Chapter 1: Marketing Principles and Strategies

Through their marketing operations, organizations offer goods and services to consuming
public or ti organizations. These marketing firms consider market demand and price their
products strategically in order to cover their operating and other business expenses. These
expenses include rentals, salaries and benefits of employees, and utilities, among others.
When revenues exceed costs of production and operations, profits are realized.

Offering products and services to customers and ensuring that these are purchased are
among the major functions of marketing. Without marketing, most businesses may not be
able to sustain their operations and may cease to exist. Profit is one of the major driving
forces, if not the main motivation, of a business operation. For this reason, marketing is often
referred to as the "lifeblood" of every business.

The importance of marketing is also true for nonprofit organizations and government
institutions. If the Philippine National Red Cross is not able to persuade individuals to donate
blood, it will fail in fulfilling its goal to help patients in need of blood transfusions.

If the Department of Health's anti-smoking campaign is not successful, the Department will
fail in improving health as incidences of cardiovascular and respiratory illnesses will not be
reduced.

Most, if not all, activities in an organization revolve around the successful practice of
marketing.

MARKETING PRINCIPLES AND STRATEGIES

• Marketing and its traditional approaches
• Goals of marketing
• Contemporary approaches to marketing

Marketing Defined

Marketing is a form of communicating or promoting the value of a product, service, or brand

to the consumers. The 'by word of mouth" marketing may be the simplest, oldest, and most
natural way of marketing a service or a product for profit and nonprofit purposes.

Marketing for profit aims to increase sales of products or services while marketing for
nonprofit purposes aims to communicate messages for social purposes, such as health and
public safety information disseminated by the government.

The American Marketing Association defines marketing as "the activity, set of institutions,
and processes for creating, communicating, delivering, and exchanging offerings that have
value for customers, clients, partners, and society at large.”

The key to this definition of marketing is the word "value." Thus, marketing can be
summarized as the creation, communication, and the delivery of value to customers.
Alternately, the Philippine Marketing Association (PMA) defines marketing as a "science
and a profession guided principally by the universal principles of ethics, corporate
citizenship, and corporate social responsibility."

This definition emphasizes an adherence to ethical principles, corporate citizenship, and

social responsibility. Marketers must avoid offering products and services that may be
harmful to one's health and well-being or promote violence and immorality. Products or
services that serve no purpose or contribute nothing to individual and societal well-being
should not be marketed.

Goals of Marketing

The goals of marketing can be summarized as follows:

● Understand the market and its consumers, and satisfy their changing needs and
wants
● Introduce and innovate products and services that improve human condition and the
quality of life
● Design and implement effective customer-driven marketing strategies
● Develop marketing programs that deliver superior value to consumers
● Build and maintain mutually beneficial and profitable customer relationships
● Capture customer value to create profits
● Promote value transactions with full regard to society's well-being

The Marketing Process

The marketing process can be illustrated in the following diagram:

Prior to the marketing of specific products and/or services, marketing companies conduct a
thorough analysis of the external environment, the market, its competitors and customers,
and an incisive audit of its internal operating characteristics. This is followed by the
formulation of relevant marketing strategies coupled with a calibrated response using the
elements of marketing (commonly known as the 4Ps). As soon as the marketing strategy is
implemented, regular monitoring takes place in order to identify deviations and, if necessary,
make adjustments to any or all elements of the marketing mix.
Products, Services, and Experiences
What do organizations market? As consumers, we are most familiar with the marketing of
goods and services. Other than these, however, marketing organizations also market
experiences, ideas, advocacies, and even personalities.

Marketing Products
Products or goods are physically tangible items. As such, they are generally perceivable by
the human senses and can, therefore, be inspected prior to purchase.

Product Levels

All products have a core or generic product,

which houses its core or generic function. A
product's core or generic function can be
defined as the purpose for which the product
was created. For example, the core or
generic function of a wristwatch would be "to
tell time. All wristwatches, however, can tell
time.

On the other hand, for automobiles, it would

be "to transport." However, physical products
cannot be effectively marketed on the sole
basis of their core or generic function
because similar products have the same
core or generic function. In this case, all automobiles are capable of transporting people.

Therefore, it would be difficult, if not impossible, for a marketer to convince consumers to

prefer a brand of automobile over another, if it were to be marketed solely on its ability to
transport. Product differentiation would not be possible.

The situation necessitates the creation of a second product level to be added on to the
product's core or generic function. This level includes factors that could effectively
differentiate automobiles manufactured by one company over those manufactured by others
with the same core or generic function. This second level is called the formal product. Car
manufacturers incorporate unique styling into their automobile models, utilize different hood
and grill designs, use various paint colors, incorporate advanced features, and charge
varying selling prices, among others. All these are undertaken with one objective in mind--to
differentiate their automobile from those manufactured by other firms.

It would usually be sufficient for most marketing organizations' formal product to successfully
differentiate their product offering from their competitors. However, certain types of
products/goods, particularly those that are very expensive and have long service lives,
require a third level: the augmented product.
An augmented product is necessary in the case of products/goods, such as condominium
units, motor vehicles, and major household appliances. Because of their relative high price,
most customers may not have immediate funds available for purchase. Therefore, it
becomes necessary to offer credit or sometimes installment terms, allowing customers to
purchase these products at a discount or spreading payment over months or years. To
protect their sizable total payments, customers also demand warranties to assure them of
the product's durability. The lengthy service life of a product may compel customers to
demand repair, maintenance, and service facilities. Moreover, installation may be expected
for major household appliances requiring complex plumbing and/or wiring. When these
augmented features are in place, most of the customers may be willing and able to purchase
these types of products.

Classifications of Products/Goods

Products that are marketed can be generally classified according to use, differentiation, type,
and durability.

According to Use: Consumer and

Industrial Goods
When classified according to use,
products/goods can either be
consumer goods or industrial goods.
Consumer goods are goods that are
purchased for consumption. Examples
of these are soft drinks, hamburgers,
candies, cigarettes, and other similar
items.

On the other hand, industrial goods

are purchased in order to make other
goods, to serve as a raw material or
input in the production of other goods.
A typical example is aluminum, which is used to manufacture kitchen equipment and cans,
or electronic cables and wires, which serve as electrical conduits for home appliances,
among others.

It would not be possible to say, however, that a product is always a consumer good or an
industrial good. A good that is ordinarily a consumer good can also be used as an industrial
good, and vice versa. For example, when a consumer buys sugar from the supermarket and
uses this sugar to sweeten his/her coffee, the sugar in this particular case is a consumer
good. However, if the sugar is added to flour, chocolate syrup, eggs, and walnuts to make
brownies and are eventually sold, the sugar in this case is an industrial good.
In other words, physical characteristics alone cannot determine whether a product is a
consumer good or an industrial good. One should also consider how the product is ultimately
used.

According to Differentiation: Undifferentiated and Differentiated Goods

Undifferentiated goods are products whose physical characteristics are so identical, that it
would be difficult, if not impossible, to distinguish one purchased from one vendor or another.
Most undifferentiated goods are products that are sourced from nature.

A typical example of an undifferentiated good is rock salt. When a housewife goes to the wet
market to purchase rock salt from two different vendors, determining which one came from
one vendor or the other is a challenge. Salt bought from the two different vendors looks,
feels, and tastes identical.

On the other hand, differentiated goods are varied in their characteristics and features that
they are readily distinguishable from one another. If one were to park white-colored vehicles
of each model from all local car manufacturers side-by-side, the Toyota Corolla would still be
readily distinguishable from the Mazda 3, the Nissan Sentra, the Honda Civic, and from the
other white-colored vehicles in the lot. This is because each manufacturer and model has
varying appearances and features. They have different grill designs, headlights, body
heights, hoods, ground clearances, etc. The ability of manufacturers to successfully
distinguish their products from other competitors is called branding.

Branding provides a product or service a unique distinguishing name, logo, symbol, or image
which is used to differentiate it from other similar products and services.

Why do some manufacturers brand their products, while others do not? The major reason is
cost. When a company decides to brand its products, it must recognize that there are two
responsibilities that accompany branding:
• All products carrying the brand must have quality consistency.
• The brand must be advertised and promoted.

The underlying reason why manufacturers decide to engage in branding despite the cost is
that they want the brand to be known and preferred by customers, eventually creating and
building brand loyalty. No customer will patronize a brand whose quality is inconsistent. For
a brand to be known, it must be extensively advertised and promoted.

Once a brand acquires customer recognition, a positive market reputation and goodwill,
higher selling prices can be charged, larger sales revenues are generated, and higher profit
margins realized. This is because customers begin to attach value to the brand than to the
product itself. This appreciation in a brand's value from the point of view of customers is
called brand equity.

According to Durability: Consumables, Semi-Durable, and Durable Goods

Based on durability, products are either consumables, semi-durable, or durable goods.
Durability refers to the length of time a consumer can derive benefit from the product or good
purchased.

A consumable is a product whose benefit can only be used by a consumer for only a short
period of time, sometimes only a few minutes. For this reason, many misinterpret
consumables to exclusively include food, drinks, and other edible items. Although these are
consumables, nonedible items such as detergents and toiletries are also considered
consumables. The benefit one can derive from soap, for example (for cleaning oneself) may
only last a few days.

On the other hand, semi-durables provide benefits to the consumer for a longer period of
time, usually spanning several months. Semi-durables are manufactured for longer-term use
by consumers. Examples of semi-durables are clothes, shoes, belts, and jackets, etc.

Durables are products that are manufactured to last a long time. They are capable of
providing consumers with years of beneficial use. Durables are usually expensive, and
many, therefore, require an augmented product to market them effectively. Examples of
durable goods are automobiles, houses, major household appliances, etc.

According to Type: Convenience, Shopping, Specialty, and Unsought Goods

Convenience goods are products that are purchased frequently, are usually inexpensive,
and do not require much purchase effort and evaluation. Examples are newspapers, gums,
and candies. The key to the successful marketing of convenience goods is its availability in
as many retail outlets as possible, catering to consumer needs where and when it arises.

Shopping goods, on the other hand, are purchased less frequently than convenience
goods, relatively more expensive, and require some amount of information search and
evaluation prior to purchase. Consumers of shopping goods consider features, evaluate
attributes, and compare prices. Examples of shopping goods are shoes, clothes, and
handbags. The successful marketing of shopping goods depends on intensive advertising,
well-trained salespersons, and positioning company products as superior alternatives to
competitors' products.

Specialty goods are goods that require unusually large effort on the part of consumers to
acquire. Consumers are usually willing to travel great distances to where these goods can
be purchased. Examples are branded luxury merchandise, works of art, automobiles, and
homes. Successful marketing of specialty goods requires the promotion of strong brand
image and identity.

Unsought goods are goods that consumers seldom actively look for, and are usually
purchased for extraordinary reasons, such as fear or adversity, rather than desire. Examples
are investments, memorial plans, and life packages. These goods require advertising and
aggressive selling efforts and are usually marketed using highly trained and persuasive
salespersons.

Marketing Services
What is more difficult to market, products or services? Services are generally considered
more difficult to market due to its four major attributes:

a. Intangibility - Physical products are tangible. As such, they can be inspected by

consumers prior to purchase. On the other hand, services are intangible. It would,
therefore, not be possible to "sample" a lawyer's legal skills, or a doctor's ability to
handle a surgical operation before one decides to retain a lawyer or a doctor. This is
the first reason that makes the marketing of services difficult.
 How do marketers address the intangible attribute of services? Service marketers
commonly resort to the practice of making their services "tangible." Although lawyers
and doctors cannot give their potential clients a preview of their service skills, they
retain large luxurious offices manned by smartly dressed staff. They maintain
extensive and updated legal and medical libraries that can be readily viewed by
visitors. They also display diplomas, certifications, and other documentary evidence
of their training and expertise, and readily give out professionally prepared business
cards with their Latin titles after their names. Moreover, they are always professional
in attire and conduct. These give their potential clients the perception of their
competence and capability to render the service required.

b. Variability - Because services are performed by human beings, no service provider

can render the same service exactly the same way every single time. A college
professor, when giving the same lecture in two separate sessions, cannot use exact
words and gestures for both sessions. An obstetrician-gynecologist (OB-Gyne)
likewise cannot perform caesarian sections in precisely the same manner, even when
the cases involved may be identical. Because of variability, customers sometimes
exhibit apprehension when purchasing or paying for services.

If physical products were variable, it is certain that a disturbing level of purchase

anxiety would be experienced by customers. For example, if cans of a brand of
vienna sausages were to have different and unpredictable quantity of sausages
inside, customers might be unwilling to take the risk of paying the same amount of
money without the certainty of the number of sausages in each can.

How do marketing organizations address the problem of service variability? The

problem can best be addressed by developing and implementing standard operating
procedures on how the service should be rendered. A fast-food counter clerk, for
example, follows a script in greeting customers, asking orders, reading and
confirming the order, and receiving payment, etc. By following a procedure,
incidences of variability are reduced.

c. Inseparability - Because services are rendered by people, the service provider must
be present each and every time the service is provided. Services are rendered and
consumed simultaneously. As a lawyer gives legal advice to a client, legal services
are being "produced," and simultaneously "consumed" by the client. This limits the
ability to render the service to a large number of people, as the service provider's
presence is always a necessary component in the production of the service.

To maximize revenues, service companies institute a combination of standardized

systems and procedures, and service franchising. Mr. Quickie, for example, is able to
render handbag, footwear repait, and key duplication services in its hundreds of
facilities throughout the country. The firm utilizes standardized procedures and pricing
to ensure that their customers receive the same level and quality of service in any of
its many different locations.

d. Perishability - Unconsumed services cannot be stored or warehoused. When a

40-room boutique hotel with a restaurant on its ground foor operates on a particular
 day, unconsumed or unused ingredients for food production, unsold bottles of soda,
or unused coffee beans can be stored, available for use or sale the following day.
However, if on the same day, only 32 of its 40 rooms are occupied by guests, the
eight unsold, unoccupied rooms cannot be stored and added to its 40-room
availability the next day. The eight unsold, unoccupied rooms have "perished."They
represent lost revenues for the day that can never be recovered. Similarly, the unsold
seats of a 250-seat commercial jet airliner flying from Manila to Los Angeles
"perishes" as soon as the plane takes off from the Ninoy Aquino International Airport.

How can marketers maximize revenues and avoid lost service perishability? The key
is the implementation of a marketing strategy called capacity management, or
achieving a proper balance between service demand (customer needs) and service
supply (service availability). If service demand exceeds service supply, the excess to
demand cannot be accommodated by supply; potential revenues are lost. On the
other hand, if service supply exceeds service demand, the excess supply "perishes"
and represents unrecoverable revenues.

Capacity management can be implemented in various ways. The airline industry for
example, uses algorithms that monitor and change ticket prices for various
destinations depending on the time and date of ticket booking and availability of
seats. This results in frequent price movements. Depending on supply and demand,
ticket prices for some destinations change in a matter of seconds. In traditional
capacity management, international long distance carriers have been known to offer
substantial discounts when calls are made at odd hours (usually late nights to early
morning). This is to relieve demand during peak hours. Concert ticket prices vary by
location in order to maximize the venue's seating capacity, thereby reducing the
entertainment service's "Perishability." Some restaurants also offer discounted rates
for patrons dining during low capacity hours of the day.

Needs, Wants, and Demands

Consumer needs are defined as physiological necessities required for human survival,
These universal needs include food, shelter, and clothing.

Wants, on the other hand, are more psychological, indicating preferences that can improve
the consumer's life condition. For example, at noon, a consumer may have a sudden and
uncontrollable need to eat. This can be satisfied with food because eating is a need.
However, the consumer will not satisfy this need with just any type of food but will consider
what kind of food he/she wants. He/She will decide whether to have a pizza, a doughnut, a
sandwich, or a rice meal.

Market and Market Demand

Market is defined as the group of individual or organizational customers who have both the
willingness and financial capability to purchase a particular product or service. Capability to
purchase a product/service can be a variable as it can expand or contract depending on
certain factors, e.g., selling price. When a product's or service's selling price is reduced,
even if the number of individuals willing to purchase may remain constant, the reduced price
may increase the number of individuals who may now afford to buy.
Market demand is the total demand of all potential customers for a specific product/ service
over a specific period in a specific market area.

Measuring Market Demand

Market demand can either be primary or selective. Primary demand refers to the total
demand for all brands of a particular product or service. It is sometimes referred to as total
industry demand. Selective demand, on the other hand, is the demand for a specific brand
of product or service.

Measuring market demand in the Philippines is challenging because few accurate published
industry statistics are available. Because of this, companies conduct surveys to establish an
estimate of market demand.

Potential, Latent, and Current Demand

Potential demand exists when there is no demand yet for a particular product/service, but
there exists a market with sufficient financial capability to purchase.

Latent demand results when customers in a market are unable to satisfy specific desires
because there exists no product/service in the market that can satisfy them. It can also occur
when the product/service is available, but is priced beyond their reach.

In order to satisfy latent demand, marketing organizations must either:

● Introduce goods currently unavailable that are desired by customers to plove.
● Influence and persuade customers to reallocate their expenditures toward the
company's product
● Offer credit, installment, or similar terms to make the product affordable to customers

Current demand is defined as the number of people of a particular market at present that
would actually purchase the product or service offered.
This can be measured in several ways, most popular of which is "intent to buy" surveys.

Utility, Value, and Satisfaction

Utility refers to the total satisfaction consumers can receive from the consumption of a
product or service.

Value, on the other hand, refers to the value customers place on a product or service.
Since consumers have different needs and buying capacities, consumers assign varying
values on the same product or service. The product with the highest quality does not always
provide the highest value for customers. The perception of value is affected by the cost
required to acquire the product or service.

Satisfaction is the measure of how well customer expectations from a purchased product or
service have been met.
To ensure maximum customer value and satisfaction, marketers must:
• balance product or service quality and price
• establish consistency among product availability, level of customer service, and
efficiency
• create buying atmosphere and deliver purchase convenience

Customer-Perceived Value
Customer-perceived value is the quantitative difference between the expected benefits and
costs of a particular product or service in comparison to a similar product or service.
Customers rarely have an accurate assessment of a product's or a service's value and cost,
and make purchases based on their perception of its ability to satisfy his/her needs and
requirements.

To enhance their customers' perceived value of products or services, marketers advertise

aggressively and invest heavily in highlighting product features. In the case of cosmetic and
personal care products, companies invest heavily in packaging and labeling.

Some marketing organizations conduct marketing research to identify the perceived values
consumers attach to specific products/services.

Customer Value Proposition

A customer value proposition is a comparison of the benefits offered by a company's
products to its customers in relation to the amount it is asking customers to pay. Customers
always ask the question: "What is in it for me?"

Marketing strategies enhance a product's customer value proposition by emphasizing key

attributes of the brand in relation to competitors' brands, communicating to customers, "Why
us?"

Competition
A competitor is any company in an industry or a similar industry that offers a similar product
or service.

Levels of Competition
A firm's competition can be classified either as a desire, generic, form, or brand competitor,

The most basic type of competitor is the

desire competitor. For example, eating is a
"desire" or "need" that a customer wants to
satisfy at a particular time or occasion. This is
identified and established first before the
customer will consider a possible destination
to satisfy his/her "desire" or "need."

The customer then considers a number of

available options. These are the generic and
form competitors (sometimes called
"indirect" competitors). Although these two levels of competitors serve different types and
forms of food items, they are still competitors. If a customer selects a chicken sandwich
instead of a hamburger, the hamburger fast-food chain can no longer generate revenues
from the customer because:
• The "desire" or "need" of the customer has already been satisfied and he/she is no
longer (for the moment) interested in food.
• If the customer is on a limited budget, he/she may have already spent his/her
monetary allocation for food.

On the other hand, brand competitors are the most "direct" competitors because they offer
the same type of product the customer has finally decided to consume.

The Concept of Market Share

The effectiveness of marketing strategies in an industry can be measured using what is
referred to as market share. Market share, expressed in percentage, is the share of a
company's revenues in the total revenues of its industry in a particular year.

Market share can be calculated using the following formula:

Because sales revenue is the basis for determining market share, companies often boost
sales through product introductions and innovation, price reduction, intensive advertising,
and aggressive promotional efforts, among other activities.

The company with the largest market share in an industry is the industry's market leader.
Market leadership is aspired by many industry participants. Aside from the prestige, market
leaders usually lead the industry in price changes, advertising and promotional intensity, and
new product introductions. More often than not, market leaders manufacture and market the
largest number of product units in an industry. They are likewise often the most profitable
due to production scale and distribution efficiency.

Traditional Approaches to Marketing

Evident up to the late 1960s, traditional approaches in marketing focused on production
methods, product quality, and effective selling methods as profit drivers in marketing.

• The Production Concept

The production concept assumes that customers prefer products that are inexpensive,
affordable, and widely available. Efforts are concentrated in expanding distribution, and
improving production efficiency. The objective is to lower production costs resulting in lower
prices. However, this concept is relevant only if customer tastes and preferences are stable
and product demand is high.

• The Product Concept

The product concept assumes that customers will always prefer and patronize products of
high quality. Resources are focused on product improvement and innovation. Product
attributes and features are continuously enhanced. While this may be important, too much
preoccupation on product quality may neglect the customers' changing needs.

• The Selling Concept

The selling concept emphasizes aggressive selling and promotional efforts. It assumes that
customers are generally timid and must be persuaded into buying. The objective is to sell
what is manufactured rather than manufacture what the market wants.

Contemporary Approaches to Marketing

In contrast, contemporary marketing approaches are centered on the customer,
relationships, and the well-being of society.

• The Marketing Concept

The marketing concept considers the needs of both the customer and the product offered.
The objective is to provide a solution to the customer's actual or perceived problem. The key
is to be more effective in the creation, communication, and delivery of this value to
customers.

• The Relationship Marketing Concept

The relationship marketing concept believes that all marketing activities are for the purpose
of establishing, maintaining, and strengthening meaningful long-term relationships with
customers. Extensive customer databases are created, maintained, and updated. Customer
profiles, purchase habits, and preferences are tracked and monitored. This is to ensure that
customers' needs are fulfilled and the relationship with them is maintained.

• The Societal Marketing Concept

The concept is similar to the marketing concept. However, beyond providing solutions to
customers, the societal marketing concept goes further to include considerations that protect
the customers well-being and interests, as well as the interests of the environment and
society.