4.

1 The role of marketing

IB Business Management
4.1 The role of marketing
By the end of this chapter, you should be able to:
• Define marketing and explain its relationship with other
business functions.
• Explain the difference between the marketing of goods and
services.
• Distinguish between market orientation and product
orientation.
• Explain the difference between commercial marketing, social
marketing and social media marketing.
• Describe the elements of the market in which an organization
operates.
• Calculate market share and market growth.
• Discuss the importance of market share and market
leadership.
• Compare and contrast the marketing objectives of for-profit
4.1 The role of marketing
By the end of this chapter, you should be able to:
• Evaluate how marketing strategies evolve as a response to
changes in customer preferences.
• Examine how the concepts of innovation, ethics and culture
influence marketing practices and strategies.
What is marketing?
• Marketing is not just about advertising and selling of
products.
• The key to the success of any business is to satisfy the
needs of its customers.
• Satisfying customers attracts more customers and keeps
existing customers loyal, allowing the business to expand and
be profitable.
• If the business fails to satisfy customers, it will not survive
because its customers will turn to the competition.
• Essentially marketing is about identifying, anticipating and
satisfying customer demands.
 ‘the management process that identifies,
anticipates and satisfies customer
requirements profitably’
The Chartered Institute of Marketing

‘the whole business seen from ‘the right product, in

the customer’s point of view’ the right place, at the
Drucker right time, at the right
price’
Adcock et al.
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’
American Marketing Association
‘essentially about marshaling the
resources of an organization so
that they meet the changing
needs of the customer on whom
the organization depends’
Palmer

Globally acceptable definitions of marketing

The principles of marketing
• Marketing is a whole approach to doing business.
• Marketing places customer needs at the heart of the business.
• Marketing depends on effective and continuous market
research.
• Marketing involves leading, not just following, the market.
• Marketing seeks to add value through a unique selling point.
What is marketing?
Marketing involves a number of related management functions:
• Market research
• Product design
• Pricing
• Advertising
• Distribution
• Customer service
• Packaging
What is marketing?
• All marketing decisions, whether related to products, pricing,
distribution, or promotion, are affected by other business
functions.
• Finance: since marketing costs money, both departments
have to work together in setting the appropriate budget.
• Human resource management: marketing can influence the
demand and supply of labour in an organization.
• Operations management: both departments will need to work
together to ensure that the products developed meet the
specifications of the customers.
Under Armour increases its marketing budget
Company forecasts sales could increase substantially
this year.

The sportswear company, Under Armour, has announced that it is

increasing its marketing budget, in line with a sharp increase in sales.

Sales in 2013 reached $2.33 billion, with sales forecasts predicting a

25% increase to $2.91 billion in 2014. On the back of this, the 2014
advertising budget is ballooning by 34%. CEO Kevin Plank stated the
company intends to apportion 11% of revenues to marketing, which
equates to $330 million. Just two years ago, the budget was $205 million,
and in 2013, it stood at $246.5 million. Some marketing is handled in-
house, but Under Armour also works with the marketing agency Droga5.

• Why did this marketing decision need to be coordinated with

other business functions?
Under Armour increases its marketing budget

• Finance: This department needs to fund the increased promotion

budget. Without the assurance from the company’s accountants
that adequate finance is available, the marketing department
could not make this decision to substantially increase spending on
marketing.
• Human resources: Additional employees are likely to be required
as additional sales and support staff will be needed as well as
advertising and promotions specialists as Under Armour ‘handles
some marketing in-house’. These employees have to be recruited
in good time and they must have appropriate skills.
• Operations: Market research data will be used by operations to
determine the preferences of consumers for the future product
mix. The additional marketing budget is expected to lead to a 25%
increase in sales in 12 months – additional output, inventories,
supplies and despatches will need to be organised by the
operations functions.
Marketing of goods and services
• Business selling goods, for example clothes, will often have a
very different approach to those selling services, for example
banking.
Marketing of goods and services
Goods and services are very different in a number of ways.
• Goods are tangible and services are intangible.
• Goods can be taken back if you don’t like what you bought; but
you can’t return a haircut if it goes wrong.
• Services must be consumed immediately and can’t be stored; you
can’t save your lawyer’s time and use it later, you must listen to
the advice when it is given.
• With goods, there is ownership of the product.
• Goods are easier to compare because of the similar nature of
some products; one car can be easily compared to another.
Services are more difficult to compare because of different
experiences a customer may get from a given service; in a
restaurant a customer may be treated differently each time they
visit.
Marketing of goods and services
• The marketing of goods is based on the four “Ps” of the
marketing mix - product, price, place, and promotion.
• The marketing of services includes the three additional aspects
of people, processes, and physical evidence.
Marketing of goods and services
• Being able to handle a new camera and look at the detailed
features enables buyers to choose one model or another. The
customer can identify characteristics which are objective and
businesses will therefore often focus marketing activity on the
features of goods, such as the number of megapixels on a
digital camera.
• An airline (supplying a service) may talk about the size of
seats, but the angle of the marketing is usually about the
experience (comfort and relaxation) of flying with the airline.
• In reality, many products have goods and service elements.
This means that all businesses, when doing marketing, must
try to focus on all the factors of the good or service.
Perceived value
• Customer's individual opinion of a product's value.
• Many companies focus their marketing efforts on creating a
high perceived value of their products in the minds of the
customer.
• If the customer is made to feel easier, better or richer in some
way from using the good or service, then the marketing has
been successful.
• In a service business, since the customer will not walk away
with a tangible product in-hand, this emotional connection is a
key element in marketing.
Perceived value
• One aspect of this emotional attachment is setting the right
price level.
• Marketing of goods and services is often focused on the price
level.
• Most high-end service providers do not compete on price –
largely because they know that it is a losing proposition.
• Price cutting can lead to devaluation of the service being
provided and also lead to a decline in the quality of services
being offered as a result of lesser-qualified firms entering the
market to compete on the basis of price alone.
Market-orientated approach
• Market-orientation is when marketing is about being
customer-driven.
• It has an outward looking and focuses on carrying out market
research first and then making products that can sell.
• It is market-led and focuses on establishing consumer
demand to supply products that meet consumers’ needs and
• wants.
A market-orientated business
begins by asking what
consumers want when they buy
a product.
• Decisions about product design,
pricing, promotion and
distribution will be based on
market analysis to ensure that
what the business offers is what
the consumer wants.
Coca Cola’s development
of new flavors is a
response to the changing
wants of different groups of
consumers.
Market-orientated approach
The benefits of a ‘market-orientated’ approach are:
• A new product will be more likely to succeed because it
has been based in what the consumers want.
• Customer loyalty can be built up by ensuring that customers’
needs and wants are satisfied.
• A business can gain a competitive advantage by targeting
and meeting the needs of a specific group of consumers.
• Changes in the market and the needs of customers can be
anticipated, allowing the business to be the first to react.
Market-orientated approach
However, the limitations of a ‘market-orientated’ approach are:
• Conducting market research can be costly and therefore
weigh heavily on a firm’s budget.
• Due to frequently changing consumer tastes, firms may find it
difficult to meet every consumer’s needs with its available
resources.
• Uncertainty about the future could also have a negative
influence on market-planning strategy.
Product- orientated approach
• The alternative approach is to be product-orientated.
• This focuses on creating the product before considering
the views of consumers.
• The business invents, innovates and improves methods of
production.
• Once the product is developed, the business seeks ways to
promote and sell it.
• Contact with the consumer comes only at the end of the
development process.
• The product-orientated business relies on consumers wanting
the product.
Product-orientated approach
The benefits of a ‘product-orientated’ approach are:
• It can succeed in industries where the speed of change is
slow and the firm has already built a good reputation.
• It has control over its activities, with a strong belief that
consumers will purchase its products.
Product-orientated approach
A product-orientated approach brings a number of limitations:
• Spending money on research and development without
considering consumer needs could be costly and yield any
promising results.
• The risk of failure is greater as the product is developed
without the knowledge that it will meet customer’s needs.
• The product may not offer a unique selling point –
consumers are likely to turn to competitors’ products.
• The business may be myopic (short-sighted) as it is unable
to spot changing needs and the threat of new competition.
Product-orientated approach
• Many of the most successful products in the last hundred years
have come through product innovation, not market analysis.
• The television, the CD player, and the mobile phone all owe
their existence to invention and product development.
• In reality, even the most
product-orientated modern
business will have an eye on
the market and the needs of
potential customers.
• The exact mixture of the two
will depend on the nature of
the product, the business itself
and the market in which it
operates.
Commercial marketing
• Process of creating, developing, communicating, and
delivering goods and services that customers need and
want in exchange of a benefit for the organization.
• Market research is carried out to establish consumer demand
and supply what is demanded.
• Once the specific product is identified, appropriate strategies
need to be put in place to market the product.
• The strategies used in commercial marketing need to be
tailored specifically to the type of product the business is
selling.
• These strategies may include a traditional focus (television,
radio, billboards, or local print media) or an online marketing
campaign (using Google AdSense, emails, or social websites).
Social marketing
• Process that involves the use of marketing approaches
that help bring about changes in behaviour that ultimately
benefit society.
• Involves the participation of other stakeholders.
• Ensures that businesses make good marketing decisions
based not only on consumers’ wants and the firm’s
requirements but also on consumers’ and society’s long-term
interests and welfare.
• Examples include public health campaigns - anti-smoking
centred on reducing smoking, providing information on the
dangers of drink-driving, and educating on the benefits of
eating healthy food to discourage overeating or poor dietary
habits.
• Social marketing programmes also include environmental
campaigns to promote recycling, clean air, and water as well
as other measures of conservation.
• Today, social marketing also looks into areas such as human
rights and family planning.
Social marketing
Some advantages of social marketing include:
• It gives firms a competitive advantage as consumers may
perceive such firms to be socially responsible and therefore
buy products from them.
• Firms can charge premium prices for providing goods that
society is deriving benefits from.
Social marketing
Commercial mkt vs social mkt
Commercial
• Satisfying customers’
needs for profit.
• Main objective is ‘financial
return’.
Social
• Satisfying customers’
needs by achieving specific
behavioural goals for the
good of society at the same
time.
• Main focus on ‘social good’.
Social media marketing (SMM)
• Marketing approach adopted by businesses that uses social
networking websites from the Internet to market its products.
• Marketing tool that incorporates the use of technological
concepts and techniques with the aim of growing a business
through different media.
• Has increased in popularity with the development of websites
such as Facebook, Twitter, LinkedIn, Instagram and YouTube.
• However, while SMM is a very useful marketing tool, most
businesses will use it as a supplement to other marketing
methods and not as a replacement for them.
Social media marketing (SMM)
These are the benefits of SMM:
• It enables a firm to get direct feedback from its customers
while still appealing to them personally, through its interactive
sections that provide customers with the opportunity to ask
questions and voice their complaints. This is known as social
customer relationship management.
• It provides a low-cost way for firms to reach a large target
audience. For example, the number of users of Facebook
stood at 2.23 billion in June 2018.
• It can enhance a firm’s brand.
Since many social networking
websites already have large
established online
communities, firms can gain
exposure by simply joining
these websites.
TOK Discussion
• In marketing, what role does language play in the different
areas of knowledge?
Characteristics of the market
• A market is an arrangement where buyers and sellers
exchange goods and services.
• It includes current and potential customers of a product whose
needs or wants are satisfied by suppliers in the exchange
process.
Characteristics of the market
Markets can be differentiated by assessing the following
characteristics:
• Market size
• Market growth
• Market share
• Competitors and ease of entry
• Differentiated or homogeneous products
• Segmentation
Market size
• Represents the total sales of all companies in a given
market.
• Allows a business determine whether the market is growing or
shrinking, and how fast is changing.
• A marketing manager can assess whether a market is worth
entering or not.
Amount of goods sold by quantity, for
By volume example liters of milk.

Amount spent by consumers

By value expressed in terms of money.
Market growth
• Percentage change in the market size over a given period
of time, usually a year.
• Measures how a given market is expanding or shrinking.
• Can be based on the market value or market volume.
• High growth rates mean that new products have a better
chance of success.
• In a shrinking market, existing brands
will compete fiercely for customers,
making it extremely hard for new
businesses or products to enter the
market.
Market growth
Most of the growth or decline in a market’s size is due to external
factors such as the following:
• The state of the economy
• Technology
• Demographics
• Consumer tastes
• Level of income
Market growth
• For example, there is an increase in sales revenue resulting
from the sale of televisions from US$50 million to US$80
million.
Market growth = 80 – 50 x 100 = 60
50

• The result indicates a 60 percent (60%) growth in the market.

• Moreover, analysts expect a growth of 50% for the following
Expected market size = 80 x 1 + 50 = 120
year.
100

• The result indicates that the sale of televisions will reach

US$120 million for the following year.
Workpoint
• Calculate the expected sales for the following years.
Year 1 2 3 4 5

Sales (US$000) 80 90 100 95 96.9

Expected market - 12.5 11.11 -5 2

growth (%)

• Calculate the market growth of the following data.

Year 1 2 3 4 5

Sales (US$000) 100 150 180 153 127

Market growth (%) - 50 20 - 15 - 17

Market share
• Percentage of total sales a firm achieves in a market.
• As for market size, this can also be measured by volume but
it is usually measured by value.
• It is an important measure of business success.
• It is much more under control of the businesses. They can
gain market share through a successful advertising campaign.
• Businesses constantly try to increase their market
share.
• If a firm’s market share is increasing, then the
marketing of its product has been relatively more
successful than most of its competitors.
Market share = firm’s sales x
100
total sales in the market
 Workpoint
• Explain the difference between market size by volume and
market size by value.
• Given the information on the market for widgets shown below,
calculate:
1. Market share of Mega-widget by volume in 2007
2. Market share of Superwidgets by value in 2008
3. Market growth for the whole industry by value from 2007 to
2008
Company Mega-widget Superwidgets Widgets & Co

Year 2007 2008 2007 2008 2007 2008

Sales of widgets (m units) 650 680 500 510 475 460

Sales of widgets ($ million) 40 45 35 38 25 22

Market growth and market share
• It is not always easy to measure and interpret market growth.
• Different results may be obtained depending on whether the
growth and share rates are measured in volume or value
terms.
• For example, if total sales in the market of jeans rose from 24
million pairs at an average price of $32 to 26 million pairs at an
average price of $36, then market growth can be measured in
two ways:
• By volume - the market has risen from 24 to 26 million units, an
increase of 8.33%
• By value – the revenue has risen from $768 to $936, an increase
of 21.87%
Market growth and market share
• Which of the two figures – value or volume – should be used
for measuring the changing market share for any one jeans
manufacturer?
• The manufacturer could use the measure that reflects better on
its own position.
• It may, therefore, also be difficult to compare firm’s changing
market shares.
• A cosmetic company that specializes in selling low volume of
expensive products is likely to have a higher market share in
value terms than when measured by volume.
Exam tip
• You may be asked to do some simple calculations about
market growth and market share. Remember to take your
calculator into the examination with you.
Exam tip
• It is very important to understand that a firm’s market share
can fall even when its sales are rising.
• This is because, if the total market sales are increasing at a
faster rate than one firm’s sales, the market share will fall.
Market leadership
• Measuring market share is important because it could indicate
that the firm is a market or brand leader.
• Market leadership is when a business has the highest market
share of all firms that operate in that market.
• A market leader can influence other businesses or competitors
to follow it.
 Total market value $5.5 billion

28%

25%

20% 20%

4%
3%

Cadbury Mars Nestlé Kraft Wringles Other

Trebor Jacob
Bassett Suchard

Market share of leading confectionery manufacturers, UK 2015

Brand leaders
Market leadership
The benefits of being the market leader include:
• The market leader will have increased sales.
• The business will be able to gain economies of scale (i.e. a
decrease in the average costs of production as a result of increasing
its scale of operation), translating to higher profits.
• The leading brand can act as a good promotional tool for
consumers who would like to associate with popular brands.
• Retailers will be keen to stock and
promote the best-selling brands. They
may be given the most prominent
position in shops.
• Recruitment of high-class employees
is often easier as people would rather
work for ‘winners’ than unsuccessful
firms.
• Financing might become easier if
investors and banks become convinced
that the status of being market leader
Market leadership
• However, being market leader puts pressure on a business
and key staff to continue to do as well if not better in future.
• The business media will look for any sign of slippage in
position and will gleefully report that the business is losing
market share and losing touch with its customers.
• In addition, too much emphasis on market share could take
attention away from profitability.
• Price cuts and lower profit margins are one way of increasing
market share – but is this strategy sustainable in the long
term?
• The reason why a business is market leader need to be
assessed carefully before stakeholders can conclude that the
business really does have a winning formula rather than just a
‘sell-it-cheap-to-increase-share’ strategy.
Workpoint
Market share for tablet computers
In 2014, total sales of tablet computers in market A were 54,000
units. The average selling price was $320. In the same year,
company X sold 15,000 units in market A at $300 each.
Company X was the market leader in market A in 2014.

• Calculate the market share by value and by volume of

company X in 2014.
• Discuss two benefits to company X of being the market
leader.
Competitors and ease of entry
• All businesses need to be aware of the number and size of
their direct competitors – and the ease with which new rivals
could join the market.
• Generally, the greater the number of competitors and the
easier it is for new ones to join a market, the more price
competition there will be.
• The scope for product or service
differentiation is important though. If
products can truly be ‘made different’ from
rivals’ products, it might still be possible for a
business to charge relatively high prices
even though the number of competitors is
substantial.
Differentiated or homogeneous products
• Milk, maize (corn), bottled water and petrol are four products
which are difficult to differentiate.
• A business selling in any of these markets will be less able to
stand out from rivals in terms of product quality than, for
example, a business operating in the car or TV markets.
• Homogeneous products (commodities) are those that cannot
be distinguished between even though they may come from
different suppliers.
• It will be difficult for a business to charge prices different from
the ‘going rate’ for these products.
Segmentation
• Refers to the division of prospective consumers into
groups (segments) that have common needs and will
respond similarly to marketing activities.
• Market segmentation enables companies to target different
groups of consumers who perceive the value of certain
products and services differently from each other.
• Target marketing – as opposed to mass marketing –
recognises the diversity of customers and does not try to
satisfy them all with the same good or service.
• The first step in target
marketing is to identify
these different market
segments and their
needs.
Marketing objectives of for-profit organizations

• Marketing objectives are the goals or targets that businesses

aim to achieve through their marketing department, which are
in line with the organization’s overall strategic objectives.
• Many marketing definitions include the notion that businesses
should aim to satisfy consumer needs and wants profitably.
• Therefore, the sole marketing objective of for-profit
organizations is to identify, design and develop marketing
strategies that will ultimately be profitable to the business.
• This will involve appropriately applying the elements of the
marketing mix to achieve this objective.
• Generally, for-profit organizations use a market-led approach,
where their focus is purely on the needs and wants of
consumers.
• They are very responsive to the needs and wants of
consumers and use market research as a way of identifying
those needs.
Marketing objectives of for-profit organizations

For-profit organisations’ marketing objectives include an increase

in:
• Market share – perhaps to gain market leadership
• Total sales (value or volume – or both)
• Average number of items purchased per customer visit
• Frequency that a loyal customer shops
• Percentage of customers who are returning customers
(customer loyalty)
• Number of new customers
• Customer satisfaction
• Brand identity

The achievement of any or all of these marketing objectives will

help the organisation achieve its primary profit-seeking corporate
objective.
Marketing objectives of non-profit organizations (NPOs)

• NPOs such as churches, charities, and some schools engage

in marketing activities more for social marketing reasons.
• In such cases, social marketers would run campaigns to
encourage the public to donate money or support a certain
cause, for example campaigns aimed at helping orphaned and
vulnerable children with food and clothing.
• Increasingly, NPOs are using more complex marketing
strategies to achieve their aims, which include enhancing their
image and reputation.
• They are also using marketing to inform and influence certain
behavioural change. For example, a government may seek to
educate the public on the dangers of smoking and adopting
responsible drinking habits.
Marketing objectives of non-profit organizations (NPOs)

• A major drawback of most NPOs is limited financing, which seriously

affects their marketing budgets. Most NPOs do not have external
shareholders providing risk capital for the business.
• A number therefore seek to raise funds through fundraising events,
seminars and endorsements, in an effort to be heard and to improve
their public relations.
• This funding is also linked to their ability to attract potential
“customers” and therefore receive sponsorships or donations, such as
in the case of public sector colleges.
• As a result, they are able to gain competitive advantages over their
rivals on the private sector.
• Internet marketing, which includes social media marketing, is also
increasing in popularity among a number of NPOs – with the growing
number of global Internet users, a number of charities have raised a
lot of money from online donations made using PayPal, for example.
Marketing objectives of non-profit organizations (NPOs)

• NPOs have to be ethical at all times and practice a high

degree of social responsibility if they are to continue benefiting
from free publicity from other organizations as well as
maintaining public interest in their causes.

• Marketing objectives for non-profit organisations include:

• Maximise revenue from trading activities.
• Increase recognition of the organization by society.
• Promote the work and aims of the organization to a wide audience.
Evolution of marketing strategies
• Due to a variety of factors, customers’ preferences have
changed significantly over the past two decades and
businesses have responded in various ways to meet these
new demands.
• The ways in which marketing strategies have been adapted to
suit these new preferences are various in order to improve its
profitability – rebranding, penetrating new markets, or
diversifying.
• Marketing strategies, much like all business strategies, must
adapt to remain relevant.
• Failure to adapt can result in a loss of profitability or even total
failure.
• Whether it is a change in marketing methods, or
reconfiguration of the marketing mix, marketing strategies can
and must adapt to changing customer preferences.
Evolution of marketing strategies
• Changes in consumer preferences should be researched,
anticipated and acted upon by the marketing department.

• Examples of recent changes in consumer preferences include:

• Fuel-efficient cars and fewer ‘gas guzzlers’
• Healthy food and less fried food
• Tablet computers and fewer PCs
• Informal business clothing and fewer ‘business suits’

• Businesses that fail to respond to these and other changes in

preferences by developing and marketing new products will
usually quickly lose sales and market share.
Innovation, ethical considerations and cultural
differences
• In an increasing globalized world, where the world’s
economies and markets are integrating, innovation, ethics and
culture now affect marketing strategies more than ever before.
• They have a huge impact on marketing strategies and
practices around the world.
• The most common change in marketing practices appears to
be the increased use of social media to interact directly with
customers on a regular basis.
• Similarly, a large change in marketing strategies has been to
target the youth market more directly, as in the cases of Aston
Martin and Rolls-Royce in China and Nokia, Apple, and
Samsung across the globe.
• Businesses must adapt their marketing practices and
strategies to meet changes as a result of innovation, ethics,
and culture if they are to maximize revenues and profits on a
global scale.
Innovation, ethical considerations and cultural
differences
• The major innovation in recent years that have had impact on
marketing activities have been guerrilla marketing and internet
marketing.
• In the case of internet marketing, the increasing growth of social
media networks is encouraging businesses to switch a higher
proportion of their budgets towards these forms of communicating
with customers rather than traditional forms of newspaper and TV
advertising.
• Marketing activities can have a major impact on whether a
business achieves its ethical objectives. If a single issue is
considered – advertising sweets to children – then the arguments
for and against taking an ethical stand can be the basis for a
discussion on many other marketing issues with an ethical
dimension.
• Failing to respond to cultural differences can lead to bad feeling
and bad publicity whereas responding to local tastes and
sensibilities can encourage consumers to accept a new brand as
being designed for their needs.
TOK Discussion
• To what extent are marketing practices a reflection of the
values of a given time and culture?
Learner profile
Reflective
Sometimes in marketing like in any other area of business you
make mistakes:
• You change your product and the customer doesn’t like it.
• Your advertising campaigns shocks consumers so much it
leads to a fall in sales.
• When you market your product in a new country you find it
doesn’t sell.
• The price you charge for the product is too low so sales are
good but profits are not.
• Your products turn out to be dangerous and it leads to lots of
bad publicity.
Do some research to find out about some major marketing
mistakes made by organisations. As a reflective CEO, examine
how you would respond to making these marketing mistakes.
Key concept link
• Marketing is a business function that is responsible for some of
the most important strategic business decisions, such as
whether to enter new markets or the development of a new
product.
• Marketing decisions often have to reflect the globalised nature
of many markets.
• Ethical considerations and cultural differences can influence
marketing and promotional campaigns.
Sources
• Stimpson, P., Smith, A. (2015) Business Management for the
IB Diploma. Cambridge
• Lominé, L., Muchena, M., and Pierce, R. (2014) Business
Management. Oxford
• Clark, P. and Golden, P. (2009) Business and management
Course Companion
• Gutteridge, L. (2009) Business and Management for the IB
Diploma
• Thompson, R. and Machin, D. (2003) AS Business Studies