Chapter 17 - The Nature of Marketing
Learning Objective: To understand some of the most common marketing concepts
What is a market?
A market is a group of consumers interested in a product, with resources to purchase it legally.
- It is the group of customers interested in a product and with the resources to purchase it;
- The potential market for a product is the total population interested in the product;
- Target market is the segment of the total available market that the business has decided to direct its products towards.
The consumer market is made of products bought by the final users of the product (e.g. holidays, phones, clothing).
Segments: Subsets of a market based on demographics, needs, priorities, common interests, and other psychographic or behavioral criteria.
We shall also understand the concept of industrial markets:
- Those deal with products bought by businesses (B2B);
- Machines, trucks, office supplies;
- More on the differences between consumer and industrial markets next class;
A market can be local, national, or international
Local Markets have limited sales potential (e.g. hairdresser);
National Markets have higher sales potential but are less in absolute number (e.g. national supermarket chain);
International Markets have the greatest sales potential but also the biggest challenges.
There are other important market-related concepts for us to keep in mind:
Market Size:
Market size can be measured in terms of volume (units sold) or value of goods sold (revenue);
Market size is the total level of sales of all producers (volume or value);
It's an important measure for assessing whether a market is worth it entering (identifying growth or decline);
It is also the basis for calculating market share.
Market Growth:
The percentage change in the total size of a market (volume or value) over a period of time and can be impacted by several factors:
General economic growth;
Change of customers’ incomes;
Development of new markets and products (negative growth);
Change in customers tastes/preferences;
The rate of growth depends on whether the market is saturated or emerging (washing machine vs. smart watches).
Market Share:
The percentage of sales in the total market sold by one business - can be measured in volume or value:
- When a business market share increases it means that the business' sales is growing faster than competitors' sales;
- Retailers are more likely to stock up and give better retailing positions;
- Higher profitability (lower discounts to retailers and higher sales combined);
- Being the market share leader gives marketing/advertising advantages.
A falling market share can be a sign of problems to businesses, on the other hand. All of the benefits explained can quickly become issues.
Market Share can either be measured in terms of volume (units) or value (revenue).
Activity 17.4
Activity 17.7
Businesses approach Marketing activities differently. There are two main Marketing Orientations businesses can have:
Market Orientation
Product Orientation
Customer Orientation - Focus on the Market:
Research/analysis for understanding present and future demands;
Customers are priority;
Reduces new product launch failures (and consequentially reduces costs);
Generates higher profits since the product is an exact fit to the customers’ demands;
Allows for improvements in product and marketing initiatives (feedback)
Limitations:
The “responding to every trend” trap - which leads to high costs and loss of focus (not doing anything well because of multiple focuses).
Product Orientation - Focus on the Product: the belief that there will always be a market for products produced by the business:
Production and manufacturing capabilities in the forefront of this approach;
'Push' marketing which products are made first and then 'pushed' out of the door to customers;
It suggests that innovation and quality are key for driving sales and therefore focuses on them.
It's still applicable on industries such as pharmaceuticals and electronics.
Food for Evaluation on the Topic:
Both approaches can be successful and drive up sales and profits. They both also have their limitations as the cost of marketing research for the market orientation and the cost of R&D for product orientation (not to mention the higher risks). Not every customer-oriented business will be successful: the market research may be faulty, the product may be launched too late, or competitors' products may meet the consumers' demand better.
To-Do-List: Activity 17.3
Chapter 17 - The Nature of Marketing
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