INTRODUCTION TO MARKETING AND UNDERSTANDING MARKETING

Introduction to marketing - Part 1

1. Marketing PART1 TO PART 3

2. How do Formula 1 Racing Teams Make Money? CNBC Video Case: 13 Minutes

3. Income Sources: F1 team budgets come from several key areas Sponsorships: Teams earn most of their income from sponsorships Payments from Formula 1: Teams receive payments from the sport's governing body which is a method of revenue sharing.  Prize Money : The total prize money distributed among the teams based on their Constructors’ championship standings was worth more than $900 million in 2022 Manufacturers: Teams also derive their budget from manufacturers such as Mercedes, McLaren, Ferrari, Honda (for Red Bull) and Audi (from 2025 onwards)

4. F1 Team Sponsors: Some Examples

5. F1 Team Sponsors: Some Examples

6. PART I Introduction to Marketing

7. MARKETING ICEBERG WHAT YOU SEE AND WHAT YOU DON’T SEE

8. DEFINITIONS OF MARKETING Marketing is NOT a hard science like physics or mathematics It is a social science and hence there are many ways to define marketing. Sri Lanka Institute of Marketing (SLIM) Definition Marketing is a corporate philosophy and a central business function that creates value for its customers and other stakeholders through competitive, profitable and sustainable exchange processes.

9. Chartered Institute of Marketing (CIM), UK Marketing is the management process responsible for identifying, anticipating and satisfying customers’ requirements profitably Phillip Kotler, The Father of Modern Marketing Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

10. Key functions and activities of marketing Identifying customer needs/wants Satisfying and delighting customers Identifying favorable emerging market opportunities Targeting the “right” customers Facilitating exchange relationships (product or service for a payment)

11. Key functions and activities of marketing Staying ahead in rapidly changing business environment Utilizing resources/assets effectively Differentiate a product or service from competitors Enhancing profitability through customer satisfaction Creating value to both the customer and the organisation

12. Different aspects of marketing

13. (1) Marketing as an Exchange Process An important way to explain marketing and differentiate it from the activities such as selling, advertising etc. is to discuss marketing as an exchange process Exchange – There is something given and something taken Marketing occurs when people decide to satisfy needs and wants through an exchange

14. For an exchange to takes place, the following conditions must exist Two or individuals, groups or organizations must be involved and each must have wants to be satisfied. Each party must posses something of value that the other party desires. The parties must be involved voluntarily. (willing to give up to receive) The parties involved must be able to communicate with each other to make their ‘something of value’ available.

15. The exchange process is the economics basis of marketing In marketing, there is an exchange of things that are economically valuable E.g. Money for a can of Coke

16. (2) Marketing as a Managerial Function Marketing facilitates the exchange between two parties (as we understood previously) It takes careful management to make sure that this exchange benefits the business as well as the customers Therefore, marketing can be understood as a managerial function as well.

17. As a managerial function, marketing performs several activities Identifying customer requirements through market research. Anticipate customer requirements into the future by way of forecasting. Work with other functions in the organisation and develop products to satisfy customer wants. Work out associated costs, understand customer perceptions and set prices and organise channels of distribution to distribute the products. Analysis, planning, implementation and control of all marketing activities.

18. In other words, if someone asks – What do managers in marketing do? – The answer would be above activities (and more) There are many different managers with managerial responsibilities who are carrying out these activities Marketing Managers Brand Managers Sales Managers Marketing Communication Managers Market Research Managers Distribution Managers

19. (3) Marketing as a Business Philosophy A business philosophy is how a business wants to conduct itself in the market. Marketing is a business philosophy as it clearly states how a business must conduct itself in finding and keeping customers . For Example – Take Phillip Kotler's Definition for Marketing Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

20. Evolution of Marketing Marketing as a business philosophy is a result of a long evolutionary process of business philosophies. It started with the ability of companies to mass produce consumer goods during the industrial revolution period. Example : Ford Motor Company created the world’s first mass produced car in 1908. Industrial Revolution was all about mass producing goods in the most efficient manner at the lowest unit cost. Therefore, the business philosophy of the period reflected this fact.

21. (1) Production Concept The business philosophy which held that efficient and low cost production is the most important business activity The businesses had the idea that consumers will favor products that are available closest to where they live and highly affordable. Therefore the organisation should focus on improving production and distribution efficiency AND cut costs to make the product most affordable.

22. The emphasis of Production Concept/Production Philosophy are; Efficiency of production : A focus on manufacturing and improving the process so as to reduce costs and increase efficiency. Efficiency of distribution : Mass distribution, thus making the product available at all possible outlets. (Made possible with railways and steam ships) Economies of Scale : By this try to achieve lower unit costs and also increasing the supply. Profitability through production efficiency and mass selling.

23. Businesses that became extremely successful through the Production Concept USA – Ford Motor Company with its Model T Germany – Volkswagen Beetle UK – Morris Minor Apart from manufacturing industries, modern retailers like Tesco (UK) and fast-food restaurant chain McDonald’s (USA) used Production Concept to great success.

24. MASS PRODUCTION OF FORD MODEL T : 1908–1927 By the early 1920s more than half of the registered automobiles in the world were Fords. 15,000,000 Model T’s were built and sold between 1908 & 1927

25. McDonald’s successfully used mass-production techniques to make burgers very quickly at very low prices.

26. Tesco founder Jack Cohen invented the modern mass-market retailing philosophy – “pile them high, sell them cheap”

27. (2) Product Concept Product concept holds that consumers will favour products that offer the most in quality, performance and innovative features. Under this concept, the marketing strategy focuses on making continuous product improvements. Product orientation tends to lead to ever more complex products at ever-increasing prices; customers are being asked to pay for features which they may not need, or which may even be regarded as drawbacks.

28. How product concept replaced production concept Production concept was the business philosophy that guided business since 1900s with mass production enabled by the use of machinery due to Industrial Revolution. However, by the end of World War II, the western world (Europe & USA) entered a period of peace and prosperity. With rising purchasing power, people wanted more than a mass produced basic product.

29. Alfred Sloan of General Motors (USA), understood that people no longer wanted Henry Fords' cheap Model T When Sloan became the President of General Motors(1923), He created different divisions in the company to produce different car brands with different features – people with more money could buy luxurious cars. That is how GM came to have different divisions like Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac Chevrolet was the most inexpensive entry level brand. Buick & Cadillac were the luxury models

30. GM’s Sloan is also credited inventing with annual model changes for cars To make people buy cars often, Sloan invented the annual model change concept where every car brand would launch a slightly modified, improved model every year. This method now called “Planned Obsolesce” where the firm purposefully introduces new models to make older models outdated and obsolete. Therefore, like Ford pioneered the Production Concept philosophy, General Motors with Sloan's guidance popularized the Product Concept philosophy.

31. The iconic 1958 GM Cadillac with “wings” : One of the best examples for product orientation business philosophy

32. 1959 Cadillac

33. Product orientation tends to lead to ever more complex products at ever-increasing prices; Customers are being asked to pay for features which they may not need

34. Product orientation philosophy is alive even today! Steve Jobs famously said. Customers don’t know what they want, so we don’t do marketing research. Apple iPhone is the best example New features every year More expensive every year Most customers don’t use many iPhone features BUT pay for them. How many iPhone 13 Pro Max customers shoot 4K, professional grade videos? Most people don’t have 4K capable TVs or Laptops to watch those videos.

35. (3) Selling Concept Organization's that follow the selling concept, holds that consumers will not buy enough of the firm’s products unless it takes large scale selling and promotion efforts. The belief is that if customers are left alone, they will not buy enough of the organisations products. Selling Concept as a business philosophy took hold after the followers of Product Concept created expensive, feature laden products that were too expensive.

36. How selling concept took hold of the business world Product Concept that became popular in the early 1950s lasted till about the mid 1960s to 1970s During this period, product features became more important than usefulness or functionality. More features meant, higher prices as well. As the world moved into 1970s, the word faced the Middle East oil crisis with OPEC severely restricting oil supply and most western economies went into recessions.

37. The 1973 global Oil Shock sent most western economies into recession Living standards of USA, UK and Europe fell drastically Unemployment was very high Natural result of these crisis was that people started saving more and buying less. This convinced some businesses that the only way to get people to buy was to push them with; A lot of advertising Sensational claims about the product’s ability Use of high-pressure selling tactics Novel pricing strategies to make products look more affordable

38. Companies using Selling Concept pioneered many useful marketing strategies & techniques Use of psychology to understand “Consumer Behaviour” & use of psychology to sell products (e.g. Use of emotions, impulse behaviour, response to colors and sounds) Pricing strategies like Easy payment schemes Buy now pay later schemes Psychological pricing Penetration pricing Time based / User based pricing

39. Selling Concept pioneered many useful marketing strategies & techniques (2) The training of sales people in selling techniques and tactics of objection handling and closing sales Novel advertising techniques developed by advertising agencies like Saatchi and Saatchi The concept of consumerism – the happiness can be found by buying things and consuming more

40. However, behaviour by many followers of selling concept created serious issues. High pressure selling techniques by sales people created a deep distrust of sales people & business corporations which continues even today. False advertising, pricing strategies that hide the true cost of a product (e.g. high interest charged on easy payment/buy now pay later schemes) created many lawsuits Selling of low priced substandard products increase drastically. These forced governments to create laws to protect consumers

41. (4) The Marketing Concept Deep distrust of consumer facing businesses, advertising and sales people created through the adoption of Selling Concept forced a re-think of how to do business. The result was the Marketing Concept. Marketing Concept holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do.

42. Key Components of Marketing Concept

43. PART II Marketing Environment

44. MARKETING ENVIRONMENTAL FRAMEWORK The firm operates within a complex and dynamic external environment. It is the task of the marketing-oriented organisation to link the resources of the organisation to the requirements of customers. This is done within the framework of opportunities and threats in the external environment.

45. The marketing environment is defined as follows A company’s marketing environment consists of the actors and forces internally (inside the business) and externally (outside the business) that affect marketing management’s ability to build and maintain successful relationships with target customers.

46. THE INTERNAL ENVIRONMENT

47. Staff Relationships Resource Constraints Corporate Culture Refers to the nature of the relationship staff (employees) have with their organisation (employer) The relationship can be a positive one where staff has trust in the organisation and its management. A negative relationship means there is lack of trust between the management and staff. This can be very counterproductive and limit the ability of the business to respond to consumer needs and competitive threats. Resources of an organisation are the assets that it owns which can be deployed to produce and market products to satisfy customers. These resources are typically; Physical resources such as factories, research labs, offices, retail outlets, marketing offices Human Resources Financial Resources which means fixed and working capital available Intellectual Resources such as patents, brands, trademarks. While these resources are limited in supply, adequate resources should be available for marketing. Culture is a set of shared rules and beliefs. Within the organisations beliefs will develop, and a corporate culture will eventually emerge. Corporate culture has been called “the way we do things around here” and it can be a powerful influence on staff behaviour. Developing the appropriate corporate culture is a lengthy process, since people change slowly. Often the beginning of a corporate culture is the firm’s mission statement, in which the organization lays down its long term aim and overall beliefs.

48. THE MICRO ENVIRONMENT / TASK ENVIRONMENT The micro environment is made up of actors close to the organisation that affects its ability to serve its customers. These actors are as follows

49. Analyze Task Environment using Michael Porter’s Five Forces

50. Five Forces Analysis According to Porter 5 forces in the Task Environment gives Opportunities (good) and Threats (bad) Supplier Power Buyer Power Substitutes New Competitors Industry Rivalry

51. THE MACRO ENVIRONMENT The macro environment includes the major societal forces that affect not only the organisation, but also on its competitors and on elements in the micro-environment. The macro environment tends to be harder to influence than the micro environment, but this does not mean that organisations must simply remain passive; the inability to control does not imply the inability to influence.

52. Result of Business Environment Analysis The Analysis of the Business Environment should result in identification of S trengths and W eaknesses -> Internal Environment O pportunities and T hreat -> External Environment External Environment Micro Env (Task Env) Macro Env

53. PART III Marketing Mix

54. What is the marketing mix? Marketing Mix is the set of controllable marketing tools that the firm blends (mixes) to produce the response it wants in the target market. In other words, the Marketing Mix is the set of tools or ingredients managers in-charge of marketing can use to develop marketing programs to create customer satisfaction and, ultimately profits for the organisation.

55. Marketing Mix Product Marketing Mix (4 P’s - for tangible products) Product Price Place Promotion Extended Marketing Mix (7 P’s for intangible products & tangible products with intangible aspect such as after-sales service) Product Price Place Promotion People Processes Physical Evidence

56. Use of Marketing Mix The 4 main elements and the 3 additional elements of the extended mix are the tools available for a business to implement its marketing strategies Product element – Describes the product/service that the company offers to the customer to satisfy his/her need Price element – The price we want the customer to pay. Customer must feel that it is value for money to buy our product to satisfy the need

57. Promotion – How we will let the customers know about our product/service and why they should buy it and how it will satisfy the need. Place – Our way of making sure that the product/service is available where customer prefer to buy it People – The people who make the product/service, sell the product, provide the after sales service and engage with all customer interactions with our company Processes – Various activities that produces the product/service, sell it, deliver it, ensure quality and provide after sales service to the customer . Physical Evidence – The quality and appearance of our offices, sales outlets and places where customers experience our products of services

58. Why is it called a mix? It is called a mix because, the marketing managers, brand managers can change these elements to fit the strategy, fight competitors or respond to changes of customer needs. Example (1) – If a competitor reduces prices the company can respond by reducing their price (change Price element of the mix) Example (2) – If customers prefer to buy online and have the product delivered to home, we can do that by changing the Place element of the mix and sell online

59. Another example of how the marketing mix can be used to respond to changing customer needs. PROBLEM - Coca Cola found that many people are giving up products like Coke due to its high sugar content. Diabetes is a major issue. SOLUTION – Coke Zero MARKETING MIX FOR COKE ZERO Product – Zero sugar Coke that tastes like the original Coke Price – Slightly higher price as it is a new innovative product Place – Wherever Coca-Cola drinks are sold Promotion – Traditional & Digital media advertising and in-store displays

60. Marketing Mix: The Customer View

61. Explanation of Customer View of the Marketing Mix Product What we offer to customer to satisfy his/her need Customer Value Customer checks whether there is value for him/her in purchasing our product. Value does not mean low price for all customers (low price is important for some customers, but not all) Value means whether they are getting return for what they pay for. EXAMPLE OF CUSTOMER VALUE A BMW customer is not looking at price as a purchasing factor. He/She is looking for the quality, prestige, image, comfort and recognition that comes with driving a BMW. That is the value BMW customer is looking for. The higher price of a BMW includes all that.

62. Price The money we want in exchange for the product Cost The cost customer has to bear in order to buy the product to satisfy the need he/she is having Customer may look at Total Cost of Ownership and not just the purchase price. Total Cost of Ownership includes – running costs (e.g. fuel, electricity), maintenance & repair costs, cost of parts and accessories, how long the product will last before a new one is needed. This is why some customers may prefer to buy an expensive brand if it can guarantee low running costs (less repairs and breakdowns) and lasts longer than a cheaper product. Total Cost of Ownership may be lower for the expensive product in the long run.

63. Place Where we keep the product for sale / How we make sure that the customer get the product when he/she wants it and where they want it. Convenience Customers is interested in the convenience. For some products, it may a high priority. A customer may buy a brand that is not his/her choice simply because it is available while his/her preferred brand is not Example – A person who prefers to buy Highland Milk Power ends up buying Anchor Milk as Highland is not available in the supermarket most of the time . Therefore, it is important that the company looks at the customer’s view and make sure that the product is available at the most convenient place. However, convenience may not be the only customer view for Place element. The place has to be appropriate for the product as well. For an example, customers expect a BMW showroom to be in a nice part of the city and not in a run-down shanty area. The place has to match the product image

64. Promotion How we let the customer know about our product and how it will satisfy their needs Communication Customer views on communication can be Do I see the product in websites, TV channels and newspapers/ Magazines I look at? Do I get all the information I need to decide whether this product is the best for me (value for money) Do I trust the sources of information that the company is sending me information about the product? (Advertisements are less trustworthy than comments by actual buyers/users) Are additional information easily available if I need them? Can they make me remember the product? Can they excite me enough to try their brand?

65. People The quality, training, commitment and motivation of our staff and our partners/contractors who will be involved in selling, delivering, installing and giving service and support to customers. (This includes staff in other customer touch-points as well such as payment handling, order processing, warehouse) Consideration Customers consider the following as they interact with our staff Do company people in the touch-points that I interact with consider me as an important enough person? Do they give me the information, support and service that I expect? Am I treated fairly and promptly? Are they knowledgeable and helpful? Did they make me feel welcome and valued? However, the importance of above may be different from product to product. Example, a rude counter girl at a supermarket may not destroy your opinion about the Milo pack you bought at the supermarket or people at Nestle Lanka. However, a rude/unhelpful counter girl at a Hospital may destroy your opinion about that hospital and you may not go there again to consult doctors

66. Process Hundreds of activities across the supply chain and the value chain that ensures that the product/service is manufactured, sold and delivered to the customer’s hand. Coordination The customer looks at Are these activities or processes properly coordinated? Will the processes work correctly and I will get the product I ordered at the price I agreed? Will it be delivered and installed according to the terms agreed? Will it be on the timeline agreed? Will I be given the after-sales care as agreed? If there is any problems or deviations on the above, the customer will feel that the company is unable to properly coordinate and manage its processes

67. Physical Evidence How our facilities and other physical things look – are they well maintained, looks fresh, clean and pleasant? Confirmation How the office, showroom, warehouse or other touch-points look physically gives the confirmation to customer about the quality that was promised. Shabby, run-down facilities, unclean areas, unpleasant sights immediately makes the customer doubt the ability of the company to deliver on what was promised. Therefore, customers take physical evidence as the confirmation of the quality of the business as well as quality of the product.

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69. KEY CHARACTERISTICS OF AN EFFECTIVE MARKETING MIX

70. Key Characteristics of an Effective Marketing Mix -1 The Marketing Mix matches Customer needs An analysis of customer choice criteria will reveal a set of key customer requirements/expectations that must be matched by the marketing mix in order to succeed in the marketplace Not only the product must match customer’s expectations, its price , where it available to buy ( place ) and how it is communicated ( promotion ) should match the target customer group.

71. Key Characteristics of an Effective Marketing Mix -2 The Marketing Mix creates a Competitive Advantage A competitive advantage is gained by creating and delivering superior customer value that is sustainable . All the marketing mix elements can be used to create sustainable competitive advantage to the organisation. Identifying and understanding the key requirements of the customers and then creating the appropriate marketing mix, that meet or exceed these requirements better than the competition leads to competitive advantage.

72. Key Characteristics of an Effective Marketing Mix -3 The Marketing Mix elements should be consistent with the Target Market & Positioning Strategy for the product/service and each element should support and reinforce the others If a product positioned as a superior quality product targeted at high income upmarket customers - Its Marketing Mix should be; Product Well designed with high quality material Price Should be higher than average quality competitor products Place Should be sold at differentiated outlets and not among average products Promotion Advertisements and promotional messages should match the high quality image and price

73. Key Characteristics of an Effective Marketing Mix -4 The Marketing Mix should match Corporate Resources How marketing mix elements are created is constrained by the Corporate Resources. Financial resources, in-house technology, staff-skills and competences and production capabilities of the organisation are some critical constraining resources. E.g. An auto company like Maruti-Suzuki does not have the technology or the staff skilled in advanced battery, computer and AI technologies to design or manufacture a superior product like a Tesla Model 3 Marketing mix should be designed so that it can be implemented within the available resources.

74. END OF PARTS 1, 2 & 3