Chapter One Audio Clip

CHAPTER ONE AUDIO CLIP

CHAPTER ONE - An Overview of Marketing

NatalieOkay, let’s get started. Can you define marketing for me, Eric?

EricYou bet. Marketing is “an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.”

NatalieWell done, Eric! Now, one of the key concepts of marketing is the idea of “exchange.” Can you define that?

Eric“Exchange” is what happens when you give up something you have to get something else you’d rather have in return.

NatalieNormally we think of money as the medium of exchange.

EricThat’s right, we “give up” money (and increasingly, these days, information) to “get” the goods and services we want. But it doesn’t have to be money. You can exchange time, goods, anything. Think of it as trading.

NatalieOkay, but let’s not forget that exchange does not necessarily take place even if all conditions for exchange exist.

EricRight. Marketing can occur even if an exchange does not.

NatalieExplain that further.

EricLet’s say I take out a classified ad to sell my crappy old laptop and nobody buys it. The ad was a kind of marketing, but no exchange occurred.

NatalieI couldn’t have said it better myself. Typically, companies are directed by one of four marketing-management philosophies. The first one is known as “Production-orientation.”

EricA production-oriented business focuses on the internal capabilities of the firm, such as the products they make, the services they offer, or the skills of its staff. Most of the big car companies are production-oriented organizations. They own and operate giant factories that are designed exclusively for making automobiles. If automobiles were outlawed, these companies would be out of business, like the alcohol distilleries during prohibition.

NatalieThe second marketing philosophy is called, “sales orientation.” Companies with a sales orientation use hard-sell techniques to get people to buy more products. Pushy sales people are usually a good sign that a company follows a sales orientation. Do you know what production and sales-oriented companies have in common?

EricThe fact that they are focused inward. Production, because it looks at the firm’s internal capabilities… and Sales, because it depends on the firm’s operational goals, which are high sales and high profits.

NatalieNow, there are two more marketing philosophies. These focus outward, meaning outside the organization. Take it away, Eric.

EricThe first is known as a “market orientation,” which focuses on satisfying customer needs at the same time it meets organizational objectives.

NatalieAnd similar to that is the “societal marketing orientation.”

Eric“Societal marketing orientation” applies to companies which go beyond market orientation to include the preservation or enhancement of society’s long-term best interests. Like non-profit organizations, organic farms, makers of earth-friendly products.

NatalieSo how do you know if a company has an outward focus? I mean…what does it really MEAN to have a marketing orientation?

EricWell, for starters market-oriented firms focus on customers’ needs and preferences. And unlike sales-oriented firms that consider themselves to be deliverers of goods and services, market-oriented firms view themselves as existing to satisfy customers. It’s like Netflix.

NatalieNetflix?

EricYeah, Netflix. Reed Hastings started the company after getting stuck with a $40 late fee by his local video store. He figured that he wasn’t the only guy being hit with giant late fees, so he decided to start a company to rent DVDs over the Internet and let customers keep them as long as they wanted before returning them.

NatalieI get it: Reed Hastings was just a dissatisfied customer of sales-oriented video stores. He vowed that his new venture wouldn’t charge late fees, a very attractive benefit to the consumer.

EricRight. But Hastings didn’t build Neftlix into a $700-million company by offering customers just one benefit. He piled them on. His starting point was twenty-four hour browsing capability via the internet.

NatalieMy video store opens at noon and closes at eight pm on weekdays and eleven on weekends!

EricExactly! Then there’s the convenience of not having to leave your house to receive or return your movies. Another big benefit is an unprecedented inventory of films and TV programs: fifty-five thousand titles in all. Any movie you could name, if its on DVD, they’ve got it.

NatalieMy local store is, like, empty!

EricDitto!

NatalieSo, it’s becoming clear that there are real differences between sales and market-oriented companies.

EricYep. Sales-oriented firms direct their products to everyone, AKA “Joe Normal”; while market-oriented firms aim at specific demographics of the population. A market-oriented firm does not try to be all things to all people.

NatalieAnd don’t forget that sales and marketing philosophies take completely different attitudes toward the bottom line.

EricBut don’t all companies have the primary goal to make money?

NatalieThat’s true. Companies are not charities. But a sales-oriented business pursues maximum sales through intensive promotion and high-pressure sales tactics. Market-oriented companies pursue customer satisfaction through coordinated activities, designed to achieve a high level of customer satisfaction.

EricLike Netflix. But now that we’ve defined marketing, let’s talk about customer satisfaction.

NatalieThat’s what it’s all about, making people happy. I guess that’s pretty much the essence of marketing. But market-oriented companies already know that.

EricYou better believe it. A market-oriented company like Netflix is always adjusting itself to the needs of its customers. For example, it spent a lot of money developing its high-powered Cinematch software for making viewing recommendations to its subscribers. Amazingly, over sixty percent of the titles Netflix rents come from Cinematch recommendations.

Natalie Wow. That’s the complete opposite of sales-oriented companies that discount the customer perspective almost as a matter of policy.

EricMarketing, for them, just means pushing product and collecting money. They lack a real understanding of the marketplace. Or the marketing concept.

NatalieThe marketing concept?

EricYeah…For managers following the marketing concept, a customer purchase does not depend on an aggressive sales force; the “sale” is quite simply a customer’s decision to purchase a product.

NatalieUnder this concept, what a business produces is not as important as what the consumer thinks they are buying. It’s this “perceived value” that defines the business.

EricThat’s a difficult concept to grasp.

NatalieAll right. Let’s say it again. Under the philosophy of market orientation, what a firm produces is not as important as what the consumer thinks he is buying. To achieve market orientation, managers must obtain information about customers, competitors, and markets. They examine that information from a total business perspective; determine how to deliver superior customer value; and implement actions to provide value to customers.

EricIt would seem obvious that a company would want to deliver the benefits that customers seek; but that’s not always the case, is it?

Natalie Nope. One reason a market-oriented company may choose not to deliver the benefits sought by customers is that these benefits may not be good for individuals or society.

EricThat’s reassuring.

NatalieOf the four philosophies, it’s most useful to compare the sales and market orientations because the differences between the two are so great, particularly in five key areas. Do you remember what they are?

EricAs a matter of fact I do. They are one: the company’s focus; two: its business; three: its target market; four: its primary goal; and five: the tools used to achieve its goals.

NatalieRight. Now, let’s talk about the difference in personnel at these two different kinds of organizations.

EricPersonnel at sales-oriented firms tend to be “inward looking,” focusing on selling what the organization makes rather than making what the consumer wants.

NatalieRight again. While a marketing-oriented firm focuses on “external,” elements, like customer value, customer satisfaction, and customer relations.

EricDefine “customer value,” will you?

Natalie“Customer value” is the relationship between benefits and the sacrifice necessary to obtain those benefits. Customer value refers of course to the quality of the merchandise, but includes much more. The discerning consumer values products and services of good quality that are reasonably priced. Basically, when you think you’re getting a good deal, that’s customer value.

EricExactly. But a good deal doesn’t just mean some cheap product. “Value” can be used to sell a Mercedes Benz as well as a three-dollar Tyson frozen dinner. Marketers interested in customer value must provide several functions. Natalie?

NatalieThey must offer products that perform; earn the trust of customers: avoid unrealistic pricing; give the buyer facts; and offer company-wide commitment to customer service before and after an exchange.

EricSo, the customer is the arbiter of value, not the corporation?

NatalieThat’s right. “Customer satisfaction” is the customer’s evaluation of a product or service in terms of whether that product or service has performed as expected. Think of it this way: if you rent the latest action movie from Netflix, and just as the movie gets to the smash up finale, the DVD skips and starts and you miss the ending because of the pixilated screen, how are you going to feel?

EricPretty unhappy.

NatalieThat’s right. So, at firms that have a reputation for delivering high levels of customer satisfaction, à la Netflix, top management is obsessed with making you happy. Likewise, all Netflix employees understand the link between their job and happy customers. The entire culture of the company revolves around delighting customers rather than making sales.

EricMaintaining an outward focus involves three things: attracting new customers, increasing business with existing customers, and retaining current customers. How do you think they do that, Natalie?

NatalieBy emphasizing customer-oriented personnel, of course! You know, I’m just thinking about our Netflix example again. I bet market-oriented companies probably have to spend a lot of money to deliver customer value and satisfaction.

EricNot always. Netflix only has fifty customer service reps in the entire organization! Of those fifty, ten are authorized to make direct callbacks to customers with specific complaints in order to examine how the call could have been prevented in the first place. Because they work to get things right the first time, they don’t have to spend a lot of resources fixing mistakes.

NatalieIt sounds like the “marketing orientation” has major advantages over “sales orientation.”

EricYou know it. One: It keeps the firm focused on customers. Two: It encourages innovation and creativity by reminding people that there are many ways to satisfy customer wants. And three: It stimulates an awareness of changes in customer desires and preferences so the firm’s products are more likely to remain relevant to consumers.

NatalieIsn’t there one more way to tell the difference between a sales and marketing-oriented organizations?

EricI thought you’d never ask. A sales-oriented firm *targets* its products at “everybody,” also known as “the average customer,” whatever that is.

Natalie“Whatever that is” is right. You know, today’s consumer population is characterized by diversity. You’ve got people from all over world (of every race, religion and nationality) participating in the marketplace.

Market-oriented companies recognize that different customer groups want different features or benefits. For each group – or target market - they tailor their goods, services, and promotional appeals.

EricWe’ll talk more about target markets in Chapter 2. For now, let’s talk about mission and goals.

NatalieAha, the fourth difference between sales and marketing approaches.

EricA sales-oriented organization seeks to achieve profitability through sales volume alone. They try to convince potential customers to buy, even if they know that the product isn’t right for the customer. They’re trapped into thinking that higher profits are simply and only a function of increasing revenue.

NatalieWhich isn’t true, I know, but why?

EricBecause market-oriented firms have proven that they can increase profits using the marketing concept. Take Netflix again: By driving its service from its customers’ preferences, Netflix is never going to alienate a customer. Netflix asks for and gains insight into a customers’ viewing preferences, only sends them what they want, and lets the customer dictate the frequency and quantity of interactions. Because Netflix delivers on its promise of convenience, it earns the right to learn more about its customers and do more business with them.

NatalieNo doubt, Netflix has its act together. But it seems like we’re forgetting about one last way to determine if a company is sales oriented or market oriented.

EricTools. You need to examine the tools the company uses to achieve its goals. Sales-oriented firms seek to generate sales volume through gimicky promotions, over-the-top advertising and the good old “hard sell,” delivered by aggressive salespeople.

NatalieYou’re not minimizing the role of promotion and advertising in the marketing mix?

EricOf course not, just putting them into perspective. Market-oriented companies recognize that promotion is only one element in the marketing mix.

NatalieAll right. Now that we understand what marketing is, what if somebody asked me “Why are you studying it?”

EricLots of reasons! Marketing plays an important role in society by making products and services available to us where and when we need them. Marketing is important to businesses because it helps managers conduct activities vital to survival and growth. All business people need a fundamental understanding of the various concepts of marketing. Marketing offers outstanding career opportunities, demonstrated by the sheer number of workers performing marketing activities in the United States. That is, up to one third of the entire civilian workforce.

NatalieIsn’t that amazing!

EricSomething else most people don’t realize is that marketing affects their lives each and every day. In fact half of every dollar spent goes to marketing costs, such as product research and development, packaging, transportation, storage, advertising, and sales expenses. Studying marketing helps you become a better-informed consumer.

NataliePretty nice, Eric.

EricWhat’s that?

NatalieEnding this conversation with the most important word in the marketing lexicon.

EricYou mean “consumer.”

NatalieConsumer.

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