Reading: Lesson 5 - Elements of Marketing

10.5.A - Elements of Marketing

1. MARKET IDENTIFICATION

1. Before a company decides to make and distribute a product, marketing managers must identify the market to be served. Here, market refers to the types of buyers a business wishes to attract and where those buyers are located. All companies need to clearly identify their markets.
   
2. There are many potential customers for a product. Some people may be searching for the product, whereas others do not currently want the product and will have to be convinced to buy it. Some people are very easy to reach, but others are more difficult. For cost reasons, it is usually unwise to try to reach all potential customers. Therefore, a business identifies several groups of potential customers and then decides which group or groups will be the best markets for the products. Marketing managers often develop customer profiles based on population characteristics, such as age, gender, family status, education, income, and occupation, as a way to group consumers. A clothing manufacturer, for example, could handle women’s or men’s clothing, clothing for children or adults, casual clothing or the latest high fashion, and so on. The producer of cellular telephones may want to attract families, businesspeople, or elderly consumers. A business can decide to serve one or more markets. Companies choose a market based on the opportunities for success the market presents. For example, an attractive market may have few existing competitors, a large number of customers with a need for the product, and customers with sufficient money to spend on such a product. If the business has the ability to produce a product that will satisfy the needs of that market, then it is a good market for the business to serve.
   
3. Producers often limit the scope of their business operations to certain geographic areas. Marketing managers study sections of a city, state, country, or continent to determine whether their product might sell more successfully in one area than another. Climate, for example, may cause a small producer of air conditioners to concentrate its marketing efforts on regions with hot and humid climates, whereas the maker of snow skis may concentrate on regions with cold winters and mountains. Some products may sell better on the coasts than in the middle of the country, or in rural areas better than in cities. Finding the best marketing locations enables a business to achieve the most sales for its marketing dollar. 
   

4. Companies can produce goods and services that meet consumers’ needs better if they know who their customers are, where they are located, and what they want and need. Many companies spend a great deal of money on market research before they begin to develop products. Market research is the study of a company’s current and prospective customers. Companies use market research to identify their target markets. Target markets are groups of customers with very similar needs to whom the company plans to sell its product. If the company can find a group of people with very similar needs, it can more easily produce a product that will satisfy most consumers within that group. On the other hand, if people in the group have needs that are quite different, it will be almost impossible to develop a product that will satisfy each of them. Imagine developing a product like a bicycle. It can be made in a variety of sizes and shapes with a number of special features. No single bicycle will satisfy everyone’s needs. A long-distance racer wants something very different from the average mountain biker. However, if you could find a group of people with very similar needs, you could successfully design a bicycle for that group. A positioning chart can identify alternate market segments with unique needs based on major choice criteria. In the positioning chart in the Figure below, the choice criteria would be price and performance.
   
   
   
   
   

1. Marketing managers have many decisions to make. These decisions center on four elements of marketing: (1) the product, (2) its price, (3) distribution (sometimes referred to as place), and (4) promotion. Planning each element involves answering some important questions. For example, assume that you want to market a new product. You must answer the following questions related to the four elements of marketing: (1) Will you make the product in one size and color, or in several? (2) Will you price the product high, medium, or low? (3) Will you sell the product in retail stores or over the Internet? (4) What forms of advertising will you use?
   
2. The blend of all decisions related to the four elements of marketing—product, price, distribution, and promotion—is called the marketing mix. The marketing mix for a new product may be to design the item for young adults, give it a low price, sell it through retail stores, and advertise it on the Internet. Or it could be to produce a medium-priced item to be advertised on television and sold door-to- door to senior citizens. Can you identify the marketing mix for one of the businesses that Tony Taylor thought about in the chapter-opening scenario? Several companies marketing the same product may use very different marketing mixes, because they made different decisions. Furthermore, they must review their decisions frequently, because conditions change constantly. Changes in general economic conditions, changes in consumer needs, and the development of new or improved products by competitors are factors that may require a change in the marketing mix.
   
3. The first marketing mix element is the product. Product can be defined as all attributes, both tangible and intangible, that customers receive in exchange for the purchase price. For example, when consumers buy a tablet computer, they are also buying the company’s customer service and technical support as well as other intangibles, such as the prestige of the brand name. All of these attributes are part of the product. Products include services as well as physical goods. A critical question relating to the product is: What do customers want? Product planning and development deal with finding answers to that question. By identifying the target market for a product and knowing what customers in that market want, the company can design a product to fit those customers. Market information can help marketing managers develop a product strategy that includes decisions such as:
   
   1. The number of items to produce.
   2. The physical features or attributes the product should possess, such as size, shape, color, and weight.
   3. The quality preferred by the target market.
   4. The number of different models and the features of each model needed to serve the various markets the company wants to attract.
   5. The packaging features of the item, such as the color and the shape of the package, as well as the information printed on it.
   6. The brand name.
   7. Product guarantees and services customers would value.
   8. The image to be communicated to customers by the product’s features, packaging, and brand name.
   
4. The second mix element around which marketing decisions are made is price. Price is the amount of money needed to acquire a product. The many decisions a company makes during product development influence the price. First, the price must be high enough to cover the costs of producing and marketing the product. If the company decides to manufacture a high-quality product, it would likely have to set a higher price to cover its costs than it would for a low-quality product. The number of competing products and their prices, the demand for the product, and whether the product will be sold for cash or credit are some of the many other factors that influence price decisions. When making price decisions, a company must do more than just set a price that customers will pay for the product. It must decide what price to charge other companies that buy and resell the product. Will the company offer coupons, discounts, or other sales promotions to attract customers? Will it allow customers to bargain for a lower price or trade in a used product for a new one? Pricing is a critical marketing decision because it determines the maximum revenue per unit.
   
5. The third element around which marketing decisions are made is distribution. Distribution decisions relate to the economic concept of place utility. Place utility means that the product must be in a place where customers need or want it. Distribution (or place), therefore, is the set of activities required to transport and store products and make them available to customers. Marketing managers must select businesses to handle products as they move from the producer to the consumer. Many manufacturers prefer to use other businesses to sell their products rather than to reach individual consumers directly. Therefore, they may sell their products to retailers or to wholesalers, which then sell to retailers. Choosing the various routes that products will follow as they are distributed and the businesses that will sell them to consumers are important marketing decisions. Planning distribution also includes the actual physical handling of the products and the customer service provided when orders are processed. Have you ever opened a product you purchased only to find it damaged or missing pieces? Have you ordered something online and received the wrong merchandise or no merchandise at all? Each of these examples describes a problem with a company’s distribution system and will result in dissatisfied customers as well as a loss of future sales and profits for the company.
   
6. The fourth marketing mix element for which decisions must be made is promotion. Promotion means providing information to consumers that will assist them in making a decision and persuade them to purchase a product or service. The major methods of promotion are advertising and personal selling. Promotional decisions for a digital recorder might involve selecting advertising as the main vehicle and then deciding whether to advertise in magazines or by direct mail to prospective customers. Marketing managers decide when and how frequently to advertise. Then they must decide whether to stage product demonstrations in stores or at consumer electronics shows. Managers must also decide the type of information to communicate to consumers and whether to try to communicate directly with each customer or use more impersonal messages that can reach a larger pool of potential customers. The type of product and its price influence promotional decisions. The strategy for promoting an expensive piece of jewelry will be much different from that for promoting athletic shoes. Although the product and its price provide general guides for promotion, marketing managers must consider many other factors before developing the actual promotions. For example, the company will budget only a certain amount of money for promotion. Managers must decide when to spend the money and how much to spend on advertising, displays, and other types of promotion. They must consider what promotions competitors are using and what information consumers need in order to make a purchasing decision.