazines
and radio. The biggest sales technique to emerge from this era was the introduction
of a sales representative whose sole task was to personally sell products to customers.
C)
Marketing Orientation
Marketing orientation embraces what has become known as the marketing concept.
This ideology shifts the focus to the analysis of consumer needs and values, and the
design of goods and services to satisfy them. Geoff Polites, President of Ford
Australia, 1999, summed up this ideology best when he said: ‘We always thought
we knew best for the consumer. We’d design and build the car, then research
it. Now we’re starting with the consumer and working back the other way.’
Here, the customer becomes the focus.
The focus of business on marketing lead to the creation of the marketing concept.
3.1.4 The Marketing Concept – Customer Orientation, Relationship
Marketing
The marketing concept is a business philosophy that revolves around achieving customer
satisfaction, and thereby maximizing the success of the organization. By listening to what
consumers want, and by focusing production and marketing towards consumers, businesses
will maximize their sales and thus their profits.
A)
Customer Orientation
CUSTOMER ORIENTATION is when a business centers its activities around
the needs of the customer. Here, the customer is king; the business must obtain as
much information as possible about the market, its attributes and its desires, and use
this to produce according to what it believes the customer wants.
Customer orientation must flow through every aspect of the business’s functions,
delivering consistently high results to the customer. Customer orientation must flow
across departments if the marketing concept is to be successful.
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Section 3.1
B)
Nature and Role of Markets and Marketing
Relationship Marketing
RELATIONSHIP MARKETING is the process of developing a strong
relationship with customers and other stakeholders. It focuses on encouraging
repeat business by managing customer relationships, long after an initial purchase.
Businesses try to create and maintain a strong relationship with their customers to
develop CUSTOMER LOYALTY. Studies have shown it costs businesses at least
five times more to attract new customers than it does to maintain existing ones. By
maintaining strong relationships, businesses increase their brand loyalty and ensure
that customers continue to buy their product.
Businesses have realized that losing a customer could mean losing more than just
one sale. It could mean losing all the future sales that one customer could provide.
For example, a frequent business traveler who switches from Qantas to Virgin Blue
could be lost forever.
3.1.5 Marketing Planning Process
Planning is vital for successful marketing. In order to carry out the marketing program, a
business needs a plan that will help it to achieve its objectives. It is therefore appropriate to
consider the marketing planning process – that is, how to prepare a marketing plan.
A)
Situation Analysis
The SITUATION ANALYSIS asks the question: “Where are we now?” It
examines the marketing environment, customer needs and wants, and the
competition. The situation analysis looks at the market in terms of size and growth,
needs of the target market and trends in buyer behaviour. The performance of the
product(s) in terms of sales, profit margins and stage in the product life cycle are
examined. Major competitors are identified and analysed in terms of marketing
strategies, market share and other criteria that help to understand and predict their
behaviour.
A major part of the situational analysis is the prediction of market opportunities.
The SWOT analysis is a commonly used method.
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Section 3.1
B)
Nature and Role of Markets and Marketing
Establishing Marketing Objectives
The objectives established in the business plan will be the guide for the marketing
objectives. For example, if an objective of the business plan is to increase exports by
10% over the next 5 years, the marketing plan must develop specific objectives and
strategies that will achieve this overall goal. In other words, the marketing plan
translates the business’ objectives into marketing terms.
C)
Identifying Target Markets
The whole market is very large. For this reason, many businesses break down the
market into smaller segments, or parts.
This is known as MARKET
SEGMENTATION. Once the whole market has been broken down, the business
can then decide which group of customers it will focus on. This group of customers
will be the TARGET MARKET. A business must always study its market to make
sure that it is always providing products that are in demand.
D)
Developing Marketing Strategies
Objectives tell us ‘where we want to go’. Strategies answer the question ‘how do
we get there?’ After identifying the target market, management must then design
marketing strategies that will allow the business to satisfy the wants of this market
and achieve its marketing objectives.
The MARKETING MIX refers to the combination of the four factors that make
up the core of a business’s marketing strategy. In this step of the marketing planning
process, a marketing mix must be designed to satisfy the wants of target markets and
achieve the marketing objectives. The four elements of the marketing mix are the
product (including services) offered for sale, the price structure, the promotional
activities and the place (distribution) networks of the business. Each element is
interdependent and decisions made in one area affect the operation of the others.
The coordination of these variables makes up the business’s marketing tactics.
E)
Preparing a Marketing Plan
The final step in the marketing planning process is the marketing plan. The
marketing plan draws all the information discussed above into a coherent and logical
report that will set the business’s direction and communicate the objectives and
strategies to other employees. Another important function of the marketing plan is
to outline how its performance will be monitored, including the various controls that
will be used.
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Section 3.1
Nature and Role of Markets and Marketing
DEFINITIONS:
Customer Loyalty
A measure of how often a customer buys a product from the
same business when they have a choice of who to buy from.
Customer Orientation
When a business centers its activities around the needs of the
customer.
Market
The set of all actual and potential buyers of a product.
Marketing
A total system of business activities designed to plan, price,
promote and distribute want-satisfying products and services
to markets in order to achieve the objectives of the business.
Market Segmentation
The breaking of the total market into smaller parts based on
similar characteristics.
Materialism
The focus on and desire for possessions, money, and so on.
Relationship Marketing
The process of developing a strong relationship with
customers and other stakeholders.
Situation Analysis
A review of the business’s present performance and the
current business environment.
Target Market
The particular segment of the market on which the business
will focus its marketing efforts.
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Section 3.1
Nature and Role of Markets and Marketing
HOMEWORK ACTIVITIES:
Activity 1:
Read the Case Study “Nike: Good marketing is more than hype” on
P.166 of the text.
Activity 2:
Complete the Activities (Questions 1 – 3) on P.170 of the text.
Activity 3:
Complete the Activities (Questions 1 – 3) on P.172 of the text.
Activity 4:
Consider a tile manufacturer and distributor selling tiles from a shop attached
to its manufacturing plant. Outline which markets this business is most likely
to be operating in.
Activity 5:
A store selling “gothic” clothing only opens up in Sydney’s CBD. Justify
whether this business is targeting a niche or mass market.
Activity 6:
Complete the Activities (Questions 1 – 5) on P.175/176 of the text.
Activity 7:
Briefly explain how the focus of marketing has changed over the last century.
Activity 8:
Read the Case Study “Johnson & Johnson” on P.178 of the text.
Activity 9:
Read and complete the Case Study “A small business heading in the right
direction” on P.179 of the text.
Activity 10:
Complete the Activities (Questions 1 – 5) on P.179 of the text.
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