Chapter 13: Marketing: Concept And Functions
A woollen mill in Ludhiana can turn out ten thousand sweaters in a month. That fact, by itself, settles nothing. The sweaters must reach people who want them, in the sizes they wear, in the towns where winters are cold, at the time of year they are needed and at a price they are willing to pay. Somebody must also have established, before a single sweater was cut, that this design at this price would sell at all. All of that work is marketing. It begins before production, in the study of what a market wants, and it does not end at the counter, because what the buyer thinks of the purchase shapes the next season’s decisions. Marketing is commonly confused with selling, which is only one part of it — the part that transfers goods for money once those goods already exist. This chapter examines what a market is and the forms it takes, what marketing means and how the idea of it moved from a production-centred to a customer-centred view, how marketing differs from selling, why it matters to a business and to the wider economy, and the specialised functions through which the work is actually carried out.
Figure
Fig. 13.0-1 — Knitwear On Display In A Retail Store Photograph of a clothing retailer’s shelves with sweaters stacked by size and colour, price tags visible, and a customer examining a garment.
13.1 Meaning And Types Of Markets
Every act of buying and selling takes place somewhere, but not necessarily in a place. A trader with goods to sell has to know who the possible buyers are, where they are, what they are able and willing to pay, and what the same goods are fetching elsewhere on the same day. The word commerce uses for that whole body of buyers, sellers and forces is market.
13.1.1 What The Term Market Means
In everyday speech a market is a location — the vegetable market, the cloth market, the weekly bazaar. Goods are displayed there, buyers walk in and purchases are made face to face.
In commerce the term carries no such restriction. A market means the sum total of the environment in which the resources, activities and attitudes of buyers and sellers determine the demand for a product or a service. Buyers and sellers may settle a transaction by telephone, letter, e-mail or the internet without ever meeting one another.
What makes a set of dealings one market is the freedom of interaction within it. Where buyers and sellers are in free contact, information about price travels quickly, and the price of the same commodity tends to equalise across the whole area concerned. Where contact is broken — by distance, by poor communication, by a barrier at a border — two separate markets exist, and the same commodity may sell at two prices.
Several writers have stated the idea formally. Philip Kotler treats a market as the set of all actual and potential buyers of a product. Prof. Chapman held that the term refers not necessarily to a place, but always to the buyers and sellers who are in direct contact with one another.
Five Concepts Of A Market
The definitions in use draw attention to five different aspects of the same idea.
- Place concept — to the common man a market is a physical site at which goods and services are sold or exchanged, such as a haat, a bazaar or a shopping mall.
- Area concept — a market means the geographical area over which products are bought and sold, which may be a district, a state or a group of countries.
- Demand concept — a market means the aggregate demand for a product or service, as when a firm speaks of the market for cement.
- Exchange concept — a market means the organisation through which exchange of an item takes place, such as a stock exchange or a commodity exchange.
- People concept — a market consists of the buyers and sellers themselves, together with the middlemen who assist them in buying and selling.
Why Market Conditions Matter
In a free enterprise economy, market conditions largely settle what is produced and in what quantity. A firm cannot decide its output in isolation, because the goods must eventually be absorbed by buyers whose tastes and incomes it does not control.
For the same reason, a change in market conditions forces a change in business decisions. A fall in demand, the entry of a competitor or a shift in customer preference obliges a firm to reconsider its product design, its price policy, its distribution arrangements and its promotional effort.
13.1.2 Types Of Markets
A trader who speaks of ‘the market’ has to be able to say which market is meant, because the same transaction can be described under several heads at once. A sale of cotton by a Gujarat grower to a mill in another state is at once a national market, a wholesale market, a commodity market and a primary market. Markets are therefore classified on six separate bases, set out in FC 13.1.
Flowchart
FC 13.1 — Classification Of Markets Markets → Geographical area, Volume of business, Subject of exchange, Position of buyers and sellers, Nature of transactions, Nature of goods; Geographical area → Local, Regional, National, International; Volume of business → Wholesale, Retail; Subject of exchange → Commodity, Capital, Money; Position of buyers and sellers → Primary, Secondary, Terminal; Nature of transactions → Spot, Future; Nature of goods → Consumers’, Producers’
On The Basis Of Geographical Area
- Local market — buying and selling are confined to a single village, town or city. Perishable goods such as milk, fresh vegetables and cooked food are sold in local markets because they cannot travel far without loss.
- Regional market — dealings are restricted to a particular region or state, often because of a regional taste, a regional language of trade or the cost of moving bulky goods further.
- National market — buying and selling extend throughout one country but not beyond its boundaries.
- International market — buyers and sellers belong to several countries, and the transaction has to cross a customs frontier.
On The Basis Of Volume Of Business
- Wholesale market — goods are sold in bulk, usually to retailers. Such a market exists because a manufacturer producing in large quantities cannot deal separately with every small shop.
- Retail market — goods are sold in small quantities directly to the ultimate consumer, in the size and assortment a household actually needs.
On The Basis Of Subject Of Exchange
- Commodity market — an organised market in which commodities such as cotton, oilseeds or metals are bought and sold according to prescribed rules and regulations.
- Capital market — a specialised market that provides long-term finance to business enterprises. It comprises specialised financial institutions, stock exchanges, investment trusts and insurance companies.
- Money market — a specialised market that provides short-term finance to business enterprises, consisting mainly of banks.
On The Basis Of Position Of Buyers And Sellers
- Primary market — primary producers, mainly farmers, sell their produce to wholesalers or to their agents. This is the first point at which goods enter trade.
- Secondary market — wholesalers sell to retailers, breaking bulk consignments into shop-sized lots.
- Terminal market — retailers sell to consumers. Goods leave the channel of trade at this stage and pass into consumption.
On The Basis Of Nature Of Transactions
- Spot market — goods are physically transferred from seller to buyer, and payment and delivery take place at once or within a very short period.
- Future market — buyers and sellers enter into contracts for a later date without intending actual delivery of the goods. The purpose is to gain from movements in prices, or to protect an existing stock against them.
On The Basis Of Nature Of Goods
- Consumers’ market — goods are purchased for personal consumption by the buyer or the buyer’s household.
- Producers’ market — goods are purchased for use in further production, as raw material, component or machinery.
Figure
Fig. 13.1-1 — A Wholesale Produce Market At Work Photograph of a wholesale agricultural market yard with sacks and crates of produce stacked in lots, traders inspecting the goods and handcarts being loaded.
Classification is not an end in itself. It tells a firm which set of buyers it is actually dealing with, and therefore how much to produce at a time, whom to sell to, how far the goods must travel and on what terms payment can be expected.
13.2 Meaning And Features Of Marketing
A market exists whether or not any particular firm does anything about it. Marketing is what a firm does about it — the work of finding out what a body of buyers wants and of placing goods in their hands on terms both sides accept.
13.2.1 What Marketing Means
Goods do not sell themselves. Between a finished article lying in a factory and a satisfied buyer stand a series of questions: who wants this article, in what form, at what price, delivered where, and how are they to be told that it exists. Marketing is the business process that answers those questions and effects the transfer of ownership that follows.
Stated fully, marketing is the process of discovering consumer needs and wants, translating them into products and services, creating demand for those products and services, and then working to enlarge that demand. Philip Kotler expresses the same idea as the process of selecting target markets and satisfying their needs by creating, delivering and communicating products and services of superior value.
An older and narrower statement described marketing as all the activities that direct the flow of goods and services from the producer to the consumer or ultimate user. That view treats marketing as work that begins only once goods have been produced. Why it was abandoned, and what replaced it, is taken up in 13.3.
Market And Marketing Are Not The Same
The two words are often used loosely for each other, but they name different things. A market is an interaction between buyers and sellers. Marketing is a process consisting of several interrelated activities, of which dealing in a market is only the visible end. Marketing is therefore the wider term of the two.
13.2.2 Features Of Marketing
The following features run through every account of marketing, whatever the trade or the size of the firm.
- Customer-focused — the whole purpose of marketing is to understand and satisfy customers. A firm that misjudges what its buyers want will find that its other efficiencies count for nothing, because the goods will not move.
- Integrated process — marketing involves the coordination of several interrelated and interdependent activities. Buying, storage, transport, pricing and promotion have to be planned together, since a failure in any one of them stops the goods short of the buyer.
- Creative — marketing creates utility. Storage creates time utility by holding goods until they are wanted, transport creates place utility by carrying them to where they are wanted, and sale creates possession utility by putting them into the buyer’s ownership.
- Part of the environment — marketing operates within economic, social, legal, political and technological forces that it does not control. Because those forces keep changing, marketing has to keep adjusting to them, and is dynamic rather than settled.
- Multidisciplinary — marketing borrows from economics, sociology, psychology, anthropology, mathematics, statistics and law. Judging how buyers will behave requires more than one kind of knowledge.
- Pervasive — marketing is not confined to business. Non-business organisations use the same methods to spread socially useful ideas such as immunisation, hygiene, blood donation and protection of the environment.
13.3 Marketing Concepts — Traditional And Modern
Two quite different beliefs about the purpose of marketing have held the field, one after the other. The older belief treats marketing as the work of disposing of goods that have already been made. The newer one treats it as the work of deciding what to make. The difference is not academic: it settles when marketing begins, what a firm measures its success by, and whether the customer is consulted before or after the production decision.
13.3.1 The Traditional Or Production-Oriented Concept
Under the traditional concept, marketing is the process by which goods and services are exchanged and their values determined in terms of money prices. The firm produces what its plant is equipped to produce, and marketing takes charge of the goods at the factory gate.
The definitions of the period say as much. F. E. Clark described marketing as those activities which effect transfers in ownership of goods and care for their physical distribution. The American Marketing Association, in its earlier statement, described it as the performance of business activities that direct the flow of goods and services from producer to consumer or user. Converse, Huegy and Mitchell described it as all activities involved in creating place, time and possession utility.
What The Traditional View Left Out
Read together, these definitions reflect a narrow view. Marketing begins after the goods are produced and comes to an end with their sale. It is one-way traffic — goods and persuasion travelling out from the producer, with nothing travelling back. The emphasis falls on the physical process of distributing what exists, and the focus is on the product rather than on the satisfaction of the customer.
That view suited a period of shortage, when almost anything produced could be sold. It does not suit a business world of severe competition, informed consumers and rapidly changing conditions. Where a buyer has ten alternatives, a firm that has not asked what the buyer wants is left with stock and a sales force pushing it.
The extreme form of this outlook is the selling concept, under which a firm assumes that buyers will not come forward on their own and must be pressed.
13.3.2 The Modern Or Consumer-Oriented Concept
Under the modern concept, marketing is much more than the physical transfer of goods. It is the process of discovering consumer needs, translating them into products and services, and then helping more and more people to enjoy those products and services.
The later definitions carry that shift. William J. Stanton described marketing as a total system of interacting business activities designed to plan, price, promote and distribute want-satisfying goods and services to present and potential customers. The American Marketing Association, in its revised statement, described it as an organisational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organisation and its stakeholders.
Two consequences follow. Marketing now begins well before production, because the firm must first find out what buyers want. And it does not stop at the sale, because after-sales service and the buyer’s response are part of the work. Marketing has become two-way traffic: the marketer provides satisfaction, and the consumer returns feedback that shapes the next decision.
The Marketing Concept
The modern approach as a whole is called the marketing concept. Its main features are as follows.
- Customer orientation — every business activity is directed towards recognising and satisfying customers’ needs and wants, since no other test of success survives in the long run.
- Integrated approach — the elements of marketing are coordinated with one another, and the work of the various departments is harmonised into a single system, because a customer judges the firm by the whole experience and not by one department.
- Marketing research — relevant information about markets is collected continuously, because needs cannot be satisfied until they are known, and they do not stay the same.
- Marketing planning and control — marketing is treated as a dynamic process that begins before production and continues after sale. Its objectives are kept in harmony with the overall goals of the enterprise, and the programme is monitored regularly so that it remains effective as conditions change.
The concept holds that the way to achieve organisational goals is to determine the needs and wants of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors do. Profit, on this view, is not aimed at directly; it follows from having satisfied the customer better than anyone else.
The Two Concepts Compared
13.4 Marketing And Selling Compared
The commonest confusion in this part of the subject is the treatment of selling and marketing as two names for one activity. They are not. Selling is one function performed within marketing, alongside marketing research, product planning and development, pricing, distribution and promotion. A firm can sell energetically and still be marketing badly, because it may be selling the wrong article to the wrong buyer at the wrong price.
Where The Two Chains Begin
Philip Kotler set the difference out as two chains of action. Under the selling concept the chain starts inside the firm; under the marketing concept it starts outside it, with the buyer. The two are given in FC 13.2 and FC 13.3.
Flowchart
FC 13.2 — The Selling Concept Chain Factory → products already made → selling and promotion → profits through volume of sales
Flowchart
FC 13.3 — The Marketing Concept Chain Target market → customer needs → integrated marketing → profits through customer satisfaction
The starting point decides everything that follows. A firm that starts at the factory can only ask how to move what it has; a firm that starts at the target market can still decide what to make.
Scope: One Is Part Of The Other
Marketing covers the design of products acceptable to customers and the transfer of ownership from seller to buyer. Selling covers obtaining orders and delivering the goods against them, and is concerned with goods that have already been produced. The scope of marketing is therefore wider, and selling falls inside it.
Orientation: Whose Need Is Being Served
Selling is product oriented and works from the seller’s need to convert stock into cash. Marketing is customer oriented and works from the buyer’s need for satisfaction. This is why the two lead to different decisions when they conflict — a slow-moving item is pushed harder under the first view and redesigned or withdrawn under the second.
Beginning And End
Selling begins after the goods have been produced and ends with the sale. Marketing begins before production, in order to identify what customers want, and continues after the sale in order to provide service and to judge the customer’s response. That continuing contact is what allows a firm to correct itself; a seller who parts with the goods and hears nothing more has no means of knowing what to do differently next time.
Older trade practice was summed up in the maxim caveat emptor, ‘let the buyer beware’, which placed the whole burden of judgement on the purchaser. The marketing view reverses it: the seller who must keep the customer is the party at risk.
The Comparison In Full
Marketing is thus the wider term, and it includes selling. Nothing in the comparison suggests that selling is unimportant: goods that are never sold earn nothing, and effective selling calls for careful planning, continuous contact with customers and dealers, and a close watch on what competitors are doing. The point is only that selling begins where marketing has already done the greater part of the thinking.
13.5 Objectives Of Marketing
Marketing is not undertaken for its own sake. It is an expensive activity — research, transport, storage, advertising and a sales force all cost money — and a firm carries that cost because it expects definite results from it. Four such results are commonly stated. They look as though they pull against one another, but they do not: each is reached through the one before it.
Customer Satisfaction
The primary objective of marketing is to satisfy the needs of consumers, by offering the right products and services at the right time, in the right place and at the right price. Every marketing activity is guided by information about what customers expect from the business.
The reason is plain enough. No enterprise can survive and grow in the long run unless it gives its buyers full satisfaction, because a dissatisfied buyer has alternatives and takes them. Production itself becomes meaningful only when the goods produced answer a want that somebody actually has.
No firm, however, can operate in every market and satisfy every need. A firm must therefore define its target market carefully and concentrate on satisfying the needs of that group, rather than spreading its effort so thin that it satisfies nobody.
Profitability
A business enterprise is an economic institution and must earn profits, since it cannot survive or expand without them. But the profit is to be achieved through customer satisfaction, not at its expense. Philip Kotler put it that the key is not to aim at profits as such, but to achieve them as a by-product of doing the job well.
Marketing earns profit in three ways: it creates demand where demand was only latent, it enables the firm to capture a reasonable share of the market, and it builds a reputation that makes the next sale easier than the last.
Coordination And Integration
Marketing must bring about effective coordination between product, price, promotion and distribution, since a good product at an unaffordable price, or a well-advertised product that dealers cannot obtain, satisfies nobody.
The same coordination is needed between marketing and the other business activities — manufacturing, finance and personnel. A customer can be satisfied only by the joint effort of every department: production must make goods with the customer’s needs in view, and the purchase department must buy materials of the type those goods require.
Service To Society
Marketing is expected to improve the quality of living by making a wide variety of good-quality products and services available at reasonable prices. Malcom McNair described marketing as the creation and delivery of a standard of living to society.
Two further obligations follow from this. Marketing effort should be oriented towards conservation of national resources and protection of the environment, since demand that is created carelessly is met by consuming what cannot be replaced. And by widening markets and raising the scale of activity, marketing generates employment, which is itself a service to the society in which the firm operates.
Taken together, the four objectives form a single line of reasoning: satisfying the customer is the route to profit, coordination is the means by which satisfaction is delivered, and service to society is the limit within which both are to be pursued.
13.6 Importance Of Marketing
Production ends in consumption or it ends in a warehouse. Everything a firm spends on plant, materials and labour is committed before a single rupee comes back, and it comes back only when the goods reach a buyer who is willing to pay. That is why marketing occupies the position it does — not as one department among several, but as the activity on which the rest depend.
Peter F. Drucker went further and treated marketing as the feature that distinguishes a business from every other kind of human organisation.
Why It Matters To The Business
- Foundation of business — marketing is the focal point of all business activities. Manufacturing, finance and personnel work revolve around it, because each of them is planned on an estimate of what can be sold. Marketing is what synchronises production with consumption, and large-scale production, changing technology and increasingly discriminating buyers have made that synchronisation harder and therefore more valuable.
- Source of revenue — marketing is the only business activity that brings money in. Manufacturing, finance, research and development and personnel all incur expenditure; marketing generates the revenue out of which that expenditure is met. Efficient marketing also enlarges the market, so that costs are spread over a greater volume and the cost per unit falls.
- Basis for decision making — decisions on what to produce, how, when and in what quantity all rest on market conditions. Marketing supplies the information on which those decisions are taken: the likes and dislikes of consumers, the degree of competition, and the state of demand. Without it a firm is deciding in the dark.
Why It Matters To Society And The Economy
- Satisfaction of consumer needs — marketing determines the pattern of consumption by assessing what people want and moving goods to meet it. In doing so it creates time, place and possession utility, so that goods are available when, where and to whom they are wanted.
- Higher standard of living — marketing brings new and better varieties of goods to people and informs them of new products and new uses. By enlarging markets it allows production on a scale at which prices can be lowered, so that goods once counted as luxuries pass into ordinary household use.
- Gainful employment — large numbers of people are employed in transport, warehousing, advertising, selling and distribution. Marketing also raises the scale of production, which creates further employment in manufacture, and it sustains activity in banking, insurance and research.
- Development of the nation — marketing raises national income by increasing consumption, production and investment. It mobilises resources that would otherwise stay untapped, allows fuller use of production capacity, links industry with agriculture and other sectors, and develops entrepreneurial and managerial talent. Drucker held that neglect of marketing is one of the main factors that keeps an economy underdeveloped.
The last point is worth holding on to. A country may have the capacity to produce and still stay poor, if what is produced cannot be graded, moved, stored, financed and sold. Marketing is the set of arrangements that closes that gap.
13.7 Functions Of Marketing — Exchange And Physical Supply
Between a producer and a consumer lie a series of gaps. The two are different persons, so ownership must change hands. They stand in different places, so the goods must move. They act at different times, so the goods must be held. Each gap is closed by a specialised activity, and these activities are the marketing functions.
Marketing work as a whole falls into three broad movements.
- Concentration — procuring goods from different places and collecting them at a central point, because production is scattered while trade needs quantity in one place.
- Dispersion — distributing goods from that central point to consumers at scattered places, because consumption is scattered again.
- Equalisation — matching the supply of goods with the demand for them, so that what is produced in one season or one region is available where and when it is wanted.
The functions that carry out these movements are classified into three groups: functions of exchange, which effect the transfer of ownership; functions of physical supply, which move and hold the goods; and facilitating functions, which assist both. The classification is set out in FC 13.4. This section takes the first two groups; the facilitating functions follow in 13.8.
Flowchart
FC 13.4 — Classification Of Marketing Functions Marketing functions → Functions of exchange, Functions of physical supply, Facilitating functions; Functions of exchange → Buying and assembling, Selling and distribution; Functions of physical supply → Transportation, Storage and warehousing; Facilitating functions → Marketing research, Product planning and development, Standardisation and grading, Packing and packaging, Branding and labelling, Pricing, Advertising and salesmanship, Financing, Risk-taking
13.7.1 Buying And Assembling
Buying is the first step in the process of marketing. It means the procurement of raw materials, components and finished products. Efficient and economical buying is essential to success in marketing, and the trade has an old saying to that effect — goods well bought are half sold. Material bought at the wrong price or of the wrong quality burdens every later stage, and no amount of selling effort recovers the loss.
Buying involves several distinct activities: determining what is needed, selecting the source of supply, ascertaining the suitability of the goods, negotiating the terms of purchase and arranging for the transfer of ownership.
Modes Of Purchase
A buyer must satisfy himself about the goods before paying for them, but full examination is not always possible or worth its cost. Trade therefore uses four modes of purchase.
- Purchase through inspection — the whole lot is personally examined at the seller’s place. It gives the greatest certainty, but it is expensive and time-consuming, and is used where the goods are valuable or not uniform.
- Purchase by sample — the buyer examines a specimen and not the whole lot, on the assumption that the sample represents the characteristics of the entire lot. It is convenient and economical, and is possible only where the goods are reasonably uniform.
- Purchase by description — goods are bought after reading a catalogue or price list containing a description of them. It is the most convenient and economical method, is much used in buying from abroad where inspection is impracticable, and it makes mail order buying possible.
- Purchase by grade — goods are bought against an established grade. It is popular in standardised and graded products, where the grade itself is a sufficient statement of quality.
Assembling
Assembling is different from buying. It begins after the goods have been purchased and consists of collecting goods already bought from different sources at one common place. It is essential in the case of agricultural commodities, which are produced by large numbers of small farmers at scattered places and are of no use to a mill or an exporter until they are gathered into a workable quantity.
Assembling offers the following advantages.
- It reduces the cost of transport and handling, because goods can be moved in large quantities instead of many small ones.
- It permits large-scale selling, as orders can be executed in bulk.
- It reduces the cost of storage and warehousing by concentrating stock at one point.
- It facilitates financing on a large scale, since a bank lends more readily against a substantial assembled stock.
- It widens the market and enables producers to secure higher prices, because assembled goods can be offered to distant buyers.
- It facilitates standardisation and grading, which cannot be done economically on scattered small lots.
- It regularises supplies over a period, as traders can adjust releases according to changes in demand.
13.7.2 Selling And Distribution
Selling is the heart of marketing; nothing happens in a business until somebody sells something. The purpose of every other marketing activity is to make the sale possible. Selling is the process of finding customers, creating demand and transferring the goods for value or money.
To sell its products a firm must inform prospective buyers that the goods exist and persuade them to buy, for which it uses advertising, salesmanship and sales promotion. Selling also covers negotiating the terms of sale, forecasting sales and choosing the channel through which the goods will move.
Severe competition and mass production have made selling a difficult task. Effective selling requires careful planning and control of marketing activities, and a businessman must stay in continuous touch with customers and dealers and with what competitors are doing, so that the selling programme can be redesigned as conditions change.
13.7.3 Transportation
Transportation is the physical means of carrying goods from one place to another, and it exists in marketing because producer and consumer are rarely in the same place. It serves as the link between the two, and it assists both assembling and dispersion.
Transport creates place utility by carrying goods to where they are needed. In its absence a manufacturer would have to restrict production to what the local market could absorb, since anything more could not be disposed of. By removing the barrier of distance, transport widens the market, helps to stabilise prices by matching supply in one region with demand in another, increases the mobility of labour and capital, and permits regions to specialise in what they produce best. The consumer gains a wider choice, and the producer gains the scale on which mass distribution and large-scale production depend.
Choosing A Mode Of Transport
Road, rail, water and air are the modes available. No one of them is best for every consignment, so the choice is made by weighing cost, speed, safety, reliability, accessibility, availability and carrying capacity against the nature of the goods. A perishable consignment of limited value will not bear the cost of air transport, while a bulk consignment of ore is unsuited to road haulage over long distances.
13.7.4 Storage And Warehousing
Storage refers to the holding and preservation of goods from the time of production until the time of consumption. Some quantity of goods is in store at every stage of the marketing process, because production and consumption almost never take place at the same moment.
Storage creates time utility by bridging that gap. It also equalises supply and demand and thereby helps to stabilise prices, since goods held back in a period of glut can be released in a period of scarcity.
Two opposite situations make warehousing necessary. Commodities such as wheat, sugar and rice are produced in particular seasons but are demanded throughout the year. Products such as umbrellas and woollens are manufactured throughout the year but are demanded in particular seasons. In both cases, goods have to wait, and somebody has to hold them in a condition fit for sale.
Figure
Fig. 13.7-1 — Goods Held In A Warehouse Photograph of the interior of a warehouse with sacks and cartons stacked in numbered rows on pallets, and a forklift moving a load along an aisle.
13.8 Facilitating Functions Of Marketing
The exchange and physical supply functions move goods and ownership. By themselves they would still not complete a transaction, because a buyer at a distance has no way of judging quality, a trader has no way of knowing what to make, and no one can afford to hold stock indefinitely or bear the loss if it perishes. The facilitating functions supply what is missing: information, a product worth selling, a guarantee of quality, a container, an identity, a price, a message, money and protection against loss.
13.8.1 Marketing Research
Marketing research is the scientific and systematic investigation of all phases of marketing in order to find answers to marketing problems. It serves as the intelligence wing of a business: the quality of a marketing decision can be no better than the facts on which it rests.
Information is collected from trade journals, consumer associations and Government publications. Trained investigators may be appointed to interview consumers, wholesalers and retailers, and questionnaires may be sent by post to obtain the required information.
The function has grown in importance as competition has become sharper, markets wider and manufacture increasingly undertaken in anticipation of demand rather than against firm orders. What it yields is the following.
- The potential demand for a product or service can be estimated, and a firm can measure its share of the total market by identifying actual and potential buyers.
- The actual needs, tastes and preferences of consumers can be ascertained, and unsatisfied needs so discovered can be turned into new lines of production.
- New products can be tested before they are launched, which limits the loss if the market rejects them.
- New uses of existing products can be found and new markets developed for them.
- Customer attitudes can be judged, so that improvements can be made in product design, brand name, package and price.
- The effectiveness of distribution channels and advertising methods can be measured, instead of being assumed.
13.8.2 Product Planning And Development
Products are the foundation of marketing, because every other function revolves around them. The success of a marketing department depends on the degree to which the products it offers satisfy the needs of customers, since customers buy only those products that give them maximum satisfaction. Designing and developing the right type of product is therefore a marketing responsibility and not a purely technical one.
The function involves deciding what products to produce or purchase for sale, and settling their design, colour, size and quality in the light of what customers want. It covers three continuing tasks: introducing and developing new products, improving existing ones, and dropping unprofitable items from the product line.
13.8.3 Standardisation And Grading
Standardisation refers to setting up basic measures or standards to which products must conform, and taking steps to ensure that the goods actually produced adhere to them. Standards reflect the desirable features of a product in terms of its design, weight, colour and similar qualities, so that goods described by a standard are of a specified and uniform quality.
Manufactured products are largely standardised in the process of manufacture itself, since the same process repeats. Agricultural products are not, because nature does not produce uniform fruit. They must therefore be sorted after production, and this is grading — the process of sorting products into well-defined grades or lots on the basis of established standards. Apples, for example, may be sorted into best, medium and inferior grades according to size, colour and ripeness.
What Standardisation And Grading Achieve
- They make buying and selling by sample or description possible, so that a customer need not insist on detailed inspection.
- Standardised goods fetch a better price, because the buyer is assured of uniform quality and is willing to pay for that certainty.
- Goods of different qualities can be directed to the markets best suited to them, and middlemen can describe those qualities accurately to customers.
- Marketing costs fall, since transport, storage and advertising can be handled by grade or lot rather than consignment by consignment.
- Finance becomes easier to raise, as graded products enjoy a ready market and are accepted more readily as security for a loan.
- Foreign trade is facilitated, because an order can be placed from abroad on the description of a standard grade alone.
Figure
Fig. 13.8-1 — Graded Produce Ready For Despatch Photograph of fruit sorted into labelled crates by size and quality, with the grade marked on each crate, stacked at a packhouse.
13.8.4 Packing And Packaging
Packing refers to wrapping, crating, filling or compressing goods so as to protect them from spoilage, pilferage, breakage and leakage. Different goods call for different treatment: bulky materials such as cotton and jute are compressed into bales, liquids such as oil are put into bottles, barrels and cans, heavy goods are crated and fragile products are placed in boxes, tins or special containers.
Packaging is a wider activity. It involves designing and producing appropriate packages for products, which means deciding the convenient size of lot in which the product is to be put on the market and creating suitable packages for each lot size. A package is a case, container, wrapper or other receptacle used in packing products.
13.8.5 Branding And Labelling
Branding is the process of assigning a distinctive brand name or symbol to a product in order to differentiate it from competing products. It gives the product a separate identity, without which advertising has nothing to attach itself to and a buyer has no way of asking for the same article twice.
Labelling means putting labels or identification marks on the package. A label gives information about the product — its weight, size, price and dates of manufacture and expiry. It may be part of the package or attached as a tag, it indicates the brand, grade and quality of the product, and it may carry instructions on opening and handling.
13.8.6 Pricing
Pricing is the process of fixing the price, or money value, of a product or service. It is a critical function because price settles two things at once: the volume that will be sold, and the profit earned on each unit sold. A product is acceptable to customers only when it is reasonably priced, and a sound price policy has to satisfy customers and yield a profit at the same time.
The price a firm can fix is influenced by the cost of production, the degree of competition in the market, the nature of the product, and the pricing objectives and policies the firm has set for itself.
13.8.7 Advertising And Salesmanship
Informing and persuading prospective customers is essential to marketing in a competitive world, since goods that nobody knows about cannot be wanted. Two methods are used, one impersonal and one personal.
Advertising is the process of making a firm and its products known to people in such a manner that a desire to buy is created in them. It is carried on through newspapers, magazines, radio, television, cinema, posters and exhibitions. Because it reaches many people at once, it is particularly useful for introducing new products and new uses of existing products, and for holding the confidence of existing customers.
Salesmanship is the process of creating demand through personal contact between the buyer and the seller. It closes the gap between the product and the consumer, and it carries information in both directions: the salesman explains the product and also brings back what customers say about it.
13.8.8 Financing
Financing in marketing means the provision and management of the money and credit necessary to get goods from the producer to the consumer or industrial user. Goods have to be bought, moved, stored and displayed long before they are paid for by the final buyer, and somebody must fund them in the meantime.
A large amount of capital is required for holding stock and carrying on the other marketing functions. Long-term and medium-term finance is obtained from shares, debentures and specialised financial institutions, while short-term finance comes chiefly from commercial banks and from trade credit allowed by suppliers.
13.8.9 Risk-Taking
Risk means the uncertainty of profit or the danger of loss arising from unknown and unavoidable future events. Risk-bearing in marketing refers to the financial risk inherent in the ownership of goods held for sale in anticipation of demand — goods bought and stored on the expectation that buyers will come forward.
Such risk arises from changes in demand, a fall in prices, spoilage in storage or transport, theft, fire, flood, earthquake and bad debts. It is a part and parcel of business and cannot be eliminated entirely. Some of it is assumed by the trader himself; the rest is transferred to specialised agencies. Insurance protects businessmen against many of these risks, including loss of goods in transit, and fire and marine insurance are the forms most used in trade.
13.9 Summary
- A market is not necessarily a place. It is the whole body of actual and potential buyers and sellers of a product together with the forces acting on them, and it exists wherever they are in free contact by any means of communication.
- The definitions in use bring out five aspects of a market — the place concept, the area concept, the demand concept, the exchange concept and the people concept.
- Markets are classified on six bases:
- Geographical area — local, regional, national and international.
- Volume of business — wholesale and retail.
- Subject of exchange — commodity, capital and money.
- Position of buyers and sellers — primary, secondary and terminal.
- Nature of transactions — spot and future.
- Nature of goods — consumers’ and producers’.
- Marketing is the process of selecting target markets and satisfying their needs by creating, delivering and communicating products and services of superior value. It is the wider of the two terms: a market is an interaction, while marketing is a process of several interrelated activities.
- Marketing is customer-focused, an integrated process, creative in that it creates time, place and possession utility, part of a changing environment and therefore dynamic, multidisciplinary, and pervasive enough to be used by non-business organisations.
- Under the traditional or production-oriented concept, marketing begins after the goods are produced and ends with their sale. It is one-way traffic and its focus is the product rather than the customer.
- Under the modern or consumer-oriented concept, marketing begins before production and continues after sale, and is two-way traffic. The marketing concept rests on customer orientation, an integrated approach, marketing research, and marketing planning and control.
- Selling is one function performed within marketing, not a synonym for it. The two differ in scope, nature, focus, orientation, beginning, end, object, perspective and approach; marketing seeks profit through customer satisfaction, selling through volume of sales.
- The objectives of marketing are:
- Customer satisfaction, which is the primary objective and requires a carefully defined target market.
- Profitability, earned as a by-product of satisfying customers rather than aimed at directly.
- Coordination and integration, both among the elements of marketing and between marketing and the other departments.
- Service to society, through a higher standard of living, conservation of resources and generation of employment.
- Marketing matters to a business as the foundation of all its activities, its only source of revenue and the basis of its production decisions; and to society through satisfaction of consumer needs, a higher standard of living, gainful employment and development of the nation.
- Marketing work falls into three movements — concentration, dispersion and equalisation — and marketing functions are classified into functions of exchange, functions of physical supply and facilitating functions.
- The functions of exchange are buying and assembling, and selling and distribution. Goods may be purchased through inspection, by sample, by description or by grade. Assembling collects goods already bought at one common place and is essential for agricultural produce grown by scattered small farmers.
- The functions of physical supply are transportation, which creates place utility and widens the market, and storage and warehousing, which creates time utility and steadies prices by bridging the gap between production and consumption.
- The facilitating functions are marketing research, product planning and development, standardisation and grading, packing and packaging, branding and labelling, pricing, advertising and salesmanship, financing, and risk-taking.
Flowchart
FC 13.5 — Which Gap Each Group Of Functions Closes Goods with the producer → gap of ownership, closed by the functions of exchange: buying and assembling, selling and distribution → gap of place and time, closed by the functions of physical supply: transportation, storage and warehousing → gaps of information, quality, identity, price, finance and risk, closed by the facilitating functions: marketing research, product planning and development, standardisation and grading, packing and packaging, branding and labelling, pricing, advertising and salesmanship, financing, risk-taking → goods with the consumer
13.10 Points To Ponder
- The modern concept holds that profit should follow from customer satisfaction rather than be aimed at directly. When a firm’s costs rise and its buyers will not pay more, one of the two has to give way. Which should, and what does the answer show about how far the marketing concept can be carried in practice?
- Marketing is credited with raising the standard of living by making new goods known and available. It is also charged with creating wants that people did not previously have. Can the same activity be doing both at once, and how might a firm judge which of the two it is doing in its own case?
- Standardisation and grading allow goods to be bought on description, without inspection, and this lowers the cost of trade for everyone. What does a buyer give up in accepting a grade in place of an examination, and in which trades would that be an unwise exchange?
- Assembling, transport and warehousing add cost at every stage without altering the goods themselves. On what ground can a trader justify that cost to a farmer who receives far less than the final price, and to a consumer who pays far more than the farmer received?
- Marketing research records what buyers say they want, and buyers can only describe things they already know. How far can a firm rely on research when deciding whether to introduce something genuinely new, and what should it rely on instead?
- Advertising reaches many buyers at a low cost per head but carries information only outward. Salesmanship reaches few buyers at a high cost per head but brings information back. For a firm with a limited budget introducing an unfamiliar product, which has the stronger claim on that budget, and what does the answer depend on?
13.11 Objective Questions
- A trader collects wheat bought from a large number of small farmers of a district at one central godown before offering it to a flour mill. Identify the marketing function being performed. [1]
- Buying
- Assembling
- Grading
- Warehousing
- A market in which retailers sell goods to the ultimate consumers is classified as a: [1]
- Primary market
- Secondary market
- Terminal market
- Producers’ market
- Read the assertion and the reason given below and choose the correct option: [1] Assertion (A): Under the modern concept, marketing does not come to an end with the sale of the goods. Reason (R): The buyer’s response after the purchase is used by the firm to shape its later decisions.
- Both (A) and (R) are true, and (R) is the correct explanation of (A).
- Both (A) and (R) are true, but (R) is not the correct explanation of (A).
- is true, but (R) is false.
- is false, but (R) is true.
- Fill in the blank: The marketing function that creates time utility by holding goods from the time of production until the time of consumption is ____________. [1]
- State whether the following statement is true or false: Under the modern concept of marketing, profit is to be achieved as a by-product of customer satisfaction rather than aimed at directly. [1]
13.12 Check Your Concepts
- Define a market as the term is used in commerce, and state one reason why a market need not be a place. [2]
- State any three points of difference between marketing and selling. [3]
- Distinguish between standardisation and grading, and explain why agricultural produce has to be graded while manufactured goods generally do not. [3]
- ‘Marketing begins before production and continues after the sale.’ Explain this statement with reference to the modern concept of marketing. [4]
- Explain any six facilitating functions of marketing, stating in each case the difficulty in the marketing process that the function removes. [6]
13.13 Case-Based Questions
- Vaidya Foods packs pickles and spices at a small unit in Nashik. For its first three years the firm made whatever its machinery could conveniently handle, and appointed extra salesmen on higher commission whenever stock built up in the store. Last year it surveyed households in four cities, found a demand for smaller jars suited to single-person households, introduced them, printed the dates of manufacture and expiry on every jar, and now telephones a sample of buyers each month to ask what they think of the product.
- Name the concept of marketing the firm followed earlier and the one it follows now, and state one point of difference between the two. [2]
- Name the marketing function the firm performs when it prints the dates on the jar, and the one it performs when it telephones buyers each month. [2]