Timo Uustal
Form 11b

 Tartu 2001

Marketing - the sum of activities involved in directing the flow of goods and services from producers to consumers.

Marketing's principal function is to promote and facilitate exchange. Through marketing, individuals and groups obtain what they need and want by exchanging products and services with other parties. Such a process can occur only when there are at least two parties, each of whom has something to offer. In addition, exchange cannot occur unless the parties are able to communicate about and to deliver what they offer. Marketing is not a coercive process: all parties must be free to accept or reject what others are offering. So defined, marketing is distinguished from other modes of obtaining desired goods, such as through self-production, begging, theft, or force.

Marketing is not confined to any particular type of economy, because goods must be exchanged and therefore marketed in all economies and societies except perhaps in the most primitive. Furthermore, marketing is not a function that is limited to profit-oriented business; even such institutions as hospitals, schools, and museums engage in some forms of marketing. Within the broad scope of marketing, merchandising is concerned more specifically with promoting the sale of goods and services to consumers (i.e., retailing) and hence is more characteristic of free-market economies.

The marketing discipline had its origins in the early 20th century as an offspring of economics. Economic science had neglected the role of middlemen and the role of functions other than price in the determination of demand levels and characteristics. Early marketing economists examined agricultural and industrial markets and described them in greater detail than the classical economists. This examination resulted in the development of three approaches to the analysis of marketing activity: the commodity, the institution, and the function.

Commodity analysis studies the ways in which a product or product group is brought to market. A commodity analysis of milk, for example, traces the ways in which milk is collected at individual dairy farms, transported to and processed at local dairy cooperatives, and shipped to grocers and supermarkets for consumer purchase. Institutional analysis describes the types of businesses that play a prevalent role in marketing, such as wholesale or retail institutions. For instance, an institutional analysis of clothing wholesalers examines the ongoing concerns that wholesalers face in order to ensure both the correct supply for their customers and the appropriate inventory and shipping capabilities. Finally, a functional analysis examines the general tasks that marketing performs. For example, any marketing effort must ensure that the product is transported from the supplier to the customer. In some industries, this transportation function may be handled by a truck, while in others it may be done by mail, facsimile, television signal, or airline. All these institutions perform the same function.

As marketing developed, it took a variety of forms. It was noted above that marketing can be viewed as a set of functions in the sense that certain activities are traditionally associated with the exchange process. A common but incorrect view is that selling and advertising are the only marketing activities. Yet, in addition to promotion, marketing includes a much broader set of functions, including product development, packaging, pricing, distribution, and customer service.

Many organizations and businesses assign responsibility for these marketing functions to a specific group of individuals within the organization. In this respect, marketing is a unique and separate entity. Those who make up the marketing department may include brand and product managers, marketing researchers, sales representatives, advertising and promotion managers, pricing specialists, and customer service personnel.

As a managerial process, marketing is the way in which an organization determines its best opportunities in the marketplace, given its objectives and resources. The marketing process is divided into a strategic and a tactical phase. The strategic phase has three components--segmentation, targeting, and positioning (STP). The organization must distinguish among different groups of customers in the market (segmentation), choose which group(s) it can serve effectively (targeting), and communicate the central benefit it offers to that group (positioning). The marketing process includes designing and implementing various tactics, commonly referred to as the "marketing mix," or the "4 Ps": product, price, place (or distribution), and promotion. The marketing mix is followed by evaluating, controlling, and revising the marketing process to achieve the organization's objectives (see below the section Marketing-mix planning).

The managerial philosophy of marketing puts central emphasis on customer satisfaction as the means for gaining and keeping loyal customers. Marketers urge their organizations to carefully and continually gauge target customers' expectations and to consistently meet or exceed these expectations. In order to accomplish this, everyone in all areas of the organization must focus on understanding and serving customers; it will not succeed if all marketing occurs only in the marketing department. Marketing, consequently, is far too important to be done solely by the marketing department. Marketers also want their organizations to move from practicing transaction-oriented marketing, which focuses on individual exchanges, to relationship-driven marketing, which emphasizes serving the customer over the long term. Simply getting new customers and losing old ones will not help the organization achieve its objectives.

The marketing process consists of four elements: strategic marketing analysis, marketing-mix planning, marketing implementation, and marketing control.

In order to understand target customers, certain questions must be answered: Who constitutes the market segment? What do they buy and why? And how, when, and where do they buy? Knowing who constitutes the market segment is not simply a matter of knowing who uses a product. Often, individuals other than the user may participate in or influence a purchasing decision. Several individuals may play various roles in the decision-making process. For instance, in the decision to purchase an automobile for a small family business, the son may be the initiator, the daughter may be an influencer, the wife may be the decider, the purchasing manager may be the buyer, and the husband may be the user. In other words, the son may read in a magazine that businesses can save money and decrease tax liability by owning or leasing company transportation. He may therefore initiate the product search process by raising this issue at a weekly business meeting. However, the son may not be the best-qualified to gather and process information about automobiles, because the daughter worked for several years in the auto industry before joining the family business. Although the daughter's expertise and research efforts may influence the process, she may not be the key decision maker. The mother, by virtue of her position in the business and in the family, may make the final decision about which car to purchase. However, the family uncle may have good negotiation skills, and he may be the purchasing agent. Thus, he will go to different car dealerships in order to buy the chosen car at the best possible price. Finally, despite the involvement of all these individuals in the purchase process, none of them may actually drive the car. It may be purchased so that the father may use it for his frequent sales calls. In other instances, an individual may handle more than one of these purchasing functions and may even be responsible for all of them. The key is that a marketer must recognize that different people have different influences on the purchase decision, and these factors must be taken into account in crafting a marketing strategy.

In addition to knowing to whom the marketing efforts are targeted, it is important to know which products target customers tend to purchase and why they do so. Customers do not purchase "things" as much as they purchase services or benefits to satisfy needs. For instance, a conventional oven allows users to cook and heat food. Microwave oven manufacturers recognized that this need could be fulfilled--and done so more quickly--with a technology other than conventional heating. By focusing on needs rather than on products, these companies were able to gain a significant share in the food cooking and heating market.

Knowledge of when, where, and how purchases are made is also useful. A furniture store whose target customers tend to make major purchases in the spring may send its mailings at the beginning of this season. A food vendor may set up a stand near the door of a busy office complex so that employees must pass the stand on their way to lunch. And a jeweler who knows that customers prefer to pay with credit cards may ensure that all major credit cards are accepted at the store. In other cases, marketers who understand specifics about buying habits and preferences also may try to alter them. Thus, a remotely situated wholesale store may use deeply discounted prices to lure customers away from the more conveniently located shopping malls.

Many producers do not sell products or services directly to consumers and instead use marketing intermediaries to execute an assortment of necessary functions to get the product to the final user. These intermediaries, such as middlemen (wholesalers, retailers, agents, and brokers), distributors, or financial intermediaries, typically enter into longer-term commitments with the producer and make up what is known as the marketing channel, or the channel of distribution. Manufacturers use raw materials to produce finished products, which in turn may be sent directly to the retailer, or, less often, to the consumer. However, as a general rule, finished goods flow from the manufacturer to one or more wholesalers before they reach the retailer and, finally, the consumer. Each party in the distribution channel usually acquires legal possession of goods during their physical transfer, but this is not always the case. For instance, in consignment selling, the producer retains full legal ownership even though the goods may be in the hands of the wholesaler or retailer--that is, until the merchandise reaches the final user or consumer.

Channels of distribution tend to be more direct--that is, shorter and simpler--in the less industrialized nations. There are notable exceptions, however. For instance, the Ghana Cocoa Marketing Board collects cacao beans in Ghana and licenses trading firms to process the commodity. Similar marketing processes are used in other West African nations. Because of the vast number of small-scale producers, these agents operate through middlemen who, in turn, enlist sub-buyers to find runners to transport the products from remote areas. Japan's marketing organization was, until the late 20th century, characterized by long and complex channels of distribution and a variety of wholesalers. It was possible for a product to pass through a minimum of five separate wholesalers before it reached a retailer.

Companies have a wide range of distribution channels available to them, and structuring the right channel may be one of the company's most critical marketing decisions. Businesses may sell products directly to the final customer, as Land's End, Inc., does with its mail-order goods and as is the case with most industrial capital goods. Or they may use one or more intermediaries to move their goods to the final user. The design and structure of consumer marketing channels and industrial marketing channels can be quite similar or vary widely.

Because marketing functions require significant expertise, it is often both efficient and effective for an organization to use the assistance of independent marketing facilitators. These are organizations and consultants whose sole or primary responsibility is to handle marketing functions. In many larger companies, all or some of these functions are performed internally. However, this is not necessary or justifiable in most companies, which usually require only part-time or periodic assistance from marketing facilitators. Also, most companies cannot afford to support the salaries and operating expenses required to maintain marketing facilitators as a permanent part of their staff. Furthermore, independent marketing contractors can be more effective than an internal department because nonemployee facilitators can have broader expertise and more objective perspectives. In addition, independent contractors often are more motivated to perform at high standards, because competition in the facilitator market is usually aggressive, and poor performance could mean lost business.

A service is an act of labour or a performance that does not produce a tangible commodity and does not result in the customer's ownership of anything. Its production may or may not be tied to a physical product. Thus, there are pure services that involve no tangible product (as with psychotherapy), tangible goods with accompanying services (such as a computer software package with free software support), and hybrid product-services that consist of parts of each (for instance, restaurants are usually patronized for both their food and their service).

Services can be distinguished from products because they are intangible, inseparable from the production process, variable, and perishable. Services are intangible because they can often not be seen, tasted, felt, heard, or smelled before they are purchased. A person purchasing plastic surgery cannot see the results before the purchase, and a lawyer's client cannot anticipate the outcome of a case before the lawyer's work is presented in court. To reduce the uncertainty that results from this intangibility, marketers may strive to make their service tangible by emphasizing the place, people, equipment, communications, symbols, or price of the service. For example, consider the insurance slogans "You're in good hands with Allstate" or Prudential's "Get a piece of the Rock."

Services are inseparable from their production because they are typically produced and consumed simultaneously. This is not true of physical products, which are often consumed long after the product has been manufactured, inventoried, distributed, and placed in a retail store. Inseparability is especially evident in entertainment services or professional services. In many cases, inseparability limits the production of services because they are so directly tied to the individuals who perform them. This problem can be alleviated if a service provider learns to work faster or if the service expertise can be standardized and performed by a number of individuals (as H&R Block, Inc., has done with its network of trained tax consultants throughout the United States).

The variability of services comes from their significant human component. Not only do humans differ from one another, but their performance at any given time may differ from their performance at another time. The mechanics at a particular auto service garage, for example, may differ in terms of their knowledge and expertise, and each mechanic will have "good" days and "bad" days. Variability can be reduced by quality-control measures. These measures can include good selection and training of personnel and allowing customers to communicate dissatisfaction (e.g., through customer suggestion and complaint systems) so that poor service can be detected and corrected.

Business marketing, sometimes called business-to-business marketing or industrial marketing, involves those marketing activities and functions that are targeted toward organizational customers. This type of marketing involves selling goods (and services) to organizations (public and private) to be used directly or indirectly in their own production or service-delivery operations. Some of the major industries that comprise the business market are construction, manufacturing, mining, transportation, public utilities, communications, and distribution. One of the key points that differentiates business from consumer marketing is the magnitude of the transactions. For example, in the mid-1990s, a Boeing 747 airliner, selling for about $155 million, could take up to four years to manufacture and deliver once the order was placed. Often, a major airline company will order several aircraft at one time, making the purchase price as high as a billion dollars.

Marketing scholars began exploring the application of marketing to nonprofit organizations in 1969. Since then, nonprofit organizations have increasingly turned to marketing for growth, funding, and prosperity.

Criticisms have been leveled against marketers, claiming that some of their practices may damage individual welfare. While this may be true in certain circumstances, it is important to recognize that, if a business damages individual welfare, it cannot hope to continue in the marketplace for long. As a consequence, most unfavourable views of marketing are criticisms of poor marketing, not of strategically sound marketing practices.

Others have raised concerns about marketing by saying that it increases prices by encouraging excessive markups. Marketers recognize that consumers may be willing to pay more for a product--such as a necklace from Tiffany and Co.--simply because of the associated prestige. This not only results in greater costs for promotion and distribution, but it allows marketers to earn profit margins that may be significantly higher than industry norms. Marketers counter these concerns by pointing out that products provide not only functional benefits but symbolic ones as well. By creating a symbol of prestige and luxury, Tiffany's offers a symbolic benefit that, according to some consumers, justifies the price. In addition, brands may symbolize not only prestige but also quality and functionality, which gives consumers greater confidence when they purchase a branded product. Finally, advertising and promotions are often very cost-effective methods of informing the general public about items and services that are available in the marketplace.

Concern also has been raised that some marketing practices may encourage excessive interest in material possessions, create "false wants," or promote the purchase of nonessential goods. For example, in the United States, children's Saturday morning television programming came under fire for promoting materialistic values. The Federal Communications Commission (FCC) responded in the early 1990s by regulating the amount of commercial time per hour. In many of these cases, however, the criticisms overstate the power of marketing communications to influence individuals and portray members of the public as individuals unable to distinguish between a good decision and a bad one. In addition, such charges cast marketing as a cause of social problems when often the problems have much deeper societal roots.

Although some have questioned the appropriateness of the marketing philosophy in an age of environmental deterioration, resource shortages, world hunger and poverty, and neglected social services, numerous firms are commendably satisfying individual consumer demands as well as acting in the long-term interests of the consumer and society. These dual objectives of many of today's companies have led to a broadening of the "marketing concept" to become the "societal marketing concept." Generating customer satisfaction while at the same time attending to consumer and societal well-being in the long run are the core concepts of societal marketing.

In practicing societal marketing, marketers try to balance company profits, consumer satisfaction, and public interest in their marketing policies. Many companies have achieved success in adopting societal marketing. Two prominent examples are The Body Shop International PLC, based in England, and Ben & Jerry's Homemade Inc., which produces ice cream and is based in Vermont. Body Shop's cosmetics and personal hygiene products, based on natural ingredients, are sold in recycled packaging. The products are formulated without animal testing, and a percentage of profits each year is donated to animal rights groups, homeless shelters, Amnesty International, rain-forest preservation groups, and other social causes. Ben & Jerry's donates a percentage of its profits to help alleviate social and environmental problems. The company's corporate concept focuses on "caring capitalism," which involves the product as well as social and economic missions.

The most widely used textbook is Philip Kotler, Marketing Management: Analysis, Planning, Implementation, and Control, 8th ed. (1994). Robert Bartels, History of Marketing Thought, 3rd ed. (1988), provides an overview of marketing through the years and contains an extensive bibliography. A more conceptual and theoretical treatment may be found in the work by Wroe Alderson, Dynamic Marketing Behavior: A Functionalist Theory of Marketing (1965).

Various strategic and tactical aspects of marketing are explored in the following studies: Steven P. Schnaars, Marketing Strategy: A Customer-Driven Approach (1991); Jack Trout and Al Reis, Positioning: The Battle for Your Mind, rev. ed. (1986); Thomas T. Nagle and Reed K. Holden, The Strategy and Tactics of Pricing, 2nd ed. (1994); Gilbert A. Churchill, Jr., Neil M. Ford, and Orville C. Walker, Jr., Sales Force Management, 4th ed. (1993); Don E. Schultz, Stanley I. Tannenbaum, and Robert F. Lauterborn, Integrated Marketing Communications (1992); Mary Lou Roberts and Paul D. Berger, Direct Marketing Management (1989); David A. Aaker, Strategic Market Management, 3rd ed. (1991); Glen L. Urban and John Hauser, Design and Marketing of New Products, 2nd ed. (1993); and Stan Rapp and Thomas L. Collins, Beyond Maximarketing (1994). The importance of marketing intermediaries is outlined by Louis W. Stern and Adel I. El-Ansary, Marketing Channels, 4th ed. (1992).

Theodore Levitt, The Marketing Imagination, new, expanded ed. (1986); and Regis McKenna, Relationship Marketing: Successful Strategies for the Age of the Customer (1991), discuss the evolving discipline of marketing.

The role of marketing research is investigated in the extended work by Gilbert A. Churchill, Jr., Marketing Research: Methodological Foundations, 5th ed. (1991). The role the consumer plays in the marketing process is examined in Michael R. Solomon, Consumer Behavior, 2nd ed. (1994); and David A. Aaker and George S. Day, Consumerism: Search for Consumer Interest, 4th ed. (1982).

Advertising's role in the marketing process is explored in David Ogilvy, Ogilvy on Advertising (1983); John Lyons, Guts: Advertising from the Inside Out (1987); and William Wells, John Burnett, and Sandra Moriarty, Advertising: Principles and Practice, 2nd ed. (1992).

Marketing in several different sectors is dealt with in the following selected works: David A. Aaker and Alexander L. Biel, Brand Equity & Advertising (1993); David A. Aaker, Managing Brand Equity (1991); Christopher H. Lovelock, Services Marketing, 2nd ed. (1991), and Managing Services: Marketing, Operations, and Human Resources, 2nd ed. (1991); Michael D. Hutt and Thomas W. Speh, Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 4th ed. (1992); Philip Kotler and Alan R. Andreasen, Strategic Marketing for Nonprofit Organizations, 4th ed. (1991); Philip Kotler and Roberta N. Clarke, Marketing for Healthcare Organizations (1986); Philip Kotler and Eduardo Roberto, Social Marketing: Strategies for Changing Public Behavior (1989); Philip Kotler, Donald H. Heider, and Irving Rein, Marketing Places: Attracting Investment, Industry, and Tourism to Cities, States, and Nations (1993); and Michael R. Czinkota and Ilkka A. Ronkainen, International Marketing, 3rd ed. (1993).