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The Principles of Marketing
The five core concepts of marketing are; consumer needs/wants/demands, products and services, value/satisfaction/quality, exchanges/transactions/relationships and markets (Kotler, et al., 2008). To be able to understand and cater to all these factors, an organisation can use a variety of marketing theories. This report will outline and critique the various principles of marketing, noting the advantages and disadvantages of each. The theories that will be covered are; 4Ps, marketing, ambush marketing, buzz marketing, market segmentation, targeting and positioning, Ansoffs matrix, PESTEL analysis, porters’ five forces and micro-environment factors.
Successful marketing is based upon addressing some very basic, key issues. The 4Ps aims to address these issues, and allows a company to understand some very important aspects of their internal operations. The 4Ps are comprised of; product, price, place and promotion (CIM, 2009). Analysing these factors allows an organisation to put their customers at the centre of their marketing, and the company must do everything in their power to deliver the upmost quality and service to all of their customers.
Booms & Bitner (1981) provide a list of attributes that each of the 4Ps may include. Although an old model, it is still very much applicable to today’s business environment.
- Product: Quality, brand name, service line, warranty, capabilities, facilitating goods, tangible clues, price, personnel, physical environment and process of service delivery.
- Price: Level, discounts and allowances, payment terms, customers own perceived value, quality/price interaction and differentiation.
- Place: Location, accessibility, distribution channels and distribution coverage.
- Promotion: Advertisements, personal selling, sales promotion, publicity, personnel, physical environment, facilitating goods, tangible clues and process of service delivery.
Furthermore, for the service industry, the 4Ps was extended to the 7Ps. This was mainly due to the higher degree of collaboration between the organisation and the consumer, which the original 4Ps were not taking into consideration(Webster, 1984). This resulted in the framework being extended, to take into account the variety of service attributes that come into play when devising marketing strategies. Service quality is becoming more significant to an organisation, as they can no longer only rely on the benefit of a good to attain and retain consumers (Lusch, et al., 2007). Booms & Bitner (1981) provide many of the attributes that the extra 3Ps encompass. These are;
- Participants: Personnel training, discretion, commitment, incentives, appearance, interpersonal behaviour, attitudes and customer behaviour/degree of involvement.
- Process: Policies, procedures, mechanisation, employee discretion, customer involvement, customer direction and flow of activities.
- Physical Evidence: Environment, furnishings, colour, layout, noise level, facilitating goods and tangible clues.
There is a lot of moral uncertainty surrounding the use of ambush marketing. It is predominantly related to big events and sponsorship deals. Ambush marketing became such a prominent strategy because of the increase in sponsorship deals. This mainly happened because event owners wanted higher returns and it made advertising more effective (Meenaghan, 1998). Furthermore, Meenaghan (1994, p. 79) defined ambush marketing as “”the practice whereby another company, often a competitor, intrudes upon public attention surrounding the event, thereby deflecting attention toward themselves and away from the sponsor”.
Although ambush marketing would appear to hold many benefits for a company, at basically no cost, there have been many academics that criticise its uses. Payne (1998) believes ambush marketing jeopardises one of the fundamental facets of business activity, namely truth in advertising and business interactions. On the other hand, other academics criticise the weak-minded view that competitors have a moral obligation to step back and allow an official sponsor to reap all the benefits from a special event (Meenaghan, 1996). In general, ambush marketing comes down the moral perceptions of the marketing manager. As the majority of companies are in business to make profits, then capitalising on any means necessary will be acceptable, and ambush marketing will be a prominent strategy for them to use.
Word-of-mouth marketing and buzz marketing are very similar, and is a “marketer’s dream” (Balter & Butman, 2005, p. 161) if successfully implemented. However, it is incredibly difficult to define and implement buzz marketing, as “everyday word of mouth conversations tend to be random and spontaneous in nature, occurring in a natural, unpredictable pattern of communication” (Ahuja, et al., 2007, p. 152).
Buzz marketing is usually implemented through building suspense and tensions around the release of a new product, thus causing media and consumers to constantly talk about the product. It is a relatively free way of marketing, and can reap incredible benefits for the company. The only negative for buzz marketing is the fact that it cannot really be controlled in any way, as it is heavily reliant on consumers spreading the message on behalf of the organisation.
The intentions of buzz marketing is obviously meant to be positive, by generating effectively free advertising for an organisation or their products (Ahuja, et al., 2007). However, word-of-mouth works in both a positive and negative manner, as a bad PR story can quickly be spread across the globe. Furthermore, it is most effective across a young audience, meaning that the message will be spread amongst a certain demographic, but not everyone the organisation was hoping for (Leila & Abderrazak, 2013). It is the inability to measure the reach of this type of marketing that makes buzz marketing very risky for an organisation. The message could easily be misinterpreted, there is little control over the direction of the campaign, and it may actually end up causing negative impact on organisation performance (Bloomberg, 2001). Market Segmentation, Targeting and Positioning
Market segmentation has become an essential element of marketing, especially in developed countries. This is because goods can no longer be sold without considering the specific needs of consumers, and who is likely to purchase the product (Wedel & Kamakura, 2000). The main use for market segmentation is to provide guidance on which marketing analysis or strategy an organisation should pursue. Furthermore, Wedel & Kamakura (2000) provide a classification of different market segmentation groups that companies should aim to cater to. This is in regards to a general and product-specific view.
Combining segmentation with targeting and positioning allows an organisation to learn information about their target markets, consumer preferences, competitor’s strengths and customer segments (Natter, et al., 2006). Furthermore, the process of STP should be completed in order, with a segmentation analysis being used as the basis of targeting, which can then be used for positioning. Unfortunately, this can make the process long-winded, as an organisation may want to identify only who they target, or where they should position their product (Kotler, et al., 2006). There is also a great need for behavioural profiling throughout STP, forcing an organisation to conduct even more analysis than they may actually want to (Dholakia & Dholakia, 2001; Kotler, et al., 2002). Although and STP analysis can be time-consuming, it does provide an organisation with a comprehensive overlook on a variety of factors that are intrinsic to an organisations success.
In a 1957 report, Ansoff provided a comprehensive definition for product marketing as “a joint statement of a product line and the corresponding set of missions which the products are designed to fulfil” (Ansoff, 1957, p. 114). This resulted in the creation of the Ansoff Matrix (1965), which is a comprehensive marketing theory to help guide a company’s strategic growth decisions. It is comprised of four quadrants, with each giving a general direction as to how a company should proceed with their desired growth. The four quadrants of Ansoffs Matrix are (AM, 2015);
- Market Penetration: This is about further exploiting a product that exists in an already functioning market. Market penetration is usually made possible through the clever use of promotions, or increasing the attractiveness of a product
- Product Development: The product development growth strategy focuses on introducing new products into existing markets. This can either be in the form of a complete new product, or the modification of an existing product.
- Market Development: Sometimes referred to as market extension, this factor of the Ansoff Matrix involves an organisations selling its existing products in a new market. This can be aided by market segmentation, which can help identify potential new markets. Some approaches to this strategy include, new geographical markets or distribution channels.
- Diversification: Generally known as the most risky growth strategy, diversification involves an organisation developing new products into new markets. There is a lot of risk in this strategy because an organisation will not be knowledgeable on either the product or the market they are entering. Heavy planning and research are vital for a diversification strategy to be successful.
Different organisations benefit from different strategies. For example, a study conducted by Watts, et al., (1998) concluded that the most appropriate strategies for small and medium sized enterprises (SMEs) would be product development or market development. This is because most of these organisations would not have the resources to successfully implement a diversification strategy, and the growth from market penetration would be too slow. A larger organisation may well be more successful in diversification, as they have more expendable resources.
Macro Environment Marketing
PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal. Furthermore, it is a comprehensive framework used by organisations to help analyse the macro-environment factors that are affecting daily operations. A PESTLE analysis “is in effect an audit of an organisation’s environmental influences with the purpose of using this information to guide strategic decision-making” (CIPD, 2015, p. n.p.). After a company has conducted a PESTLE analysis, they should use their findings to help guide any strategic decision making to minimise the impact of external forces.
- Political: The main political factors of PEST deals with the effects government can impose on an organisation. This can include things such as, new legislation, changes in taxation, minimum wages, and employee benefits.
- Economic: Some of the most important economic factors that a PESTEL analysis will investigate are “the economy systems and structures, resource status, the level of economy developing…” (Yingfa & Hong, 2010, p. 563). If an economy strengthens, then it would usually have a positive effect on the majority of companies performance, however this can be largely dependent on what areas of the economy strengthen.
- Social: One of the most significant factors of the PESTEL is the socio-culture factor. The socio-culture factors are usually in continuous change, and “have a massive impact on how organisations are managed, and how leaders have to behave if they want any followers” (Hussey, 1998).
- Technology: One of the fastest growing and most rapidly changing factors of the PESTEL analysis is the technological environment (Henry, 2008). Some examples of technological factors include; R&D activity, Automation and Technological Developments (NetMBA, 2015). A company must ensure they are maintaining top quality equipment to produce the most competitive products.
- Environmental: The main environmental factors that a company will look at through a PESTEL analysis are, ‘green’ issues that affect the environment, renewable energy sources and waste/disposal (App Rao, et al., 2008). Consumers are becoming more concerned with their environmental impact, thus affecting their purchasing choices.
- Legal: Similar to political, legal factors look at how legislation affects a company. This can include, competition law and government policy, employment law and safety law. It is of vital importance for a company to keep up-to-date with all relevant legislation (App Rao, et al., 2008).
Porters Five Forces
Porters Five Forces model can have a huge impact on the direction and shape of an organisations decision making. If conducted successfully it is a great tool to guide all strategic marketing activities. The five components of Porters Five Forces are:
- Threat of new Entrants: “New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources” (Porter, 2000, p. 138).
- Threat of Substitutes: “A substitute performs the same or a similar function as an industry’s product by a different means” (Porter, 2008, p. 17).
- Bargaining Power of Customers: “Powerful customers can capture more value by forcing down prices, demanding better quality or more service, and generally playing industry participants off against one another, all at the expense of industry profitability” (Porter, 2008, p. 14).
- Bargaining Power of Suppliers: “Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services” (Porter, 1998, p. 27).
- Rivalry among Existing Competitors: “Rivalry among existing competitors takes many familiar forms, including price discounting, new product introductions, advertising campaigns and service improvements” (Porter, 2008, p. 18).
Micro Environment Marketing
One of the most widely used and comprehensive frameworks for analysing the micro-environment is the SWOT analysis. This analysis measures the internal strengths and weaknesses of an organisation, and the external opportunities and threats. Having identified these factors, an organisation should build strategies which may build on the strengths, negate the weaknesses, exploit the opportunities or counter the threats (Dyson, 2004). These strategies can be further guided by the use of the macro-environment analysis, and can supplement the variety of different marketing techniques mentioned above, such as ambush marketing or market segmentation. Furthermore, these strategies can be generated through the use of a TOWS matrix, with forms relationships between the different variable to draw up a variety of strategies that the firm can utilise.
Overall there are a variety of methods that an organisation can utilise in order to successfully analyse the market, and market their products. It is imperative that an organisation knows how to implement both of these methods, as it will have a huge impact on the overall success of the organisation. The 4Ps is a great analysis for a company to conduct first, as it outlines all the fundamental aspects that effect an organisation.
Furthermore, an external analysis should always be conducted, especially the PESTEL and Porters Five Forces analysis. This is because it outlines all important external factors, such as competitions activities or new legislation. Understanding these factors will shape the marketing strategy that a company wishes to pursue. Depending on what the external analysis shows to a competitor, they can then choose which market strategy they wish to pursue. This could involve using an Ansoff Matrix, or just pursuing an ambush, buzz, push and pull or market segmentation strategy. One strategy cannot be anchored to a certain industry or company, as it is only through extensive analysis that a company will know which the optimum strategy is.
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