The following note is provided by Prof.Powpaka Samart
What Is Marketing?
As you may already know, the main objective of any business is to make profit. On the other hand, there are also non-profit or not-for-profit organizations that exist in the society. Their main objective is to achieve a non-profit objective or to serve a certain cause, e.g., HK Red Cross wants to obtain enough blood to help the patients. These non-profit organizations still need to make money or obtain money. But they do not do it for profit; they do it in order to secure enough resources to help them achieve their non-profit objectives.
To achieve their objectives, businesses and non-profit organizations need to have different people to perform different functions. They normally organize people who perform the same function into the same "departments". Accounting, finance, production, R&D, logistics, marketing, and sales are examples of departments that normally exist in a business organization.
"What is marketing?" Using American Marketing Association's (1985) definition, marketing is "the process of planning and execution of the conception, pricing, distribution, and promotion of goods, services, and ideas to create or facilitate exchanges that satisfy both individual and organizational objectives." Based on the definition, it is quite clear that the definition is inclined toward marketing as a business function (or what marketing people do). In essence, the function of marketing is about identifying the right target market (a group of consumers or business customers) and creating, communicating, and delivering the company's products (which can be goods, services, ideas, or combination of goods, services, and ideas) to the chosen customers. What marketing people do is to plan and execute the marketing plan, which consists of product strategy, pricing strategy, distribution strategy, and communication strategy. The execution of the marketing plan will create or facilitate the exchange or transaction between the target customers and the organization.
Then we look into the definition of marketing by AMA in 2004. 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." It is clear from the definition that marketing includes both marketing as a business function (an organizational function) and as a management philosophy/orientation (a set or cross-functional or cross-departmental processes for [a] creating, communicating, and delivering value to the target customer and [b] to manage relationship with customers in ways that benefit the stakeholders). Marketing as a management philosophy requires an integrated effort of every members of the organization to provide superior "value" to the customer and to build, enhance, and maintain "relationship" with (profitable) target customers.
When we look at the definition of marketing by AMA (2004), you can see that marketing, as a management philosophy, requires the integration of every function or department to work together to satisfy the target customers. The target customer is the focus of the company's operations. Everybody in the company (1) works together to create, communicate, and deliver value to the customer and (2) manages the relationship with customers in ways that benefits the company and its stakeholders.
We then discussed about the formula of value to demonstrate that customer value creation comes from the integrated effort of every employee of the firm.
Value = quality/price + relationships
Quality: Quality represents everything that customers get from buying your product. As such, quality must be defined by your customers. There are two types of quality: (1) objective quality (i.e., actual quality as can be tested in the lab according to the specification) and (2) perceived or subjective quality (i.e., quality as "perceived" or "believed" by the customers). R&D and production staffs make sure that the objective quality of the company's products is acceptable. Quality standards and measures such as TQM, QC, ISO, etc are used to ensure objective quality. Marketing people use integrated marketing communication (IMC) to build perceived quality in the mind of the customers. It is important that there is a match between objective and perceived quality.
Price: One of the determinants of price is cost. Today, there are two major sources of cost reduction: (1) global sourcing and (2) logistics management. Global sourcing concerns with two consecutive decisions: (1) to make or to buy (i.e., to manufacture the products by yourself or to sub-contract other people to produce for you), and (2) where to make or where to buy. Proper global sourcing can give cost advantage to the firm. Logistics concerns with the strategic movement and storage of products into the firm, inside the firm, and out of the firm. Purchasing or inbound logistics concerns with the movement and storage of raw materials, processed materials, and component parts into the firm. Manufacturing support of intra logistics concerns with the movement and storage of semi-finished products inside the firm. Finally, physical distribution or outbound logistics concerns with the movement of finished products from the firm to its customers. The main concept of logistics is (1) to provide the desired service level to both internal and external customers and (2) at the lowest total cost. A logistics system consists of 3 performance cycle: (1) inbound logistics (or purchasing), (2) intra or inside logistics (or manufacturing support), and outbound logistics (or physical distribution). A good logistics system not only reduces the cost for the company but also provides competitive advantage for the company. In other words, a good logistics system can give a company sustainable competitive advantage by providing appropriate level of service at the lowest total cost.
The service level in logistics consists of:
1. Availability
2. Operational performance
a. Speed
b. Consistency
c. Flexibility
d. Malfunction and recovery
3. Reliability
The costs in logistics include:
1. Order management costs
2. Inventory management costs
3. Material handling costs
4. Transportation costs
5. Warehousing costs
Relationships: There are two types of relationships: (1) relationship with your customers (i.e., relationship marketing and customer relationship management or CRM) and (2) relationships with suppliers and channel members (i.e., strategic alliance/partnership). Strong relationships with both customers and suppliers/channel members are important in the value creation process for the customers.
A company that adopts marketing as its management philosophy or company orientation will try to survive and grow in long-term by focusing on satisfying the needs and wants (i.e., preferences to be more accurate) through the integrated effort of everybody in the firm. As such, a marketing-oriented company has the following characteristics:
* Long-term focus (i.e., profit and growth as a result of customer loyalty/long-lasting relationship)
* Customer focus or customer orientation (i.e., understanding the target customers' needs/wants/problems and their alternatives now and in the future)
* Competitor focus or customer orientation (i.e., understanding the major competitors' objectives and strategies now and in the future)
* Inter-functional or inter-departmental coordination (i.e., every employee takes full responsibility of the success/failure of the firm)
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