What is Marketing?

When you consider the functional areas of business—accounting, finance, management, marketing, and operations—marketing is the one you probably know the most about. After all, as a consumer and target of all sorts of advertising messages, you’ve been on the receiving end of marketing initiatives for most of your life. What you may not have been as aware of, however, is the extent to which marketing focuses on providing value to the customer.

According to the American Marketing Association, marketing “is 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.”^[1] Put more simply, marketing is the process of creating, communicating, and delivering offerings that have value for customers.

At its most basic level, marketing is made up of every process involved in moving a product or service from the organization to the consumer. It includes discerning the needs of customers, developing products or services to meet those needs, identifying who is likely to purchase the products or services, promoting them, and moving them through the appropriate distribution channels to reach those customers.

Marketing, quite simply, is about understanding what customers want and using that understanding to drive the business.

The Marketing Concept

To achieve profitability goals, an organization needs to do the following:

1. Find out what customers or potential customers need.
2. Develop products and services to meet those needs.
3. Engage the entire organization in efforts to satisfy customers.

This basic philosophy—satisfying customer needs while meeting organizational goals—is called the marketing concept, and when it is effectively applied, it guides all of an organization’s marketing activities.

The marketing concept was built on the premise that an organization will achieve its goals when it satisfies the needs and wants of the consumer. As a result, firms began to focus on customer needs before developing products, rather than developing products and then trying to “sell” them to consumers. The marketing concept was also the start of relationship marketing—fostering long-term relationships with customers in order to ensure repeat sales and achieve stable relationships and reduced costs.

The marketing concept puts the customer first. But this doesn’t mean that a business should ignore the bottom line; if it wants to survive and grow, it need to make some profit. In terms of marketing, profitability means adding value to a product so that the price customers pay is greater than the cost of making the product.^[2]

Target Market

Businesses earn profits by selling goods or providing services. Imagine you were a business preparing to launch a new product. It would be nice if everybody in the marketplace was interested in your product, but if you tried to sell it to everybody, you’d probably spread your resources too thin. You would need to identify a specific group of consumers who should be particularly interested in your product, who would have access to it and have the means to buy it. This group would represent your target market, and you would need to aim your marketing efforts at its members.

Segmenting the Market

One of the first steps in identifying a target market is to divide the entire market into smaller portions, or market segments—groups of potential customers with common characteristics that influence their buying decisions. An especially narrow market segment is known as a niche market, for example, extreme luxury goods that less than 1 percent of people can afford. Let’s look at some of the most useful categories.

Demographic segmentation divides the market into groups based on such variables as age, marital status, gender, ethnic background, income, occupation, and education.

Age, for example, will be of interest to marketers who develop products for children, retailers who cater to teenagers, colleges that recruit students, and assisted-living facilities that promote services among the elderly.

Geographic segmentation—dividing a market according to such variables as climate, region, and population density (urban, suburban, small-town, or rural)—is also quite common. Climate is crucial for many products: snow shovels would not sell in Hawaii. Consumer tastes also vary by region. Likewise, differences between urban and suburban life can influence product selection.

Dividing consumers by such variables as attitude toward the product, user status, or usage rate is called behavioral segmentation. Companies selling technology-based products might segment the market according to different levels of receptiveness to technology. They could rely on a segmentation scale developed by Forrester Research that divides consumers into five categories along a spectrum, ranging from progressive pioneers, who “lead the demand for product and experience innovation,” to reserved resisters, who “are least enthusiastic about product or experience innovation.”^[3]

Some companies segment consumers according to user status, distinguishing among nonusers, potential users, first-time users, and regular users of a product. Depending on the product, they can then target specific groups, such as first-time users. Credit-card companies use this approach when they offer membership points to potential customers in order to induce them to get a card.

Psychographic segmentation classifies consumers on the basis of individual lifestyles as they’re reflected in people’s interests, activities, attitudes, and values. Do you live an active life and love the outdoors? If so, you may be a potential buyer of hiking or camping equipment or apparel. If you’re a risk taker, you might catch the attention of a gambling casino.

Clustering Segments

Typically, marketers determine target markets by combining, or clustering, segmenting criteria. What characteristics does Starbucks look for in marketing its products? Three demographic variables come to mind: age, geography, and income. Buyers are likely to range in age from about 25 to 40 (although college students, aged 18 to 24, are moving up in importance). Geography is a factor as customers tend to live or work in cities or upscale suburban areas. Those with relatively high incomes are willing to pay a premium for Starbucks specialty coffee and so income—a socioeconomic factor—is also important.

The Marketing Mix

After identifying a target market, your next step is developing and implementing a marketing program designed to reach it. Such a program involves a combination of tools called the marketing mix, often referred to as the four Ps of marketing (Figure 14.2, Video 14.1):

1. Developing a product that meets the needs of the target market (note that this chapter will use the term “product” to refer to both products and services).
2. Setting a price for the product.
3. Distributing the product—getting it to a place where customers can buy it.
4. Promoting the product—informing potential buyers about it.

Product

When a customer makes a purchase, they expect value from that exchange. Think about what you ate for breakfast today. You paid money to receive a product that satisfied your hunger. Is that all the value you received? Perhaps not. If you ate eggs, bacon, and coffee at a restaurant, you had both a product and a service experience. Maybe someone at the restaurant handed you a menu, took your order, brought your food, refilled your coffee, cleaned up dishes, and collected payment for your meal. The eggs, bacon, and coffee were the product, while the acts of the restaurant staff were a service. And the summation of it all was the product–service experience.

Products are tangible items that are part of an exchange between a buyer and seller. Products can be seen, touched, owned, and stored. For example, perhaps you are using a MacBook or iPad to view this textbook (Figure 14.3). You may have visited the Apple Store to see and touch the product before purchasing to ensure it met your needs. Post-purchase, the computer or tablet is yours to own and store for later use as you please.

Services are intangible solutions that are also an exchange between buyer and seller. Unlike products, services cannot be touched, owned, or stored for later use. For example, a college course is a service. Students cannot own the course; they cannot store it for later, nor will they have a tangible object representing the course. Another defining feature of a service is the customer is typically a part of the service experience. Imagine buying tickets to your favorite band in concert. You will have to attend the concert to realize the full benefit of the service experience.

Brands

A brand is an intangible asset with tangible value. The value of a brand is challenging to measure, but it can be one of the most valuable parts of a company.

Branding

Companies can adopt one of three major strategies when it comes to branding a product:

1. With private branding (or private labeling), a company makes a product and sells it to a retailer who in turn resells it under its own name. A soft-drink maker, for example, might make cola for Wal-Mart to sell as its Sam’s Choice Cola.
2. With generic branding, the maker attaches no branding information to a product except a description of its contents. Customers are often given a choice between a brand-name prescription drug or a cheaper generic drug with the same formula.
3. With manufacturer branding, a company sells one or more products under its own brand names. Adopting a multiproduct-branding approach, it sells many products under one brand name. Food-maker ConAgra sells soups, frozen treats, and complete meals under its Healthy Choice label. Using a multi-branding approach, the company assigns different brand names to products covering different segments of the market. Automakers often use multi-branding. The Volkswagen group of brands also includes Audi and Lamborghini.

Benefits of Branding

The central benefit of branding is establishing a connection with customers that encourages them to purchase the brand, creating a financial return (Video 14.2). But you may be wondering how companies can measure the impact of their brand. Brand value is the financial asset associated with a brand. There is no singular measure of brand value, so the valuation process is subjective and may be based on brand visibility, customer loyalty, and perception of the brand, along with financial measures such as revenue.

Brand Equity

Brand equity refers to added value generated by favorable consumer experiences with a product. To get a better idea of how valuable brand equity is, think for a moment about the effect of the name Apple on a product. When you have a positive experience with an Apple product—say, a laptop or phone—you come away with a positive opinion of the entire Apple product line and will probably buy more Apple products. Over time, you may even develop brand loyalty: you may prefer—or even insist on—Apple products.

Not surprisingly, brand loyalty can be extremely valuable to a company. Because of customer loyalty, Apple’s brand tops Interbrand’s Best Global Brands ranking with a value of over $482 billion. Microsoft’s brand is valued at $278 billion, Amazon’s at $275 billion, Google’s at $252 billion, and Samsung rounds out the top five at $88 billion.^[4]

Price

The prices of the products and services a business offers are a key determinant in how profitable the business is. The price of a product times the number of units sold equals gross revenue. Revenue is what pays for every activity of the company (production, finance, sales, distribution, and so forth). The money that is left (if any) after all expenses are accounted for is profit. Thus, when it comes to pricing, the goal for a business is to set prices such that the business will be able to attract customers and generate a profit.

The chosen price for a product must be neither too high nor too low, and the price must equal the perceived value to target consumers. If consumers think the price is too high, sales opportunities will be lost. Lost sales mean lost revenue. If the price is too low, consumers may view the product as a great value, but the company may not meet its profit goals. Sometimes, a price that is too low can cause a product to be perceived as less reliable or of lower quality, and which could lead to lost sales for a company.

Following are several pricing strategies companies may use; click the name of each strategy in the interactive list below to learn more:

Place

A great deal is involved in getting a product to the place in which it is ultimately sold. If you’re a fast food retailer, for example, you’ll want your restaurants to be in high-traffic areas to maximize your potential business. If your business is selling beverages, you’ll want them to be offered in locations like grocery stores, convenience stores, restaurants, and vending machines (Figure 14.5). Placing a product in each of these locations requires substantial negotiations with the owners of the space, and often involves the payment of slotting fees, which are allowances paid by a manufacturer to a retailer to secure space on store shelves.

Of course, in an age where e-commerce is taking an increasing share of the retail spending dollar, “place” is not always a physical location that the customer visits. Products ordered online ship from manufacturers to distribution centers and then directly on to the end customer without passing through a traditional retail outlet. An emerging trend in retailing is showrooming in which a customer visits a traditional retailer, gets familiar with particular items available, and then orders the item online, often from an unrelated online retailer. The term comes from the fact that in such a situation, the traditional retail outlet has served only as a showroom—a place to view the product, as opposed to a place where the sale is made. As shopping habits change, retailers have been challenged to keep their space relevant and attractive to the ultimate consumer.

Promotion

A promotion mix—the means by which a business communicates with customers—may include advertising, personal selling, sales promotion, and publicity. These are all tools for telling people about your product and persuading potential customers to buy it.

The following questions can help guide an organization’s promotional strategy:

• What’s the main purpose of the promotion?
• Who is our target market?
• Which product features should be emphasizes?
• How much can we afford to invest in a promotion campaign?
• How do our competitors promote their products?

To promote a product, an organization needs to imprint a clear image of it in the minds of its target audience. What do you think of, for instance, when you hear “Ritz-Carlton”? What about “Motel 6”? They’re both hotel chains, that have been quite successful in the hospitality industry, but they project very different images to appeal to different clienteles. The differences are evident in their promotions. Ritz-Carlton describes “luxury hotels” and promises that the chain provides “the finest personal service and facilities throughout the world” (Figure 14.6).^[5] Motel 6, by contrast, characterizes its facilities as “discount hotels” and assures you that you’ll pay “the lowest price of any national chain.”^[6]

We’ll now examine each of the elements that can go into the promotion mix: advertising, personal selling, sales promotion, and publicity.

Advertising

Advertising is paid communication designed to create an awareness of a product or company. Ads are everywhere—in print media (such as newspapers and magazines), on billboards, in broadcast media (radio and TV), and on the Internet. It’s hard to escape the constant barrage of advertising messages, and it’s possible that the average consumer is confronted by up to hundreds of ad messages daily^[7] Ironically, because consumers are so accustomed to ads and have learned to tune them out, companies now have to come up with innovative ways to get through to potential customers.

The choice of advertising media depends on the product, target audience, and advertising budget. A popular vacation destination selling spring-break getaways to college students might post flyers on campus bulletin boards or run ads on social media platforms, for example.

Personal Selling

Personal selling refers to one-on-one communication with customers or potential customers. This type of interaction is necessary in selling large-ticket items, such as homes, and it’s also effective in situations in which personal attention helps to close a sale, such as sales of cars and insurance policies.

Many retail stores depend on the expertise and enthusiasm of their salespeople to persuade customers to buy. For example, Best Buy’s knowledgeable sales associates make them “uniquely positioned to help consumers navigate the increasing complexity of today’s technological landscape,” according to former CEO Hubert Joly.^[8]

Sales Promotion

It’s likely that at some point, you have purchased an item with a coupon or because it was advertised with a special discount, such as as a buy-one-get-one-free deal. If so, you have responded to a sales promotion, one of the many ways that sellers provide incentives for customers to buy. Sales promotion activities include not only those mentioned above but also other forms of discounting, sampling, trade shows, in-store displays, and even sweepstakes. Some promotional activities are targeted directly to consumers and are designed to motivate them to purchase now. You’ve probably heard advertisers make statements like “limited time only” or “while supplies last.” If so, you’ve encountered a sales promotion directed at consumers.

Other forms of sales promotion are directed at dealers and intermediaries. Trade shows are one example of a dealer-focused promotion. At food shows, for example, potential buyers can sample products that manufacturers hope to launch to the market. Feedback from prospective buyers can even result in changes to new product formulations or decisions not to launch.

Publicity and Public Relations

Free publicity—say, getting your company or your product mentioned or pictured in a newspaper or on TV—can generate more customer interest than a costly ad. When Dr. Dre and Jimmy Iovine were finalizing the development of their Beats headphones, they sent a pair to LeBron James. He liked them so much he asked for 15 more pairs, and they “turned up on the ears of every member of the 2008 US Olympic basketball team when they arrived in Shanghai. ‘Now that’s marketing,’ says Iovine.”^[9] It wasn’t long before the pricey headphones became a must-have fashion accessory for everyone from celebrities to high school students.

Consumer perception of a company is often important to a company’s success. Many companies, therefore, manage their public relations in an effort to garner favorable publicity for themselves and their products. When the company does something noteworthy, such as sponsoring a fundraising event, the public relations department may issue a press release to promote the event. When the company does something negative, such as selling a prescription drug that has unexpected side effects, the public relations department will work to control the damage to the company.

Conducting Marketing Research

To zero in on their target market and create an effective marketing strategy, marketers have to find out what various people think of their product. More precisely, they needed answers to questions like the following:

• Who are our potential customers?
• What do they like about our product? What would they change?
• How much are they willing to pay for it?
• Where will they expect to buy it?
• How can we distinguish it from competing products?
• Will enough people buy our product to return a reasonable profit for the company?

Answers to key questions like these can be obtained through marketing research—the process of collecting and analyzing the data that are relevant to a specific marketing situation. This data has to be collected in a systematic way. Market research seeks two types of data:

1. Marketers generally begin by looking at secondary data—information already collected, whether by the company or by others, that pertains to the target market.
2. With secondary data in hand, they’re prepared to collect primary data—newly collected information that addresses specific questions.

Secondary data can come from inside or outside the organization. Internally available data includes sales reports and other information on customers. External data can come from a number of sources. The US Census Bureau, for example, posts demographic information on American households (such as age, income, education, and number of members), both for the country as a whole and for specific geographic areas.

Using secondary data that is already available (and free) is generally much easier than collecting primary data. Unfortunately, however, secondary data may not answer all the questions that a marketing team may be asking. To get these answers, the marketing team has to conduct primary research, working directly with members of their target market. First they have to decide exactly what they need to know, then determine who to ask and what methods will be most effective in gathering the information.

The most common marketing research tools for obtaining primary data include:

• Surveys: Sometimes marketers mail questionnaires to members of the target market. The process is time consuming and the response rate generally low. Online surveys are easier to answer and so get better response rates than other approaches.
• Personal interviews: Though time consuming, personal interviews allow marketers to talk with real people as well as demonstrate the product. They can provide an opportunity to ask open-ended questions and clarify answers.
• Focus groups: With a focus group, you can bring together a group of individuals (perhaps 8 to 12) and ask them questions. A trained moderator can explain the purpose of the group and lead the discussion. If sessions are run effectively, you can come away with valuable information about customer responses to both your product and your marketing strategy.

Researching a target market is important before launching a new product, but the benefits of marketing research don’t extend merely to brand-new products. Companies also use it when they’re deciding whether or not to refine an existing product or develop a new marketing strategy for an existing product.

Interacting with Customers

Customer-Relationship Management

Without enough good customers, no company can survive. Firms must not only attract new customers but also retain existing customers. In fact, repeat customers are, in many cases, more profitable than new customers. It’s estimated that it costs as much as five times more to attract and sell to a new customer than to an existing one.^[10] Repeat customers also tend to spend more, and they’re much more likely to recommend a brand or product to other people.

Retaining customers is the purpose of customer-relationship management, a marketing strategy that focuses on using information about current customers to nurture and maintain strong relationships with them. The underlying theory is fairly basic: to keep customers happy, companies must treat them well, give them what they want, listen to them, reward them with discounts or other loyalty incentives, and deal effectively with their complaints.

Another advantage of keeping in touch with customers is the opportunity to offer them additional products. Amazon.com is a master at this strategy, using your purchasing patterns and preferences to make suggestions for future purchases.

Social Media Marketing

In recent years, the popularity of social media marketing has exploded. Social media marketing is the practice of including social media as part of a company’s marketing program, through such platforms asFacebook, X (formerly Twitter), LinkedIn, TikTok, YouTube, and any number of other online sites that allow you to network, share your opinions, ideas, photos, etc.

Why do businesses use social media marketing? Before responding, ask yourself these questions: how much time do I spend watching TV? When I watch TV, do I sit through the ads? Do I read newspapers or magazines and flip right past the ads? For many companies, the answer is clear. The days of trying to reach most customers through ads on TV, in newspapers, or in magazines are largely over. Social media marketing provides a number of advantages to companies, including enabling them to:

• create brand awareness;
• connect with customers and potential customers by engaging them in two-way communication;
• build brand loyalty by providing opportunities for a targeted audience to participate in company-sponsored activities, such as contests;
• offer and publicize incentives, such as special discounts or coupons;
• gather feedback and ideas on how to improve products and marketing initiatives;
• allow customers to interact with each other and spread the word about a company’s products or marketing initiatives; and
• take advantage of low-cost marketing opportunities by being active on free social sites, such as Facebook.

Social Media Marketing Challenges

The main challenge of social media marketing is that it can be very time consuming. It takes determination and resources to succeed. Small companies often lack the staff to initiate and manage social media marketing campaigns.^[11] Even large companies can find the management of media marketing initiates overwhelming.

What is clear, however, is that marketing, and particularly advertising, has changed forever. For example, Duolingo, a language-learning app, previously relied on traditional marketing aimed at increasing awareness of the brand. However, in recent years, the company determined that the vast majority of new-user growth stemmed from word-of-mouth, and that most new users were signing up for the company’s free version—indicating that the company’s investments in traditional advertising were not paying off. Instead, it shifted its marketing strategy to focus more on social media outlets such as TikTok, Instagram, and Twitter (now X). According to Luis von Ahn, co-founder and chief executive, “Our marketing team has really found its stride in terms of…the levers that work and don’t . . . We’ve just found that we have a brand that is very good for social media. And it’s organic, it’s not paid stuff.”^[12]

Chapter Review

Optional Resources to Learn More 

	Articles
	“Why Great Innovation Needs Great Marketing” https://hbr.org/2019/02/why-great-innovation-needs-great-marketing
	Books
	The Essentials of Contemporary Marketing by Mo Willan https://www.bloomsbury.com/us/essentials-of-contemporary-marketing-9781472963710/
	Podcasts
	Marketing Companion https://businessesgrow.com/podcast-the-marketing-companion-2/
	Videos
	“Introduction To Marketing” https://youtu.be/8Sj2tbh-ozE
	Websites
	American Marketing Association Definition of Marketing https://www.ama.org/the-definition-of-marketing-what-is-marketing/
	The Universal Marketing Dictionary https://marketing-dictionary.org/

Chapter Attribution

This chapter incorporates material from the following sources:

Albrecht, M., Green, M., & Hoffman, L. (2023). Principles of marketing. OpenStax. https://openstax.org/details/books/principles-marketing. Licensed with CC BY 4.0.

Chapter 14 of Skripak, S. J. & Poff, R. (2023). Fundamentals of business (4th ed.). VT Publishing. https://pressbooks.lib.vt.edu/fundamentalsofbusiness4e/chapter/chapter-14-marketing-providing-value-to-customers/. Licensed with CC BY-NC-SA 4.0.

Chapter 11 of Gitman, L. J., McDaniel, C., Shah, A., Reece, M., Koffel, L., Talsma, B., & Hyatt, J. C. (2018). Introduction to business. OpenStax. https://openstax.org/books/introduction-business/pages/11-introduction. Licensed with CC BY 4.0.

Media Attributions

Figure 14.1: Terabass. Times Square in New York City [Photograph]. Wikimedia Commons. https://commons.wikimedia.org/wiki/File:New_york_times_square-terabass.jpg. Licensed with CC BY-SA 3.0.

Figure 14.2: Hoopes, C. (2023). The marketing mix. Licensed with CC BY-NC-ND 4.0.

Figure 14.4: Virginia Retail. Walmart [Photograph]. Flikr.  https://www.flickr.com/photos/virginiaretail/42839118425/in/photostream/. Licensed with CC BY 2.0.

Figure 14.5: Sarah Stierch. Amazon Go, San Francisco, California [Photograph]. Wikimedia Commons. https://commons.wikimedia.org/wiki/File:Amazon_Go_-_San_Francisco_-_2021-08-18_-_Sarah_Stierch_04.jpg. Licensed with CC BY 4.0.

Figure 14.6: NoRud. The Ritz-Carlton Berlin [Photograph]. Wikimedia Commons. https://commons.wikimedia.org/wiki/File:Eingangsbereich_The_Ritz-Carlton_Berlin_2_ShiftN.jpg. Licensed with CC BY-SA 4.0.

Figure 14.7: FuriousYogi. Tram with Coca Cola ad [Photograph]. Wikimedia Commons. https://commons.wikimedia.org/wiki/File:Tram_with_Coca_Cola_ad.jpg. Licensed with CC BY-SA 4.0.

Video 141: Eye on Tech. (2022, July 22). What are the 4 p’s (the marketing mix)? [Video]. YouTube. https://youtu.be/kx7iADO9kfA

Video 14.2: Big Think. (2022, June 22). 10,000 years of branding explained in 6 minutes. [Video]. YouTube. https://youtu.be/s2eka_dWAxs