Marketing Summaries: Chapters 1 - 2

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. It is the process of obtaining a desired product from
someone by offering something in return. It is a value creating process because it leaves both parties
better off. 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

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Transaction 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.

Marketing consists of actions undertaken to elicit desired responses from a target audience. 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.

Resources Resources
Resource
Money Markets Money

Taxes, Services,
Goods money
Services,Mon
ey Taxes
Manufacturer Government Consumer
markets markets markets
Taxes,Goods Services

Money Money
Intermediary
Goods and services markets Goods and services

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Sellers and buyers are connected by 4 flows:

Communication

Industry Goods / services Market

(a collection of (a collection of
sellers) buyers)
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):

- 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 – Has created an information age that promises to lead to more
accurate levels of production, more targeted communications and more relevant pricing.
o Globalisation – Technological advances make it easier for marketing across countries.
o Deregulation – creates a greater competition and growth opportunities.
o Privatisation – Increased efficiency of previously public companies.
o Customer empowerment – Increased expectations of quality and service and some
customization. More information available and less brand loyalty
o Customisation – Company is able to produce individually differentiated goods.
o Heightened competition – Rising promotion costs and shrinking profit margins.
o Industry convergence – Blurring industry boundaries create opportunities at the intersection
of the two industries.
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

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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

Internal Integrated
Marketing Marketing

Marketing dept Communications

Senior Mgmt Products & Services
Other Depts Channels
Holistic
Marketing

Social Relationship
Responsible Marketing
Marketing
Customers
Ethics Channel
Environment Partners
Legal
Community

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. Operating principle: Build an
effective network of relationships with key stakeholders, and profits will follow.
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
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.

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 c. Internal marketing – The task of hiring, training and motivating able employees
who want to serve customers well. 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.

Holistic marketing happens across the orgarnisation.

 Market Structure Analysis

 Customer orientation and advocacy
 Positioning the firm in the value chain
Corporate
 Market Segmentation and targeting
 Product positioning/brand positioning
Strategic Business  Partnerships decisions
Unit

 Market mix
Operating
 Managing customer and reseller
relationships.

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
Communication – deliver and receive messages from target buyers
Distribution – to display, sell, or deliver the physical product or service(s) to the
buyer or user
Service channels – to carry out transactions with potential buyers.

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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 that a buyer might
consider.
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
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

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 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
 Choosing the value – represents the “homework” marketing must do before
any products exist.
 Providing the value - marketing must determine specific product features,
prices and distribution.
 Communicating the value - through utilisation of sales force, sales promotion,
advertising, and other communication tools to announce and promote the
product.

Choose the value Provide the value Communicate the value

Customer Market Value Product Service Pricing Sourcing Distributi Sales Sales Advertising
segmentation selection / proposition dvlpmt dvlmpt ng force promo
focus
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. The value
chain identifies nine strategically relevant activities that create value and cost in a specific
business. These nine value creating activities consist of five primary activities and four
support activities.
Primary activities – inbound logistics, operations, outbound logistics, marketing & sales, and
service.
Support activities – procurement, technology development, human resource management,
and firm infrastructure.

Core Business Processes

 The market sensing process – all activities involved in gathering market

intelligence, disseminating it within the organisation, and acting on the
information.
 The new offering realisation process – all activities involved in researching,
developing, and launching new high quality offerings quickly and within budget.
 The customer acquisition process – all the activities involved in defining target
markets and prospecting for new customers.
 The customer relationship management process – all activities involved in
building deeper understanding, relationships, and offerings to individual
customers.
 The fulfilment management process – all activities involved in receiving and
approving orders, shipping the goods on time, and collecting.

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 The Generic Value Chain (Pg 39)

Firm Infrastructure

Human Resource Management

Support
Activitiesses Technology Development Margin
Procurement

Inbound Operations Outbound Marketing Services

Logistics Logistics and sales Margin

Primary Activities

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

Customer Core Collaborative
Focus Competencies network

Value Cognitive Competency Resource

Exploration Space Space Space

Value Customer Business Business

Creation Benefits Domain Partners

Value Customer Internal Business

Delivery Relationship resource Partner
Management management Management

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This framework is designed to address 3 key management 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
- Establishing a strategy ie game plan to achieve long-run objectives

The marketing plan must operate at 2 levels within the broader business:
- Strategic Marketing Plan: lays out target market and value proposition that will be
offered, based on analysis of the best market opportunities.
- Tactical Marketing Plan: specifies the marketing tactics including the product
features, promotion, merchandising, pricing, sales channels, and service.

There are 4 levels within an organisation and strategic planning needs to occur at each
level:
- Corporate strategic planning AND Division strategic planning

Defining the mission

A clear, thoughtful mission provides employees with shared sense of purpose, direction and
opportunity. Mission statements should reflect a long term vision for the company. Good
mission statements have three characteristics:
- focus on limited number of goals
- stress the company’s major policies and values
- define the major competitive spheres within which the company will operate including
the industry in which it will operate, products and applications it will supply, core
competence, its market segment, its vertical penetration, and geographical footprint.

Defining the business

A business must be viewed as a customer-satisfying process, not a goods-producing process.
Therefore companies should define their businesses in terms of needs, not products. A
business can be defined in terms of three dimensions: customer groups, customer needs and
technology.
Large companies normally manage quite different businesses, each requiring its own
strategy, or strategic business unit (SBU). An SBU has three characteristics:
- It is single business or collection of related businesses that can be planned separately
from the rest of the company.
- It has its own set of competitors
- It has a manager who is responsible for strategic planning and profit performance
and who controls most of the factors affecting profit.
The purpose if identifying the company’s strategic business units is to develop separate
strategies and assign appropriate funding.

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Assessing growth opportunities – involves planning new businesses, downsizing, or
terminating older businesses. Strategic planning gap – gap between future desired sales
and projected sales. Three ways to fill strategic planning gap:
1. Intensive Growth: achieve further growth within current businesses. Management’s
first course of action should be a review of opportunities for improving existing
businesses.

Ansoff’s model (Product-market expansion grid) is a useful framework for detecting

new intensive growth opportunities

Desired sales Diversification growth

Integrative growth Strategic planning gap

Sales ($mil) Intensive growth

Current portfolio

Time (years)

Products
Old New

Old Market penetration Market development

strategy strategy

Markets Product development Market expansion

strategy strategy
(diversification)

New

2. Integrative Growth: identify opportunities to build or acquire businesses that are

related to current businesses.
- Backward integration: acquisition of one or more suppliers to gain more
control or generate higher profit
- Forward integration: acquisition of wholesalers or retailers, particularly if they
are highly successful
- Horizontal integration: acquisition of competitors, if legislation permits such
action

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 3. Diversification Growth: makes sense when good opportunities can be found outside
the present business. Types of diversification include:
- Concentric strategy: new products that have technological or marketing
synergies with existing products, even if the new products appeal to different
group of customers.
- Horizontal strategy: new products that could appeal to current customers
even if technologically unrelated to company’s current product line.
- Conglomerate strategy: seeking new businesses that have no relationship to
its current technology, products, or markets.

Organisational and Organisational Culture

Changing a company culture is often the key to successfully implementing a new
strategy. Senior management should identify and encourage fresh ideas from three
groups who tend to be underrepresented in strategy making:
- Employees with youthful perspectives
- Employees who are far removed from company headquarters
- Employees who are new to the industry
Each group is capable of challenging company orthodoxy and stimulating new ideas.
Strategy must be developed by identifying and selecting among different views of the
future – scenario analysis. A scenario analysis consists of developing plausible
representations of a firm’s possible future that make different assumptions about forces
driving the market and include different uncertainties.

Business Unit strategic planning

The strategic planning process at this level includes:

1. The Business Mission

Each business unit needs to define its specific mission within the broader
company mission.

The Business Unit Strategic Planning Process

External Enviroment
(Opportunity and
threat analysix)
Goal Strategy Program Feedback and
Business Formulation Formulation Formulation Implementation control
Mission Swot Analysis
Internal Enviroment
(strengths/weaknesses
analysis)

2. SWOT analysis
It is an overall analysis of a company’s strengths, weaknesses, opportunities and
threats. It involves monitoring the external and internal marketing environment.
(external environment = opportunities and threats AND internal environment =
strengths and weaknesses)
3. Goal formulation
After SWOT analysis, company must develop specific goals for the planning
period – goal formulation stage. For an MBO (manage by objectives) system to
work, the unit’s objectives must meet four criteria :(arrange goals hierarchically;
state them quantitatively, make them realistic and be consistent)

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 4. Strategic formulation (game plan for achieving goals). Porter says there are 3
generic strategies ie overall cost leadership, differentiation, and focus
(specialisation). At this stage of the process, strategic alliances (Partner
Relationship Management) must also be considered – these fall into four major
categories:
- Product or service alliances: One company licences another to produce
its product, or two companies jointly market their complementary
products or a new product.
- Promotional alliances: One company agrees to carry a promotion for
another company’s product or service.
- Logistics alliances: One company offers logistical service for another
company’s product.
- Pricing collaboration: One or more companies join in a special pricing
collaboration.
5. Program formulation and implementation
Once business unit has developed its principal strategies, it must work out
detailed support programmes. In implementing strategy companies must also
not lose sight of their multiple stakeholders (employees, customers, suppliers,
distributors, retailers, and shareholders) and their needs. A company can aim to
deliver satisfaction levels above the minimum for different stakeholders. In
setting these levels, a company must be careful not to violate the various
stakeholder groups’ sense of fairness about the relative treatment they are
receiving. Style, skills, staff, and shared values are four of the seven elements in
successful business practice. Style means that the company employees share a
common way of thinking and behaving. Skills, means that the employees have
the skills necessary to carry out the company’s strategy. Staffing means that the
company has hired able people, trained them well, and assigned them the right
jobs. Shared values, means that the employees share the same guiding values.
The other three practices of successful business include strategy, structure and
systems.
6. Feedback and control (keep responding to the changing environment). As
company implements strategy, it needs to track the results and monitor the
developments. As the marketplace changes, the company needs to review and
revise its implementation programmes, strategies, or even objectives. The most
successful companies excel at effectiveness (doing the right thing) and efficiency
(doing things the right way). One an organisation fails to respond to a changed
environment, it becomes increasingly hard to recapture its lost position.

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

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- 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

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