Business (9609) | The nature of marketing

Welcome to Chapter 3.1: The Nature of Marketing!

If you think marketing is just about putting up posters or running social media ads, think again! Marketing is arguably the most important function in a business because, without customers, there is no business.

In this chapter, we will lay the foundation for all your marketing studies. We will explore what marketing actually is, how businesses decide whom to sell to, and how they stay ahead of the competition by truly understanding their customers.

Don't worry if this seems tricky at first—we will use everyday examples to make these business concepts clear!

1. Defining Marketing and its Objectives (Syllabus 3.1.1)

What is Marketing?

Marketing is the management process responsible for
identifying, anticipating, and satisfying customer requirements

...and doing all this
profitably.

The Role of Marketing

Marketing is the essential bridge between the business and its customers. Its key roles include:

• Understanding Needs: Finding out what customers want (e.g., through market research).
• Creating Value: Designing products or services that meet those needs.
• Communication: Telling customers about the product (promotion).
• Profit Generation: Ensuring the business makes money while satisfying customers.

Marketing Objectives and Corporate Objectives

A marketing objective is a specific goal set for the marketing function. These goals must directly help the overall business achieve its main goals, known as Corporate Objectives.

The Link Between Objectives

The marketing team cannot just decide to sell anything; their goals must align with the entire business strategy.

• If the Corporate Objective is to “Increase shareholder value by 15% this year” (a financial goal), the Marketing Objectives must support this.
• Supporting Marketing Objectives might be:
  • Increase market share to 20%.
  • Increase sales volume of Product X by 10%.
  • Launch Product Y into three new international markets.

Key Takeaway: Marketing objectives are the specific, actionable steps (like increasing sales) that ensure the business achieves its big picture goals (Corporate Objectives, like maximizing profit).

2. Demand, Supply, and Price (Syllabus 3.1.2)

Understanding Demand and Supply

To successfully market a product, a business needs to understand the fundamental forces that govern the price and quantity sold.

Factors Influencing Demand (The Buyer Side)

Demand is the quantity of a product consumers are willing and able to buy at a given price.
Factors influencing demand include:

• Price of the Product: Generally, lower price = higher demand.
• Prices of Competitors/Substitutes: If the price of coffee goes up, demand for tea (a substitute) might increase.
• Incomes of Consumers: If people earn more, they buy more luxury items.
• Advertising/Promotion: Effective marketing increases demand.
• Fashion/Tastes: Trends can cause demand to skyrocket or plummet quickly.

Factors Influencing Supply (The Seller Side)

Supply is the quantity of a product producers are willing and able to sell at a given price.
Factors influencing supply include:

• Cost of Production: If wages or raw material costs increase, supply often decreases (it’s less profitable to produce).
• Technology: New technology can make production cheaper and faster, increasing supply.
• Taxes/Subsidies: Government taxes increase costs (reducing supply); subsidies decrease costs (increasing supply).
• Price of the Product: Higher selling price = greater incentive to supply more.

Interactions Between Demand, Supply, and Price

The market constantly seeks an equilibrium price—the price where the quantity demanded equals the quantity supplied.

Analogy: Imagine selling tickets to a concert. If you set the price too high (above equilibrium), you have a surplus (supply > demand). If you set it too low, you have a shortage (demand > supply). The correct price (equilibrium) is where the hall is full, and you maximise revenue.

Marketing Focus: Businesses need to monitor these factors. For instance, if a key competitor lowers their price (affecting demand), the marketing department may need to adjust their pricing strategy quickly.

3. Market Orientation vs. Product Orientation (Syllabus 3.1.3)

How Markets May Differ

Markets are groups of buyers and sellers. They can be classified in many ways:

• Consumer Markets (B2C): Businesses sell directly to the public (e.g., selling a phone to a student).
• Industrial Markets (B2B): Businesses sell products/services to other businesses (e.g., selling industrial machinery to a factory).
• Scope: Local, National, or International markets.

The Critical Difference in Focus

1. Product Orientation (P-O)

A product-oriented business focuses primarily on the product itself. They believe that if they make the highest quality, most innovative product, customers will automatically buy it.

• Focus: Internal. What can we make best?
• Decisions based on: Production capabilities, R&D breakthroughs.
• Example: A tech company spending millions on inventing a complicated gadget without first checking if anyone actually wants that gadget.

2. Customer/Market Orientation (M-O)

A market-oriented business focuses primarily on the needs of the customer. They carry out extensive market research first to understand wants, and only then develop products to satisfy those wants.

• Focus: External. What do customers want to buy?
• Decisions based on: Market research findings, competitor analysis.
• Example: A car manufacturer surveys families to find out their safety concerns and then designs a car based on those specific needs.

Which is better? In today’s dynamic environment, Market Orientation is almost always preferred because customer tastes change rapidly, and competition is fierce. The customer is king!

Memory Aid:
Product-oriented companies have Product Pride.
Market-oriented companies focus on the Market first.

4. Measuring Market Success (Syllabus 3.1.3 continued)

Businesses need reliable data to assess their performance and set marketing objectives. Two key measurements are Market Share and Market Growth.

Market Share

Market share is the proportion of total market sales achieved by a specific company or product.

$$ \text{Market Share} (\%) = \frac{\text{Company Sales}}{\text{Total Market Sales}} \times 100 $$

• Implications of High Market Share: A high share often means the business is a market leader. This gives them power over suppliers, economies of scale, and recognition (brand strength).
• Example: If the total market for soft drinks is \$100 million, and Coca-Cola sells \$45 million, their market share is 45%.

Market Growth

Market growth is the percentage increase in the size of the total market over a period of time.

$$ \text{Market Growth} (\%) = \frac{\text{Change in Market Size}}{\text{Original Market Size}} \times 100 $$

• Implications:
  • A high growth market (e.g., electric cars) is attractive but invites more competitors.
  • A low growth market (e.g., printed newspapers) is harder for businesses to increase sales in, as they must steal market share from competitors.

Key Takeaway: A business wants high market share in a high growth market. If the market is shrinking, they must fight harder just to maintain their sales volume.

5. Consumer vs. Industrial Marketing (B2C vs. B2B) (Syllabus 3.1.4)

Although the 4Ps of the marketing mix apply to both, the marketing approach differs hugely depending on whether you are selling to a household (B2C) or another corporation (B2B).

B2C (Business to Consumer) Marketing

• Buyer: Individual consumers.
• Purchases: Usually small volumes, frequent, non-technical.
• Decision: Often emotional, impulsive, based on branding and promotion.
• Marketing Focus: Mass media advertising, strong branding, wide distribution (Place).
• Example: Advertising a new chocolate bar on TV.

B2B (Business to Business) Marketing (Industrial)

• Buyer: Organisation (a purchasing manager or committee).
• Purchases: Usually high volumes, infrequent, often technical (e.g., machinery, raw materials).
• Decision: Rational, based on facts, specifications, reliability, price, and payment terms. Often takes months.
• Marketing Focus: Personal selling, customised pricing, detailed product specifications, strong after-sales service.
• Example: Selling 50 new computers to a bank.

Did you know? B2B products often require highly skilled sales staff because the buyer is typically an expert who needs technical detail, unlike the general public in B2C.

6. Market Targeting: Mass, Niche, and Segmentation (Syllabus 3.1.5 & 3.1.6)

Once a market is identified, a business must decide how it wants to target the customers within it.

Mass Marketing

Features: Targeting the entire market with a single product and marketing strategy, ignoring small differences in consumer needs.

• Advantage: High potential sales volume, benefits from economies of scale (lower unit costs).
• Disadvantage: Intense competition, lack of focus on specific customer needs.
• Example: Selling basic necessities like salt, sugar, or globally popular soft drinks.

Niche Marketing

Features: Targeting a small, specific, and well-defined segment of the market.

• Advantage: Less competition, high profit margins (customers will pay more for specialisation), builds strong customer loyalty.
• Disadvantage: Limited potential sales volume, risks depend on the success of a single small market.
• Example: A boutique company selling only custom-made vegan hiking boots.

Market Segmentation

Segmentation is dividing the total market into groups of customers with similar characteristics and needs. A business usually targets one or more of these groups (segments).

Methods of Segmentation

1. Geographic Segmentation: Dividing the market based on location.
   • Example: Selling heavy snow shovels only in countries with cold winters.
2. Demographic Segmentation: Dividing the market based on observable population characteristics.
   • Characteristics: Age, gender, income level, ethnicity, family size.
   • Example: Targeting cheap, smaller cars towards young, first-time drivers (low income, specific age group).
3. Psychographic Segmentation: Dividing the market based on lifestyle, values, attitudes, and personality traits.
   • Example: Targeting luxury eco-friendly holidays towards wealthy consumers who highly value sustainability and ethical living.

Advantages and Disadvantages of Market Segmentation

• Advantage: Allows the business to develop products that better match the exact needs of the target group, leading to higher customer satisfaction and loyalty. Marketing expenditure is more efficient as it is precisely targeted.
• Disadvantage: Segmentation and targeted advertising can be expensive; producing different products for different segments may reduce economies of scale.

7. Customer Relationship Marketing (CRM) (Syllabus 3.1.7)

In modern business, simply selling a product is not enough. Keeping existing customers is often cheaper than finding new ones. This is the goal of CRM.

What is CRM?

Customer Relationship Marketing (CRM) involves using marketing activities to establish, develop, and maintain effective customer relationships over time. This is often done using technology (CRM software) to track customer interactions.

The Aims of CRM

• Customer Retention: Keeping current customers loyal to the business.
• Data Collection: Gathering detailed data about buying habits (e.g., what they bought, when, and how).
• Personalisation: Using data to tailor marketing messages and offers to individual customers.
• Lifetime Value: Increasing the total revenue generated by a customer over the entire period they buy from the business.

Costs and Benefits of CRM

• Benefits: Increased customer loyalty and retention, higher repeat sales, more accurate forecasting, potential for personalised pricing/offers.
• Costs: High initial cost of CRM software and databases, continuous staff training is required, potential issues regarding customer privacy and data security.

Key Takeaway: CRM is about moving away from transactional selling (one-off sales) towards building long-term, profitable relationships with customers.