CHAPTER 1: FUNDAMENTALS OF MARKETING

Business firms and non-profit organizations engage in marketing. Products marketed

included goods as well as services,
services, ideas,
ideas, people, & places.
places. Marketing activities are
targeted at market consisting of products purchasers and also individuals and groups that
influence the success of an organization.

The foundation of marketing is exchange. In which one party provides to another party
something of value in return for something else of value.

In a broad sense, marketing consists of all activities designed to generate or facilitate an

exchange intended to satisfy human needs.

The concept of market is very important in marketing. The American marketing

Association defines a market as “The aggregate demand of the potential buyers for
product or a product or services “. Philip Kotler defines “A
“A market as an area of
potential exchanges” Thus a market is a group of buyers and sellers interested in
negotiating the terms of purchase/sale for goods or services.
services. The negotiation work may
be conducted face-to-face at a certain place or it may be done through other means of
communication, such as correspondence, phone, cable, or it may be done through
business middlemen.
E.g. brokers and commission agents

2 MEANING AND DEFINITIONS

1. "Marketing is the human activity directed at satisfying needs & wants through
exchange process" (Philip Kotler)

2. "Marketing management is the process of planning and executing the conception,

pricing, promotion, and distribution of ideas, goods, and services to create an
exchange that satisfy individual and organizational goals."
goals." (Philip Kotler)

3. According to Paul Mazur

“Marketing is the creation and delivery of standard of living to the society"
 4. According to William J. Stanton.
“Marketing is a total system of business activities designed to plan, price, promote
and distribute want- satisfying products to target marketers to achieve
organizational objectives. "

To conclude, marketing definitions has the following implications.

 The entire system of business activities should be customers oriented. Customer

wants must be recognized & satisfied.

 Marketing activities start with an idea about a want – satisfying product and should
not end until the customer wants are completely satisfied, which may be some time
after the exchange is made.

The definition that serves our purpose best is the following:

“Marketing is a social and managerial process by which individuals and groups obtain
what they need and want through creating, offering, and exchanging products of value
with others.”

The definition of marketing rests at the following core concepts: needs, wants, and
demands; products (goods, services & ideas); value, cost and satisfaction; exchange
& transaction; relationships and networks; market; and marketers and prospects.

3 CORE CONCEPTS OF MARKETING

1 Needs, Wants & Demands

Marketing starts with human needs & wants. People need food, air, water, clothing, and
shelter to survive. Beyond this, People have a strong desire for recreation, education, and
other services.
Need: -
Human need is a state of deprivation of some basic satisfaction. People require food,
clothing, shelter, safety, and belonging & esteem.

Wants: -
Wants are desires for specific satisfiers of needs. Human wants are continually shaped &
reshaped by social forces & institutions, including churches, schools, families and
business cooperation.
E.g. A person needs food but wants an Ingera etc.
etc.

Demands: -
Demands are wants for specific products that are backed by ability and willingness to buy
them. Wants become demands when supported by purchasing power.

Companies must therefore measure not only how many people want their product but,
more importantly, how many would actually be willing and able to buy it.

2 PRODUCTS (GOODS, SERVICES & IDEAS)

People satisfy their needs and wants with products. A product is anything that can be
offered to satisfy a need or want.

A product can consists of as many as three components:- Physical goods, service(s), and
idea(s).

Eg .1. A restaurant is supplying goods (foods, drinks etc), services (cooking, seating etc)
and an idea (“saves my time”)

Eg. 2. A computer manufacturer supply goods (computer, monitor, printer), services

(delivery, installation, training maintenance, repair, and an idea (“computation power.”)

3 Value, Cost and Satisfaction

How do customers choose among the many products that might satisfy a given need?
The guiding concepts here are the value and satisfaction. Value is the consumer’s
estimate of the products overall capacity to satisfy his or her needs.

Therefore one will consider the products value & prices before making a choice. He will
choose the product that produces the most value per dollar.

According to Derose, Value is “the satisfaction of customer requirements at the lowest

possible cost of acquisition, ownership & use.

4 Exchange & Transactions

Exchange is the act of obtaining a desired product from someone by offering something
in return. Marketing emerges when people decide to satisfy needs & wants through
exchange.

For exchange potential to exist, five conditions must be satisfied.

1. There are at least two parties
2. Each party has something that might be of value to the other party.
3. Each party is capable of communication & delivery
4. Each party is free to accept or reject the exchange offer.
5. Each party believes it is appropriate or desirable to deal with the other party.

Transaction:
A transaction is a trade of values between two or more parties.
E.g. If Mr.A give X to Mr.B and received Y in return, this is a transaction.

Transactions however do not require money as one of the traded values. A barter
transaction consists of the trading of goods or services for other goods or services.

5 Relationship & Networks

Transaction marketing is part of a larger idea called relationship marketing. Relationship

marketing is the practice of building long-term satisfying relations with key parties-
customers, suppliers, and distributors in order to retain their long-term preference and
business.
business. Smart marketers try to build up long-term/, trusting, and “win-win”
relationships with valued customers, distributors, dealers, & suppliers.

The ultimate outcome of relationship marketing is the building of a unique company asset
called a marketing network.

A marketing network consists of the company and all of its supporting stakeholders:
customers, employees, suppliers, distributors, retailers, agencies, and others with whom it
has built mutually profitable business relationships.

The operating principle is simple build a good network of relationships with stakeholders,
and profits will follow.

6 Markets

A market consists of all potential customers sharing a particular need or wants who might
be willing and able to engage in exchange to satisfy that need or want. Thus the size of
the market depends on the number of people who exhibit the need or want, have resource
that interest others, and are willing and able to offer these resources in exchange for what
they want.

Traditionally, a 'market' is the place where buyers and sellers gathered to exchange their
goods or services.
services.

Essentially, manufacturers go to resource markets (raw material markets, labor markets,

money market, & so on. Buy resources and turn them in to goods and services, and then
sell the finished products to intermediaries, who sell them to consumers.

Consumers sell their labor, for which they receive money with which they pay for the
goods & services they buy. The government use tax revenues to buy goods & service to
provide public services.
7 Marketers & Prospects
When one party is actively seeking an exchange with the other party, we call the first
party a marketer & a second party a prospect.
A marketer is someone seeking one or more prospects that might engage in an exchange
of values. A prospect is some one whom the marketer identifies as potentially willing
and able to engage in an exchange of values.
values.

Marketers are skilled in stimulating demand for a company's products, but this is too lim-
ited view of the tasks they perform. Just as production and logistics professionals are
responsible for supply management, marketers are responsible for demand management.
Marketing managers seek to influence the level, timing, and composition of demand to
meet the organization's objectives. Eight demand states are possible:

1. Negative demand - Consumers dislike the product and may even pay a price to avoid
it.
2. Nonexistent demand - Consumers may be unaware or uninterested in the product.
3. Latent demand - Consumers may share a strong need that cannot be satisfied by an
existing product.
4. Declining demand - Consumers begin to buy the product less frequently or not at all.
5. Irregular demand - Consumer purchases vary on a seasonal, monthly, weekly, daily,
or even hourly basis.
6. Full demand - Consumers are adequately buying all products put into the
marketplace.
7. Overfull demand - More consumers would like to buy the product than can be
satisfied.

In each case, marketers must identify the underlying cause (s) of the demand state and
then determine a plan for action to shift the demand to a more desired state.

1.4 MARKETING PHILOSOPHY (EVOLUTION OF MARKETING):-

Large-scale marketing activities in the world did not begin to take shape until the
industrial revolution in the latter part of the 1800s. Since then, marketing has evolved
through three successive stages of development. Production - orientation stage, sales
orientation stage, and marketing orientation stage. All these stages depict the evolution of
marketing; details as illustrated below.

1.4.1 The Production concept

The production concept is one of the oldest concepts in business.
The production concept holds that consumers will favor these products that are widely
available and low in cost. Managers of production-oriented organization concentrate on
achieving high production efficiency and wide distribution.

The assumption that consumers are primarily interested in product availability and low
price holds in at least two situations. The first is where the demand for a product exceeds
supply, as in many developing countries. Here consumers are more interested in
obtaining the product that in its five points, and supplies will concentrate on finding ways
to increase production.

The second situation is where the product’s cost is high and has to decreased to expand
the market.

1.4.2 The Product Concept

Other business are guided by the product concept.

The product concept holds that consumers will favor those products that offer the most
quality, performance or innovative features. Managers in product oriented organization
focus their energy on making superior products and improving they over time.

Under the concept, mangers assume that buyers admire will made products and can
appraise product quality and performance.

Product-oriented companies often design their products with little or no customer input.
They trust that their engineers will know how to design or improve the product.

1.4.3 Sales Orientation Stage:( Sales/ Selling concept) (mid 1930 –Mid 1950)

The Depression changed perception. The main problem no longer was to produce or grow
enough, but rather to sell the output. Just offering a good product was no assurance
market success. Managers began to realize that to sell their product in an environment
where consumers had the opportunity to choose from among many alternatives required
substantial promotional effort.
Thus, the sales orientation stage was characterized by a heavy reliance on promotional
activity to sell the products the firm wanted to make.

In this stage, selling- related activities and sales executives and sales executive began to
get respect and responsibility from company management.

Along with responsibilities came expectations for performance. Unfortunately, overly

aggressive selling – the “hard sell” – and unscrupulous tactics also evolved during this
period.

1.4.4 Marketing – Orientation Stage (Marketing concept) (Mid-1950s-1990)

At the end of World War II there was an enormous pent-up demand for consumer goods
created by wartime shortages. As a result, manufacturing plants turned at tremendous
quantities of goods that were quickly purchased. How ever, the postwar surge in
consumer spending slowed down as supply caught up with demand, and many firms
found they had excess production capacity.

In an attempt to stimulate sales, firms reverted to the aggressive promotional and sales
activities of the sales orientation era. However this time consumers were less willing to
be persuaded. Because of their experiences, consumers had become more knowledgeable,
less naïve and less easily influenced. In addition, they had more choices. The technology
developed during the war, when converted to peacetime activity, made it possible to
produce a much greater variety of goods.

Thus the evolution of marketing continued. Many companies recognized that to put idle
capacity to work they had to produce what consumers wanted. In the marketing
orientation stage companies identify what a customer want and tailor all of the activities
of the firm to satisfy those needs as efficiently and effectively as possible.

5 Societal Concepts

The holistic marketing concept is based on the development, design, and implementation
of marketing programs, processes and activities that recognizes their breadth and
interdependencies. Holistic marketing recognizes that “everything matters” with
marketing and that a broad, integrated perspective is often necessary. Four components of
holistic marketing are:

 relationship marketing,
 integrated marketing,
 internal marketing, and
 Social responsibility marketing.

Not long after the marketing concept become widely accepted by many firms, It came
under fire, For more than 20 years cities have persistently charged that it ignores social
responsibilities, that although it may lead to an organization achieving its goals, it may at
the same time encourage actions that conflict with society’s best interest. A firm’s social
responsibility can be quite compatible with the marketing concept. Compatibility depends
as two things. How broadly a firm perceives it’s marketing goals and how long it is
willing to wait to achieve those goals.

A firm that sufficiently extends the breadth and time dimensions of its marketing goals to
fulfill social responsibility are practicing what has become known as the societal
marketing concept.

When the marketing concept’s is extended, a company recognizes that its market includes
not only the buyers of its products but also anyone directly affected by its operations.

Extending the time dimension of its marketing goals means that a firm should take a
long-term new of customer satisfaction and performance objectives,
objectives, rather than
concentrating only on tomorrow. For a company to prosper in the long run, it must satisfy
its customer’s social needs as well as their economic needs.

Thus the marketing concept and a company’s social responsibility are compatible if
management strives over the long run to;

1. Satisfy the wants of its product- buying customers.

2. Meet the societal needs to others affected by the firm’s activities, and
3. Achieve the company’s performance objectives.
The challenges of balancing these three often- conflicting goals frequently place
marketers in ethical predicaments.

DIFFERENCE BETWEEN MARKETING AND SELLING

For most of us, we must mistakenly think that selling & marketing are synonyms.
However, there is a vast difference between the two activities. The basic difference is
that selling is internally focused, while marketing is externally focused.

E.g. 1. When a firm makes a product and then tries to persuade customers to buy it ,
that’s selling. In effect, the firm attempts to alter consumer demand to fit the firm’s
supply of the product.
E.g. 2. When a firm finds out the customer wants and develops a product that will satisfy
that need and also yield a profit, that’s marketing. In marketing the company adjusts its
supply to the will of consumer demand.

A selling approach may be successful for a while, but if the customer is not given
priority, problems will occur. As a result despite selling many units it did not generate
sufficient profits to invest in critical marketing activities –promotion, customer service,
product improvements and building a strong dealer network- that would have continued
to meet the needs of the market. Some distinction between selling and marketing are:

Selling
Emphasis is on the product Vs
- Company first makes the
Product and then figures out
how to Sell it.
Management is sales-volume
oriented
- Planning is short run oriented,
in terms of today’s products
& markets.
Marketing
Emphasis is on customer’s wants.
Vs Company first determines
Customers wants and then figures at
How to make and deliver a product
to satisfy those wants.
Vs Management is profit oriented.
Vs Planning is long-run oriented,
In terms of new products, tomorrow’
markets , and future growth.
- Needs of seller are stressed Vs Wants of buyers are stressed.

Marketing Function
Marketing has been viewed as an ongoing or dynamic process involving a set of
interacting activities dealing with a market offering by producers to consumers on the
basis of reliable marketing anticipations (sales or demand forecast).

Marketing functions needed to serve market demand constitute second part of marketing
process. As these functions are performed in the marketing channels, these channels of
distribution become the third component of the marketing process. Marketing process
includes marketing functions.

Marketing is the total business activity, intended to satisfy a human needs and wants at a
profit. In designing of a product that could satisfy the customer needs, the marketer have
indulge several functions which all adds up to a product value. These functions include:
exchange functions; distribution functions and supporting functions.

A) Function of Exchange
Exchange means the act of obtaining a desired product from someone by offering
something else in return. Under an exchange functions, marketers' perform selling and
buying activities.

i) Buying
Buying is the act of acquiring a product from the seller with some consideration where
title of ownership is passing from the seller to the buyer. In acquiring the product, the
buyer act as a purchasing agent to its customer while consider the product quality,
quantity, price and other pertinent factors that adds up value to the final product supplied
to customers.

Buying is the function of the equation of exchange. It requires planning of purchases,

intelligent search for probable sellers, selection of goods to be sold, assembling of goods
in right quantity and quality, at the right place and time, and at the right price. In formal
exchange, a buyer has to negotiate terms of purchase and enter into a contract of
purchase.

ii) Selling
Selling is the act of transferring ownership from producer to customer in some
consideration. Selling provides a sales force for producers to reach small retailers,
customers and other business, at a lower cost than producers would under by having their
own sales forces.

Selling is one function of the equation of exchange. Selling creates demand for a product.
Selling function involves: (a) product planning and development, b) finding out or
locating buyers, c) demand create through salesmanship, advertising and sales promotion,
d) negotiation of terms of sale, such as price, quantity, quality, etc. e) sales contract
leading to transfer of title and possession of goods.

B) Distribution Function
Distribution refers to delivering the right amount of product, at the right time through
appropriate mode transportations and channels from point of production to consumption.
In delivering goods of the required quantity and quality at the right time the marketers are
performing certain activities. These activities include: Transportation and storing.

i) Storage
Every company has to store its finished goods until they are sold. A storage facility is
necessary because production and consumption cycles rarely match. For example, many
agricultural commodities are produced seasonally but demand for them is continuous.
The storage function helps to smooth discrepancies between desired quantities and timing
to the market.

The company must decide on a desirable number of stocking locations. More stocking
locations means the goods can be delivered to customers more quickly. But it also means
higher warehousing cost. The number of stocking locations must strike a balance between
customer service levels and distribution costs.
 ii) Transportation
A major activity in the distribution system in many companies is transportation - shipping
products to customers.

In shipping goods to its warehouse, dealers and customers, the company can choose
among five transportation modes: rail, air, trucks, waterways and pipelines.
Shippers consider such criteria as speed, frequency, dependability, capability,
availability, trace ability and cost. If a shipper seeks speed, air and truck are the prime
contends. If the goal is low cost, their water and pipeline are the prime contenders.

C) Facilitating functions
i) Branding and packaging
Brand is a name, symbol, or a thing, which is being used in a combination or otherwise to
differentiate the company's product offer from its competitor. Branding is a powerful
instrument of sales promotion that provides: product differentiation, usage, creations of
market; advertisement and publicity, etc.

Packaging is the process of developing and maintaining a wrapper or a package to a

product.

Packaging, branding and labeling go together and constitute an integral part of product
planning and development. Package itself is a forceful though silent and colorful
salesman at the point of purchase. It is an effective sales tool encouraging impulse
buying. It is a powerful medium for sales promotion.

ii) Salesmanship
Personal selling is the best means of oral and face-to-face communications and
presentation with the prospect for the purpose of marketing sales. There may be one
prospect or a number of prospects in the personal conversation.

iii) Standardization and grading

In agricultural marketing standardization and grading play a very important role.
Standardization makes sale by description possible. It assures quality. It promotes
uniformity of products. It widens the market for commodities. Standardization means
selecting standards of quality. Grading means separating or inspecting products according
to established standards. Each grade has uniformity in all attributes. Grading enhances
marketing efficiency.

iv) Financing
Finance is the lifeblood of commerce. We have monetary exchange. Value of goods is
expressed in money and it is denoted by price to be paid by a buyer to a seller. Credit is
necessary in marketing. It plays an important role in retail trade particularity in the sale of
costly consumer goods.

v) Risk bearing
As marketing conditions are dynamic and they may affect industry in any way and to any
degree, marketers are interested in knowing trends in market demand, supply, price and
related market information. Marketing managers in order to cope up with the changing
situations and avoid risk and uncertainties, they use the marketing research and marketing
intelligence as their primary tool. Therefore, equipped with latest market information risk
of loss can be reduced in purchasing in pricing, in forecasting, market demand and in
facing competition in the market.

vi) Advertising
Advertising is any paid form of non-personal presentation of ideas, goods and services by
an identified spouse. It is impersonal salesmanship for mass selling, means of mass
communication.

vii) Sales promotion

Sales promotion is a short term incentives intended to induce trail or purchase. It
concerns these marketing activities other than advertising, publicity, and personal selling
that stimulate consumer purchasing and dealer effectiveness. Such activities are display
exhibitions, and many other non-routine selling efforts at the point of purchase.
Importance of Marketing
Marketing plays a major role in any individual and individual organization in the socio-
economic system of a given country and further in the global economy. It also has
significance for you personally – if not in business, then certainly in your role as a
consumers.

i) Importance of marketing for an individual

Marketing is important globally, to the economy and in an individual organization. But

what’s in it for you? Why should you study marketing? There are a number of reasons:
 Marketing pervades so many daily activities. Company’s have designed products,
set prices, create advertisements, and chosen the best methods of making the
product available to their customers.
 Studying marketing will make you a better-informed consumer. You’ll understand
more about what underlies a seller’s pricing and how brand names are selected, as
well as the role of promotion and distribution.
 Lastly, marketing probably relates – directly or indirectly – to your career
aspirations. It you are thinking about a marketing major and employment in a
marketing position, you can develop a feel for what marketing managers do.
 Finally, if you are thinking about a career in a non business field such as health
care, government, music or education, you will learn how to use marketing in
these organizations.

ii) Importance of marketing to an individual organizations

The primary focus is on the performance of marketing in an organization. The variety of

managerial useful concepts that apply to business firms marketing goods and services, as
well as non profit organizations.

Marketing considerations should be an integral part of all short-range and long range
planning in any company. Here is why:
 The success of any business comes from satisfying the wants of its customers,
which is the social and economic basis for the existence of all organizations.
  Although many activities are essential to a company’s growth, marketing is the
only one that produces revenue directly.

When managers are internally focused products are designed, manufactured by

manufacturing people, priced by financial managers, and then given to sales managers to
sell. This approach generally won’t work in todays environmental of intense competition
and constant changes. Just building a good product will not result in sales.

Today charities, museums, and even churches- all organization that formerly reflected
any thought of marketing – are embracing it as a means of growth and for some survival.
This trend is accelerating due to the following two reasons:
 Increasing competition among non-profit organizations. For example, the
competitor among colleges and universities for students is intensifying as the
numbers of young people of college are declines, and the search for donors has
become more intense as the number of charities has increased.
 Non profit organizations need to improve their images and gain greater
acceptance among donors, government agencies, mass media and of course,
consumers, all of which collectively determine an organizations success.

iii) Importance of marketing to the society

Aggressive, effective marketing practices have been largely responsible for the high
standard of living to the society. The efficiency of mass marketing – extensive and rapid
communication with customers through a wide variety of media and distribution system
that makes products readily available – combined with mass productions has lowered the
cost of many products.

One of the major benefits that marketing provides to the society at large is employment
and costs. The significance of marketing in the society can be considered by working as
to show many of the people are employed in some way in marketing and how much of
what we spends covers the cost of marketing. Because many people in labor forces are
engaged in marketing activities.
This will clearly indicates, employment in retailing, wholesaling, transportations,
warehousing and communication industries, as well as people who work in marketing
departments of manufacturers and those who work in marketing in agricultural, mining,
and service industries. Further more, over the past century; jobs in marketing have
increased at a much more rapid rate than jobs in production, reflecting economy is
expanded role of marketing.

iv) Importance of marketing in the global economy.

The technologies that have been created during World War II have created the potential
for a truly global economy. Market has benefited the economies in the area like:
 The war produced massive investments in technology that lead to peace time
innovations in communications and improvement is transportation. The ability to
be infrequent and virtually instantaneous contact with markets around the world
and the capability to move goods had the effect of lowering the barriers to
international trade.
 The economic development components of international organizations have
produced recognition of potential markets around the world.
 Most nations today – regardless of their degree of economic development or their
political philosophy – recognize the importance of marketing beyond their own
national borders. Indeed, economic growth in the less developed nations of the
world depends greatly on their ability to design effective marketing system to
produce global customers for their raw materials and industrial output.

v) Importance of marketing in General

On the average, about 50 percent of each dollar we spend as a consumer goes to cover the
marketing costs.
The money pays for designing the products to meet our needs, making products readily
available when and where we want them, and informing us about producers. These
activities add want satisfying ability or what is called utility, to products.
A customer purchases a product because it provides satisfaction. That something that
makes a product capable to satisfying want is its utility. And it is through marketing that
much of a products utility is created.

Then potential buyers must be informed about the existence of products and the benefits
it offers through various forms of promotion. The kinds of utility that marketing provides
in the process are as follows:

a. Possession utility
Possession utility is created when a customer buys the product. That is, ownership is
transferred to the buyer. Thus, for a person to consume and enjoy the product a
transaction must take place. This occurs when you change your money for a product.

b. Time utility
Time utility refers to having a product available when you want it. Having a product
available when we want it is very convenient but it means that the retailers must
anticipate our desires and maintains an inventory. Thus, there are costs involved in
providing time utility.

c. Place utility
Place utility exists when a product is readily accessible to potential customers. So
physically moving the products to store near the customers add to its value.

d. Information utility
Information utility is created by informing prospective buyers that a product exists.
Unless you know a product exist and where you can get it, the product has no value.
Advertising that describes a sales person answering a customer question about the
durability of a product creates information utility. Image utility is a special type of
information utility. It is the emotional or psychological values that a person attaches to a
product or brand a person attaches to a product or brand because of its reputation or
social standing.

e. Form utility
Form utility is associated primarily with production – the physical or chemical changes
that makes a product more valuable. When limber is made into furniture, form utility is
created. This is production not marketing. However, marketing research may aid in
decision making regarding product design, color, quantities produced, or some other
aspect of product. All of these things contribute to the product form utility.