Marketing Summaries: Chapters 1 - 3
Phillip Kotler and Kevin Keller
Key concepts discussed in the preface of the textbook
- Companies have shifted gear from managing product portfolios to managing
customer portfolios ie compiling databases on individual customers so that they can
understand them better and construct individualised offerings and messages. They are
doing less product and service standardisation and more niching and customisation.
They are replacing monologues with customer dialogues. They are improving their
methods of measuring customer profitability and customer lifetime value. They are
intent on measuring the return on their marketing investments and its impact on
shareholder value. They are also concerned with the social and ethical implications of
their marketing decisions.
- Marketing should drive the company’s vision, mission and strategic planning. It is
no longer a department charged with a number of tasks.
- Marketing decides:
o Who the company wants as customers
o Which needs to satisfy
o What products and services to offer
o What prices to set
o What communications to send and receive
o What channels of distribution to use
o What partnerships to develop
Chapter 1 – Defining marketing for the 21st Century
Marketing is everywhere – it is embedded in everything we do. And it has become a key
ingredient to business success. Marketing is both an “art” and a “science” and good
marketing is no accident. It takes careful planning and execution.
The importance of marketing
Financial success often depends on marketing ability. Marketing managers need to
make big decisions about what features to design into a new product, what prices to
offer and where to sell products. Some of the key questions marketers need to
constantly ask themselves are listed on the top of page 6.
The scope of marketing – What is marketing?
- Marketing deals with identifying and meeting human and social needs. It is about
“meeting needs profitably”.
- Marketing is an organisational function and a set of processes for creating,
communicating and delivering value to customers and for managing customer
relationships in ways that benefit the organisation and its stakeholders.
- Marketing management is the art and science of choosing target markets and
getting, keeping and growing customers through creating, delivering and communicating
superior customer value.
- The aim of marketing is not selling. It is to know and understand the customer so
well that products and services fits him and sells itself.
Exchanges and Transactions
Exchange is a key concept in marketing ie where one obtains a desired product from
someone by offering something in return. 5 conditions must be satisfied in this scenario:
1. There must be at least 2 parties
2. Each party has something of value to the other party
3. Each party is capable of communication and delivery
4. Each party believes it is appropriate and desirable to deal with the other party
Transactions is a trade of value between 2 or more parties. Transactions need: at least
2 things of value, agreed-upon conditions, a time and a place of agreement. This differs
from a transfer where A gives to B without anything tangible in return.
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To be successful in marketing, marketers need to understand what each party expects
from the transaction.
What is marketed?
There are 10 types of entities that can be marketed:
1. Goods – physical goods eg cars, fridges, TVs
2. Services – eg airlines, hotels, car rental firms
3. Events – time-based events such as trade shows, Olympics
4. Experiences – Walt Disney’s Magic Kingdom is experiential marketing
5. Persons – celebrity marketing
6. Places – Cities, states & regions are marketed to tourists, business and new
residents
7. Properties – eg real estate, stocks and bonds
8. Organisations – Corporate identity ads and unique images in the market
9. Information – eg schools and universities market their information
10. Ideas – eg “Friends don’t let friends drive drunk”
Who markets?
Marketers – somebody who seeks a response from another party, called the prospect.
Marketers are responsible for demand management and there are 8 possible demands
states:
1. Negative demand – consumers dislike a product
2. Nonexistent demand – consumers are unaware or uninterested in a product
3. Latent demand – consumers may have a strong need for a product but cannot
be satisfied by existing products
4. Declining demand – consumers buy less frequently
5. Irregular demand – consumers purchase seasonally, monthly etc
6. Full demand – consumers are adequately buying the product
7. Overfull demand – more consumers want the product than supply can meet
8. Unwholesome demand – consumers are attracted to products that have
undesirable social consequences
In each case, the marketer needs to understand the demand state and the underlying
cause and determine a plan of action to shift demand to a more desired state.
Markets
In marketing terms, a market is used to describe the various groupings of customers.
Categories of markets include: Product market, demographic market, needs market etc.
Sellers and buyers are connected by 4 flows:
Communication
Market
Industry Goods / services
(a collection of
(a collection of
buyers)
sellers)
Money
Information
Key customer markets
o Consumer – selling to the masses
o Business – selling to business
o Global – selling in the global marketplace
o Non-profit and government – selling to churches, universities etc
New consumer capabilities (as a result of the digital revolution):
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- Substantial increase in buying power
- Greater variety of goods and services
- Great amount of information about practically anything
- Greater ease of interacting and placing and receiving orders
- An ability to compare notes on products and services
Today we differentiate the marketplace (physical) and the marketspace (digital).
There is also the concept of the metamarket: cluster of complementary products and
services in the minds of a consumer but spread across a diverse industry.
How business and marketing are changing (Pages 13 – 15)
o Changing technology
o Globalisation
o Deregulation
o Privatisation
o Customer empowerment
o Customisation
o Heightened competition
o Industry convergence
o Retail transformation
o Disintermediation
Company orientation towards the marketplace:
There are 5 competing concepts under which organisations conduct marketing activities:
1. Production concept – states that consumers prefer products that are widely
available and inexpensive. Therefore focus on high production, low cost and mass
distribution.
2. Product concept – Consumer favour quality, performance or innovation.
Therefore focus on superior products and constant improvement
3. Selling concept – consumers will not buy enough if left on their own. Therefore
focus on aggressive selling and promotion
4. Marketing concept – consumer-centred philosophy. Therefore focus on being
more effective than competitors in creating, delivering and communicating superior
customer value
5. Holistic marketing concept – going beyond traditional applications of
marketing to a more complete and cohesive approach. Focus on multiple marketing
approaches that work synergistically ie broad and integrated approach ie relationship,
integrated, internal and social responsibility marketing – (refer to page 18 for diagrams
of these)
a. Relationship marketing – building mutually satisfying, long-term
relationships with key parties ie customers, channels and partners, in order to earn and
retain their business. The ultimate outcome is to build a marketing network (company
and its supportive stakeholders). The ability of a company to understand each client
individually is greatly enhanced with technology
b. Integrated marketing – using all components of the marketing mix in
a coordinated manner. McCarthy classifies these into the 4 P’s of marketing: (Page 19)
Product (diversity, quality, design, features, brand name, packaging, size
etc)
Price (list price, discounts, allowances, payment period, credit terms)
Place (channels, coverage, assortments, locations, inventory, transport)
Promotion (sales promotion, advertising, sales force, public relations,
direct marketing)
Lauterborn says that the 4 P’s correspond with the customers’ 4C’s:
Four P’s Four C’s
Product Customer solution
Price Customer cost
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Place Convenience
Promotion Communication
Integrated marketing also looks at the communication mix ie
advertising, sales promotion, events and experiences, public relations,
direct marketing, personal selling
c. Internal marketing – Ensuring that everyone in the organisation
embraces appropriate marketing principles. Marketing must become a company
orientation. Page 21 gives a long list of how each department in an organisation can
support “customer-minded” marketing
d. Social responsibility marketing – understanding the broader concerns
(social welfare) and ethical, environmental, legal and social context of marketing
activities and programs. Companies can adopt “cause” marketing where they support a
particular cause eg Avon and breast cancer. The bottom of page 22 provides a table of
different corporate social initiatives and practical examples.
Core marketing concepts
The marketer must understand these within the target market:
o Needs = basic human requirements. There are 5 types: stated, real, unstated,
delight, secret needs
o Wants = needs become wants when they are directed at a specific object that
might satisfy needs
o Demands = wants for a specific product backed by the ability to pay (willing and
able)
Target market, positioning and segmentation = dividing / segmenting the market
into distinct groups of buyers and identifying which presents the greatest opportunity
(target market). For each target market, the marketer develops an offering, which is
positioned in the minds of the target buyers as delivering some benefits.
Offering = value proposition, a set of benefits to satisfy customer needs
Brands = an offering from a known source. Associations make up the brand image.
Aim is to make the brand strong, favourable and unique.
Value = a central marketing concept that reflects perceived tangible and intangible
benefits and costs to customers. Value = combination of quality, service and price
(customer triad)
Satisfaction = reflects a persons comparative judgements resulting from a perceived
performance in relation to his/her expectations
Marketing channels = connect the marketer to the target market. 3 types of
channels to reach customers ie communication, distribution and service channels
Supply chain = channel stretching from the raw materials to the components of
the final product. The supply chain is a value delivery system.
Competition = actual and potential rivalry offerings and substitutes
Marketing environment = consists of a task environment (immediate actors in
the production, distribution and promotion of the offering) and the broad
environment (demographic, economic, physical, social, technological,
political-legal and social-cultural environment). Refer to page 27 for a
diagram of the factors influencing a marketing strategy.
Marketing planning = Logical process to follow eg analysing marketing
opportunities, selecting target markets, designing marketing strategies,
developing marketing programs and managing the marketing effort.
Shifts in marketing management
Important trends and forces are eliciting a new set of beliefs and practices in
business. Smart companies are moving towards these trends within the
marketplace and marketspace:
o From marketing does the marketing to everyone does the marketing
o From organising by product units to organising by customer segments
o From making everything to buying more goods and services from outside
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o From using many suppliers to working with fewer suppliers
o From relying on old market positions to uncovering new ones
o From emphasising tangible assets to emphasising intangible assets
o From building brands through advertising to building brands through
performance and integrated communications
o From attracting customers through stores and sales people to making
products available online
o From selling to everyone to trying to be the best firm servicing well defined
target markets
o From focusing on profitable transactions to focusing on customer lifetime
value
o From a focus on gaining market share to focus on building customer share
o From being local to being “Glocal” = both local and global
o From focusing on financial scorecard to focusing on the marketing
scorecard
o From focusing on shareholders to focusing on stakeholders
Marketing management tasks
1. Developing marketing strategies and plans
2. Capturing marketing insights
3. Connecting with customers
4. Building strong brands
5. Shaping the market offering
6. Delivering value
7. Communicating value
8. Creating long-term growth
Chapter 2 – Developing marketing strategies and plans
Marketing and customer value
Marketing involves satisfying consumer needs and wants. The task of the
business is to deliver customer value at a profit.
The value delivery process: each phase has cost implications
Choose the value Provide the value Communicate the value
Sales
Sourcing Distributi
Market Value Service
Customer Product ng force Sales
selection propositi Pricing Advertising
segmentation dvlpmt promo
/ focus on dvlmpt
Making Servicing
Strategic marketing Tactical marketing
Kumar uses the 3 V approach to marketing:
- Define the value segment (value definition)
- Define the value proposition (value developing process)
- Define the value network (value delivering process)
Porter’s value chain is a tool to identify ways to create more customer value
(Pg 38 & 39)
A firm’s success depends on how well each department works and how well their
activities are coordinated to conduct the core business processes, which include:
- The market sensing process ie market intelligence
- New offer realisation process ie researching, developing
- Customer acquisition process ie define target market and new prospects
- Customer relationship management process ie deeper understanding of
clients
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- Fulfilment management process ie receiving and approving orders,
shipping, collecting payment
Core competencies
The key is to own and nurture the resources and competencies that make up the
essence of the business. A core competency has three distinct characteristics:
- Source of competitive advantage ie makes a significant contribution to
perceived customer benefit
- Has applications in a wide variety of markets
- Is difficult for competitors to imitate
A holistic marketing framework
Core
Customer Collaborativ
Competencie
Focus e network
s
Value Cognitive Competency Resource
Exploration Space Space Space
Value Customer Business Business
Creation Benefits Domain Partners
Customer Internal Business
Value Relationship resource Partner
Delivery Managemen managemen Managemen
t t t
This framework is designed to address 3 key questions:
1. Value exploration – How can a company identify new value
opportunities?
The answer lies in developing a strategy that understands the relationships
and interactions between the customer’s cognitive space, the company’s
competency space and the collaborator’s resource space (partnerships)
2. Value creation – How can a company efficiently create more promising
new value opportunities
The answer lies in business realignment to maximise core competencies.
This can be done by redefining the business concept, reshaping the
business scope and repositioning the company’s brand identity
3. Value delivery – How can a company use its capabilities and
infrastructure to deliver the new value offerings more efficiently?
This can be done by becoming proficient at customer relationship
management, internal resource management and business partner
management.
The central role of strategic planning
Strategic planning is key and calls for action in 3 key areas:
- Managing the companies business as an investment portfolio
- Assess each businesses’ strengths by considering market share, growth
rate and market position
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- Establishing a strategy ie game plan to achieve long-run objectives
The marketing plan must operate at 2 levels within the broader business:
Strategic (lay out target market and value proposition) and Tactical (specify the
marketing tactics)
There are 4 levels within an organisation and strategic planning needs to
occur at each level:
- Corporate strategic planning AND Division strategic planning
o Defining the mission, defining the business, define the major
competitive spheres ie industry, products and applications, market
segment, geography. Assessing growth opportunities,
downsizing, terminating units ie identifying the strategic planning
gap – all within the context of the organisational culture
Desired
Diversification growth
sales
Strategic planning gap
Integrative growth
Sales ($mio) Intensive growth
Current
portfolio
Time (years)
Ansoff’s model (Product-market expansion grid) is a useful framework for
detecting new intensive growth opportunities
Markets
Old New
Products
Market penetration Market Old
strategy development
strategy
Product Market expansion New
development strategy
strategy (diversification)
Integrative growth
Backward, forward and horizontal integration can increase business sales and
profits
Diversification growth
Makes sense when good opportunities can be found outside the present
business eg new products
- Business Unit strategic planning
The strategic planning process at this level includes:
o Mission formulation
o SWOT analysis (external = opportunities and threats AND internal =
strengths and weaknesses)
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o Goal formulation (arrange goals hierarchically; state them
quantitatively, make them realistic and be consistent)
o Strategy formulation (game plan for achieving goals). Porter says
there are 3 generic strategies ie overall cost leadership,
differentiation, focus (specialisation). At this stage of the process,
strategic alliances (Partner Relationship Management) must also be
considered eg product or service alliances, promotional alliances,
logistic alliances, pricing collaboration
o Program formulation and Implementation
o Feedback and control (keep responding to the changing
environment)
To evaluate opportunities, the marketing opportunity analysis (MOA) can be
used to determine the attractiveness and probability of success:
1. Can the benefits be convincingly articulated to the defined target
market?
2. Can the target market be reached with cost-effective channels?
3. Does the company have the resources and capabilities to deliver
value?
4. Can the company deliver better than the competitors?
5. What is the ROI and does it meet the company threshold?
Pages 54 and 55 provide some nice tools that can be used when performing
an opportunity analysis and SWOT analysis
- Product level strategic planning
The marketing plan comes in at this level to set plans around products, lines,
brands and channels. It contains tactical guidelines and should be customer
and competitor oriented. Generally, they are for a one-year period and should
be simple, realistic, specific and complete.
Contents of a marketing plan:
- Executive summary and table of contents
- Situation analysis and market summary
- SWOT analysis
- Competition
- Product offering
- Keys to success and critical issues
- Marketing strategy
o Mission and objectives
o Financial objectives
o Target market
o Positioning
o Strategies
o Marketing mix and marketing research
- Financial projections
o Break-even analysis
o Sales forecast and expense forecast
- Implementation controls
Pages 61 – 67 contain a sample marketing plan
Chapter 2 – Gathering information and scanning the environment
Marketers can conduct more customised research in order to address specific
marketing problems or issues.
Components of a modern marketing information system
These systems provide management with rich detail about buyer wants,
preferences and behaviour. A marketing information system (MIS) consists of
people, equipment and procedures to gather, sort, analyse, evaluate and
distribute information to marketing decision makers.
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Internal records
Some of the internal tools that marketers can use include: The order-to-payment
cycle; sales information systems, databases, data warehousing, data mining.
The marketing intelligence system
Internal records supply “results data” whereas marketing intelligence systems
provide “happenings data”. Marketing intelligence is being able to source
everyday information about developments in the market. To improve this
procedure, companies can:
- Train and motivate staff to spot and report new developments
- Motivate distributors and other intermediaries to pass on important
intelligence
- Network externally
- Set up a customer advisory panel
- Use government data resources
- Purchase information from outside suppliers
- Use online customer feedback systems to collect competitive intelligence
Analysing the macro environment
Important to be able to recognise and respond to unmet needs and trends.
Trends and megatrends merit close attention.
Fad = unpredictable, short-lived and without social, political or economic
significance
Trend = direction or sequence of events that has some momentum and durability
Megatrend = large social, economic, political and technological changes that are
slow to form but have influence for some time (7-10 years) eg delayed retirement,
changing nature of work, increased immigration, shifting birth trends
Companies have to monitor and be aware of the 6 major forces (both separately
and their interactions with each other) within the rapidly changing global
environment:
1. Demographic environment eg population growth; population age mix;
ethnic and other markets; educational groups; household patterns;
geographical shifts in population;
2. Economic eg income, prices, savings, debt, credit availability, free trade &
outsourcing
3. Social-cultural eg beliefs, values, norms, subcultures, perceptions and
views of people, organisations, universe etc
4. Natural eg shortage of raw materials, increased energy costs, anti-
pollution pressures, changing role of government
5. Technological eg creative destruction occurs with technological change,
accelerating pace of change, unlimited opportunities for innovation,
varying R&D budgets, increased regulation in technological change
6. Political-legal eg laws and their impact must be understood; increased
business legislation; growth of special-interest groups
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