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Nature and Basic Concepts of Marketing

“Marketing (management) is the process of planning and executing

the conception, pricing, promotion, and distribution of ideas,
goods, and services to create exchanges that satisfy individual and
organizational goals.”

 Marketing is a process of anticipation, management and satisfaction of

demand through exchange.
 Marketing consists of individual and organizational activity that
facilitates and expedites satisfying exchange relationships in a
dynamic environment through the creation, distribution, promotion and
pricing of goods, services and idea.

Common Marketing Terms

Needs:-
Need is a state of felt deprivation of some basic satisfaction. It is also
defined as a discrepancy between the actual state and desired state of a
human being. It is the deficiency of something useful. Needs are not
created by society or by marketers. They exist in the very nature of
human biology and the human condition.
Wants:-
Wants are desires for specific satisfiers of these needs. A want for one
person may not be a want for another person. In other words, what is
desired by one person may not be desired by another- what is good for
one person may be worse for another. For example: When a person fell
hungry, he wants to eat food, but the type of food wanted by different
persons may be different.

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 Although people’s needs are few, their wants are many. Human wants
are continually shaped and reshaped by social forces and institutions,
including churches, schools, families and business corporations.

Demands:
Demands are wants for specific products that are backed by an ability and
willingness to buy them. Wants become demand when they are backed up
by purchasing power. Therefore, marketers should measure the wants of
the people backed by purchasing power because only demand guarantees
sales.
Marketing managers seek to influence the level, timing, and composition of
demand to meet the organization's objectives.

The states of demand;

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

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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.

b) Products/ Offer (Physical Goods or Services)

Human needs and wants are satisfied with products offered by the
marketer. Product is anything that can be offered to the market for
acquisition, use and/or attention. Alternative to product we can use other
terms such as offering or solution to define the same thing. Products may
have three forms: physical goods (people, place, machinery, food, etc),
services (intangible products) and ideas (human conceptions).

For example: a computer manufacturer is supplying all three forms:

physical goods (computer, monitor, printer, etc), services (delivery,
installation, training, maintenance, repair), ideas (computation power).
c) Value, Cost and Satisfaction.

How do consumers choose among the products that might satisfy a given
need? A number of products can satisfy a need.
Value is the consumer’s estimate of the product’s overall capacity to
satisfy his or her needs. Consumer, in order to maximize their
satisfaction, they have to consider not only the value they can acquire
from owning and using a product, but also the cost they incurs to acquire
the product. The product with the highest value might cost substantially
more than the other alternatives. Therefore, consumers will consider the
products value and cost before making a choice. A rational consumer will
choose the product that produces the most value per Birr.

d) Exchange and Transactions

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 Exchange: the act of obtaining a desired product/service from someone
by offering something in return. Exchange is one of the four ways in
which people can obtain products they want. They are:

Exchange to take place, five conditions must be satisfied:

 There are at least two parties (individuals or groups)

 Each party has something that might be of value to other party
 Each party is capable of communication and delivery
 Each party is free to accept or reject the exchange offer
 Each party believes it is appropriate or desirable to deal with the
other party.
Transaction:
Two parties are engaged in exchange if they are negotiating and moving
toward an agreement. When an agreement is reached, we say that a
transaction takes place. Transactions are the basic unit of exchange. A
transaction consists of a trade of values between two or more parties.
Transaction may be either monetary or barter transaction.

e) Market
The term “market” originates from the Latin word “Marcatus which means
“a place where business is conducted.” A layman regards market as a
place where buyers and sellers personally interact and finalize deals.
According to Perreault and McCarthy, market is defined as a group of
potential customers with similar needs or wants who are willing to
exchange something of value with sellers offering various goods and/or
services to satisfy those needs or wants. Of course, some negotiation will
be needed. This can be done face-to-face at some physical location (for
example, a farmer’s market) or it can be done indirectly through a complex
network that links middlemen, buyers and sellers living far apart.

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 A simple marketing system

Communication

Goods/services

Industry Market

(A Collection of (A collection of
sellers) buyers)
Money

Information

The seller and the buyers are connected by four flows. The sellers (Industry)
send goods and services and communication (through ads, direct mail, etc) to
the buyers (the market): in return they receive money and information
(altitudes, sales data, etc). The inner lines show an exchange of money,
whereas the outer loop shows an exchange of information.
f) Marketers and Prospects

The concept of markets brings us full circle to the concept of marketing.

Marketing means working with markets to actualize potential exchanges for the
purpose of satisfying human needs and wants. In the concept of marketing we
find two parties – the seller and the buyer.

When one party is more actively seeking an exchange than the other party, we
call the first party a marketer and the second party a prospect. A marketer is
someone seeking one or more prospects who might engage in an exchange of
values.

The marketer can be a seller or a buyer. Suppose you want to buy a house that
has just become available. You go for it, ask the owner of the house, take the
initiative, and develop a desire in yourself for the house. Now you are the
marketer, the house owner is a prospect. In reverse, the owner of the house,
need to sell his house, - advertise the sell bargaining with many potential

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 buyers including you. Here, the owner of the house is the marketer and you
become a prospect.

In the event that both parties actively seeking an exchange, both are marketers
and the situation is one of reciprocal marketing. For example, if both the buyer
and seller of the house show an interest to buy and sell respectively at al time,
they both become marketers.

The Marketing Management Philosophies

 The Production Concept

The production concept is one of the oldest concepts in business. The production
concept holds that consumers will prefer products that are widely available and
inexpensive.

Managers of production-oriented businesses concentrate on achieving high

production efficiency, low costs, and mass distribution. They assume that
consumers are primarily interested in product availability and low prices. This
orientation makes sense in developing countries, where consumers are more
interested in obtaining the product than in its features. It is also used when a
company wants to expand the market.

 The Product Concept

Other businesses are guided by the product concept. The product concept holds
that consumers will favors those products that offer the most quality,
performance, or innovative features. Managers in these organizations focuses on
making superior products and improving them over time. They assume that
buyers admire well-made products and can appraise quality and performance.
However, these managers are sometimes caught up in a love affair with their
product and do not realize what the market needs. Management might commit
the “better-mousetrap” fallacy, believing that a better mouse-trap will lead people
to beat a path to its door.

Product-oriented companies often design their products with little or no customer

input. They trust that their engineers can design exceptional products. Very often

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they will not even examine competitors’ products. A General Motors executive
said years ago: How can the public know what kind of car they want until they
see what is available? The product concept can lead to marketing myopia.

 The Selling Concept

The selling concept is another common business orientation. The selling concept
holds that consumers and businesses, if left alone, will ordinarily not buy
enough of the organization’s products. The organization must, therefore,
undertake an aggressive selling and promotion effort.

The sales concept maintains that a company cannot expect its products to get
picked up automatically by the customers. The company has to consciously push
its products. Aggressive advertising, high-power personal selling, large scale
sales promotion, heavy price discounts and strong publicity and public relations
are the normal tools used by organization that rely on this concept. In actual
practice, these organizations too do not enjoy the best of customer patronage.

The selling concept is thus undertaken most aggressively with ‘unsought goods’,
i.e. those goods that buyers normally do not think of buying, such as insurance,
encyclopedias. The selling concept is also practiced in the non-profit area by
fund-raisers, college admissions offices, and political parties. A political party
vigorously sells its candidate to voters. Most firms practice the selling concept
when they have over capacity. Their aim is to sell what they make rather than
make what the market wants. In modern industrial economies, productive
capacity has been built up to a point where most markets are buyer markets (the
buyers are dominant) and sellers have to scramble for customers. Evidently, the
sales concept too suffers from marketing myopia.

 Marketing Concept
This time instead of a product-centered, "make-and-sell" philosophy, business
shifted to a customer-centered, "sense-and-respond" philosophy. Instead of
"hunting," marketing is "gardening." The job is not to find the right customers for
your products, but the right products for your customers. The marketing concept

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holds that the key to achieving organizational goals consists of the company
being more effective than competitors in creating, delivering, and communicating
superior customer value to its chosen target markets.
Marketing concept is integrated marketing effort aimed at generating customer
satisfaction as the key to satisfying organizational goals. It is obvious that the
marketing concept represents a radically new approach to business and is the
most advanced of all ideas on marketing that have emerged through the years.
Only the marketing concept is capable of keeping the organization free from
‘marketing myopia’. Generally, the marketing concept rests on four pillars:
Consumer orientation, integrated marketing, Consumer satisfaction, Realization
of organizational goals.

Benefits of Marketing Concept

The concept benefits the organization that practices it, the consumer at whom it
is aimed and the society at the society at large.

i) To organization: An organization practice the concept keeps feeling the

pulse of the market through continuous marketing audit, market research
and consumer testing. It is quick to respond to changes in buyers’ behavior,
it rectifies any drawback in its products; it gives great importance to
planning, research and innovation. All these response, in the long run,
prove extremely beneficial to the firm. Another major benefit is that profits
become more and certain, as it is no longer obtained at the cost of the
consumer but only through satisfying him. The base of consumer
satisfaction guarantees long – term financial success.

ii) To Consumers: The consumers are in fact the major beneficiary of the
marketing concept. The attempts of various competing firms to satisfy the
consumer put him an enviable position. The concept prompts to produces,
constantly improve their products and launch new products. All these
results in benefits to the consumer such as: low price, better quality,
improved/new products and ready stock at convenient locations. The
consumer can choose, he can bargain, he can complain and his complaint
will also be attended to. He can even return the goods if not satisfied. In

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 short, when organizations adopt marketing concept, as natural corollary,
their business practices change in favor of the consumer.

iii) To the society: The benefit from the marketing concept is not limited to
the individual consumer of products. When more and more
organizations resort to the marketing concept, the society in total
benefits. The concept guarantees that only products that are required
by the consumers are produced; thereby it ensures that the society’s
economic resources are channelized in the right direction. It also creates
entrepreneurs and managers in the given society. Moreover, it acts as a
‘change agent’ and a ‘value adder’; improves the standard of living of
the people; and accelerates the pace of economic development of the
society as a whole. It also makes economic planning more meaningful
and more relevant to the life of the people.

 Societal Marketing concept

Some have questioned whether the marketing concept is an appropriate
philosophy in an age of environmental deterioration, resource shortages,
explosive population growth, world hunger and poverty and neglected social
services. Are companies that do an excellent job of satisfying consumer wants
necessarily acting in the best long-run interests of consumers and society? The
marketing concept sidesteps the potential conflicts among consumer wants,
consumer interest, and long-run societal welfare.
The societal marketing concept holds that the organization’s task is to determine
the needs, wants and interests of target markets and to deliver the desired
satisfaction more effectively and efficiently than competitors in a way that
conserves or enhances the consumer’s and the society’s well being.

IMPORTANCE OF MARKETING

Marketing is an important social activity that offers benefits to all parties

or the society at large.

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 a) As a producer and business person we usually make such marketing
related decisions such as finding out who are our customers? What
are their need and want and what good and service to offer and at
what price.
b) As a consumer we make such marketing related decision where to
shop, which salesperson to contact, what price to pay, what to buy.
c) As an employee we are concerned with the employment opportunity
that can be created by marketing activities.
d) To the society, marketing contributes to the economic growth of the
society through making profit and make people at a better off.
e) Marketing creates utilities such as:
Place utility: -Marketing makes products readily available at a
place where customers want them.
Time utility: -Marketing makes products available at the time
when they are wanted by customers.
Possession utility: -Marketing makes possession by selling the
product to customer.
Form utility: - Form entails the physical or chemical change that
takes place through production which is based on the marketing
effort in identifying what customers need and want.

Marketing Functions
 Exchange functions

a) Buying: It is the first step of marketing functions. All marketers –

manufacturers, wholesalers, retailers etc., carry it out. Buying
and selling both happen at the same time. Buying may be done
either directly or through middlemen.

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 b) Selling: Selling and buying happen together. In business, the
selling function is very important. Sales are concerned with the
activities, which change the desire into demand. In the modern
world, the process of selling is an important function because of
large-scale production, tough competition etc.

 Assembling: It’s concerned with the collection of goods of the same

type from different sources at a place for further movement.
Generally, goods are bought from several sellers. The job of
assembling is carried out by middlemen, manufacturers etc.

 Physical functions:

The next function of the marketing process is the physical supply.

Physical transfer of goods from the manufacturer to the consumer
takes place by means of storage and transportation.

a) Storage: Products are kept safe from the time of production to the
time of consumption. Production may be during a particular
season, but demand is regular. In the same way, production may
be regular, but demand may be only seasonal. In both cases,
products have to be stored. Storage function is necessary in
collection as well as distribution. Manufacturers, wholesalers, and
professional warehouse keepers do the function. Marketers can
easily balance the supply with demand through warehousing and
transportation.

b) Transportation: Since markets are geographically separated

from the production place, transportation is essential. The goods
from a place where they are not needed are transferred to the
place where they are needed.

 Facilitating functions: These functions are supporting

activities.

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 a) Financing: Basically it is required for production as well as for
marketing. Generally, there is a gap of period between the
purchase of raw materials and the conversion into finished goods.
It means that the manufacturer who invests in raw materials has
to wait till the consumers pay for the finished goods.

b) Risk-bearing: In business there are several risks – damage to

goods, physical loss, changes in the value of goods, bad
management, credit losses etc. The losses may also be on account
of fire, flood, bad debts etc. In all such cases business
organizations try to reduce the possibility of risks. Some risks are
insurable while others are not. But the loss on account of fall in
demand, prices, competition etc. cannot be insured. Marketing
plans have to keep in mind such situations.

 Standardization:
It provides certain basic qualities to the goods for their use.
Standard is a specification. It is a ‘grade’ or ‘category.’ Standards
are fixed on physical characteristics of products. The standardized
products possess uniform characteristics, for example, shape,
weight, size etc. After standardization several products are graded.
For example, grading of fruit and other agricultural products etc. is
done according to their size, color, juice content, taste etc.
Standardization and grading are closely related activities. Both are
important and widen the markets. It is also useful for sales by
description.

 Market information:
The success of marketing depends on correct and timely decisions. These
decisions are based on market information. Modern marketing must have
information of size, location, characteristics of market. The customer’s
wants, habits, purchasing power etc. are to be considered. The strength or
weakness of competitors, supply and demand is also to be taken into
account. Marketing information includes all facts, estimates, opinions and
other information used in making decisions, which affect the marketing of
products and services.
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