Fundamentals of Marketing

Four core concepts of marketing:

1. Needs, wants and demands: basic human requirements, their specific form, and wants backed by buying power.
2. Products and offerings: goods, services and ideas offered to satisfy needs.
3. Value, satisfaction and quality: customers choose offers giving the most perceived value.
4. Exchange, transactions and relationships: obtaining something by offering something in return, and building long-term relationships.

Markets are another core concept.

The new (modern) marketing concept rests on these principles:

• Customer orientation: begin with the needs and wants of the target customers.
• Integrated marketing: all departments work together to serve the customer.
• Customer satisfaction and value: the aim is long-term satisfaction and relationships.
• Profitability: profit is earned through satisfied customers rather than through sales volume alone.
• Social responsibility: consider the well-being of society as well.

Steps of the organizational buying process:

1. Problem (need) recognition
2. General need description
3. Product specification
4. Supplier search
5. Proposal solicitation
6. Supplier selection
7. Order-routine specification
8. Performance review

Internal marketing means marketing the company and its goals to its own employees. The organization recruits, trains and motivates employees so that they serve customers well and understand the firm's mission and products. It treats employees as internal customers, because satisfied and well-trained staff deliver better service, which is especially important for service firms such as banks and hotels.

Steps of the marketing research process:

1. Define the problem and research objectives
2. Develop the research plan (sources, approaches, instruments, sampling)
3. Collect the data (primary or secondary)
4. Analyse the data
5. Present the findings
6. Make the decision and follow up

Proactive marketing is a forward-looking approach in which a firm anticipates future customer needs, market changes and competitor moves, and acts before they occur, rather than reacting after the change. It involves researching trends, innovating, creating new demand and shaping the market, which gives the firm a competitive advantage. For example, a company launches a product before customers explicitly ask for it.

The marketing environment is the set of all internal and external actors and forces that surround a firm and affect its ability to build and maintain successful relationships with target customers. It has the microenvironment (the company, suppliers, intermediaries, customers, competitors, publics) and the macroenvironment (demographic, economic, natural, technological, political-legal and socio-cultural forces).

The marketing mix for services has seven Ps:

1. Product
2. Price
3. Place
4. Promotion
5. People
6. Physical evidence
7. Process

Reasons to use a mixed (multiple) channel:

• To reach different customer segments that prefer different channels.
• To increase market coverage and sales volume.
• To lower the cost of serving some customers, for example through the internet or telesales.
• To customize the selling approach for different customers and products.
• To reduce dependence on a single intermediary and the risk that goes with it.

Four sales promotion tools used in Nepal:

1. Discounts and price-offs, such as festival sales in Dashain and Tihar.
2. Coupons and vouchers, for example mobile top-up or shopping vouchers.
3. Free samples and gifts, such as free sachets or gifts with a purchase.
4. Contests, lucky draws and scratch cards, for example the lucky coupons run by noodle and beverage firms, or a buy-one-get-one-free offer.

The marketing mix is the set of controllable tactical marketing tools that a firm blends to produce the response it wants in the target market. It is commonly classified as the 4 Ps.

1. Product: the goods or services offered, including quality, design, features, brand, packaging and warranty. Example: Wai Wai noodles in several flavours and pack sizes.
2. Price: the amount customers pay, including list price, discounts, credit terms and payment period. Example: a low unit price of Rs 20 for a small noodle pack, or discounts during Dashain.
3. Place (distribution): the activities that make the product available to the target customers, such as channels, locations, coverage, inventory and transport. Example: distributors, wholesalers and retail shops across Nepal.
4. Promotion: communication that informs and persuades customers through advertising, personal selling, sales promotion, public relations and direct marketing. Example: TV and FM radio ads and lucky-draw schemes.

For services, three more Ps are added: people, physical evidence and process.

Market segmentation is the process of dividing a heterogeneous market into smaller groups of consumers who have similar needs, characteristics or behaviour, so that each group can be reached with a suitable marketing mix.

Bases for segmenting consumer markets:

• Geographic: region, country, province, city size, urban or rural, climate. Example: woollen clothes for hilly regions.
• Demographic: age, gender, family size, income, occupation, education, religion, nationality.
• Psychographic: lifestyle, personality, social class and values.
• Behavioural: occasion, benefits sought, user status, usage rate, loyalty status and attitude towards the product.

A marketing information system (MIS) consists of people, equipment and procedures to gather, sort, analyse, evaluate and distribute timely and accurate information to marketing decision makers.

Internal record system vs marketing intelligence

Shopping products are consumer goods that the customer compares carefully on suitability, quality, price and style before buying. They are bought less frequently than convenience goods and need more effort in the purchase decision. Examples: mobile phones, furniture, clothing, laptops and home appliances.

Marketing considerations in Nepal:

• Sell through selective distribution in market areas where customers can compare many brands, such as New Road, Kathmandu.
• Differentiate with quality, features, design and brand, because customers compare.
• Set competitive prices and use festival discounts, easy instalment and exchange schemes.
• Provide strong after-sales service, warranty and trained sales staff to give advice.
• Use advertising and personal selling to explain features, and use social media and word of mouth.
• Consider the price sensitivity and the preferences of Nepali customers, including reliable supply and local-language communication.

Channel structure for consumer goods

• Level 0 (direct): Manufacturer -> Consumer
• Level 1: Manufacturer -> Retailer -> Consumer
• Level 2: Manufacturer -> Wholesaler -> Retailer -> Consumer
• Level 3: Manufacturer -> Agent -> Wholesaler -> Retailer -> Consumer

Manufacturer ------------------------------------> Consumer
Manufacturer --------------------> Retailer -----> Consumer
Manufacturer ------> Wholesaler -> Retailer -----> Consumer
Manufacturer -> Agent -> Wholesaler -> Retailer -> Consumer

Consumer goods marketed through direct channels:

• Perishable goods such as fresh vegetables and milk sold directly by farmers.
• Goods needing demonstration or customization, such as insurance, cosmetics (direct selling), encyclopedias and made-to-order furniture.
• Products sold through the manufacturer's own outlets, online stores, door-to-door and mail order.

Pricing is the process of determining the amount of money (or other value) a customer must pay to obtain a product or service. Price is the only element of the marketing mix that produces revenue, and it signals quality and value.

Factors affecting pricing

Internal factors

• Marketing objectives: survival, profit maximization or market leadership. Example: a new noodle brand sets a low price to gain market share.
• Costs: price must cover fixed and variable costs. Example: rising fuel and import costs raise the price of goods.
• Marketing mix strategy: a premium-quality product needs a premium price.
• Organization: who sets prices, such as top management or product managers.

External factors

• Nature of the market and demand: price elasticity. Example: salt has inelastic demand, luxury goods elastic.
• Competitors' prices and offers: firms compare their price with that of rival brands.
• Other environmental factors: economic conditions such as inflation, government regulation such as price controls or tax and customs duties, and customs and culture in Nepal.

Advertising is any paid, non-personal presentation and promotion of ideas, goods or services by an identified sponsor through mass media such as television, radio, newspapers, hoardings and the internet.

Features:

• Paid form: the sponsor pays for the space or time.
• Non-personal: there is no direct face-to-face contact with the audience.
• Identified sponsor: the advertiser's name is disclosed.
• Mass communication: reaches a large audience at low cost per person.
• Persuasive: aims to inform, persuade and remind, and influence buying behaviour.
• Public and pervasive: the same message is received by many, which builds the image of the product.
• Expressiveness: use of colour, sound and print to dramatize the product.
• One-way communication: the audience cannot reply immediately.

Yes, I agree. This is consistent with the definition of marketing given by the American Marketing Association, that marketing is the activity and set of processes for creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society.

Arguments:

• Creating value: firms develop products and services that solve customer needs, for example a mobile wallet that makes payment easy.
• Communicating value: advertising, promotion and personal selling make customers aware of the benefits and persuade them.
• Delivering value: distribution, pricing and service put the offer in the customer's hands when and where needed.
• Satisfaction: if the value received equals or exceeds expectations, the customer is satisfied, repeats purchases and recommends the brand, so the firm earns profit and loyalty.

Marketing therefore goes beyond selling and aims at customer satisfaction and long-term relationships.

Marketing strategies by product life cycle (PLC) stage

1. Introduction: sales are low and profit is negative or small. Product: basic version. Price: skimming or penetration. Promotion: heavy promotion to build awareness and trials. Distribution: selective and building. Aim: create product awareness and trial.
2. Growth: sales and profits rise fast and competitors enter. Improve quality and add features, models and services; reduce price to attract more buyers; enter new segments and channels; shift advertising from awareness to preference. Aim: maximize market share.
3. Maturity: growth slows and competition is intense. Modify the market, product and marketing mix: find new users, improve the product, offer discounts, sales promotion and brand differentiation, and cut costs. Aim: defend share and maximize profit.
4. Decline: sales and profit fall. Options: harvest by cutting costs and promotion, drop weak items, or sell the brand; maintain it only if useful to the product line. Aim: reduce spending and phase out the product.

A marketing channel is the set of interdependent organizations that make a product available for use or consumption. Channel decisions are critical because they are long term, involve commitments to other firms, and are difficult to change.

Influence on other marketing mix decisions:

• Product: channels determine product features, packaging, branding and service. Perishable goods need short channels; complex goods need dealers with technical skills.
• Price: margins of wholesalers and retailers form part of the final price, and the channel's strength determines how much discount or premium can be sustained.
• Promotion: the type of channel affects the promotion mix: push strategy for dealer support, pull strategy to create consumer demand. Retailers carry out displays and local promotion.
• Place and service: the channel determines availability, coverage and after-sales service.

Hence the channel decision interacts with the product, price and promotion decisions and must be integrated with them.

As marketing manager of a biscuit company, the factors that affect the promotion mix are:

1. Nature of the product and market: biscuits are low-priced, fast-moving consumer goods bought by a large mass market, so advertising and sales promotion are more important than personal selling.
2. Push or pull strategy: a pull strategy (TV, radio, social media advertising) creates consumer demand, while a push strategy (trade discounts and dealer incentives) gets retailers to stock the product.
3. Buyer readiness stage: advertising builds awareness; sales promotion such as free samples and offers triggers trial and purchase.
4. Product life cycle stage: introduction needs heavy advertising and sampling, while maturity needs reminders and promotions to hold share.
5. Budget available: small firms may rely on sales promotion and local media; large firms can use national TV.
6. Competitors' promotion: the activities of rival brands and the intensity of competition.
7. Market size and geographic spread: mass coverage across Nepal favours mass media.
8. Legal, cultural and media availability: regulations, festival seasons such as Dashain and Tihar, and the reach of local media.

(i) Main issues of the case

• Caterpillar's success depends on its marketing channel of only 186 independent dealers.
• The product is expensive, complex, low volume and has few points of sale, so service is the main basis of differentiation.
• Caterpillar charges a premium price justified by after-sales service delivered through dealers.
• The relationship between the manufacturer and dealers is a close alliance with large mutual investments and a refusal of direct selling.
• There is nevertheless conflict over territories, product and pricing policies, and dealers' wish to diversify.

(ii) Critical evaluation of the distribution strategy

Strengths

• Local dealers know the customers, offer advice, financing, insurance, training, maintenance and repair, and so build trust.
• Selective, exclusive distribution suits the low-volume, high-value product.
• Mutual investment and exclusivity (territory exclusivity from Caterpillar; exclusive dealing and heavy inventory from dealers) bind both sides in a lasting partnership.
• A 48-hour guaranteed parts delivery supports the service promise.
• Not selling directly even when customers ask protects dealer loyalty and avoids channel conflict.
• It lets the company cover global markets with limited capital.

Weaknesses

• Heavy dependence on dealers: Caterpillar has less control over customer relationships and service quality.
• Dealers' heavy specific investments make them vulnerable, and they may resist change.
• Refusing direct sales may lose some customers.
• Conflicts over territory, pricing and diversification may reduce cooperation.
• Dealers might switch to competitors if they are not treated well.

Overall, the strategy is appropriate and effective for this product, and its success shows that a trust-based partnership is a competitive advantage, but it needs continuous conflict management.

(iii) Channel conflicts in the case

• Territory conflict: disagreement about the limits of service territories (a horizontal conflict among dealers and a vertical one between company and dealers).
• Product and pricing policy conflict: vertical conflict over the products dealers must stock and the prices or margins set by the company.
• Diversification conflict: dealers want to add other product categories that Caterpillar does not serve, while Caterpillar wants exclusive dealing.
• Direct-selling conflict (potential): customers who want to buy directly from the company, which the company refuses.

Such conflicts can be reduced through communication, dealer councils, clear contracts and joint decisions.

(iv) Distribution strategy for Nepal

• Use selective, exclusive distribution through a few strong, independent dealers or authorized distributors, for example in Kathmandu, Pokhara, Biratnagar and Butwal, to cover construction, hydropower, road, mining and agriculture projects.
• Choose dealers with financial strength, technical capability and local reputation; grant territory exclusivity.
• Provide training, spare parts depots with quick delivery, and a service workshop network, and offer financing or leasing with local banks, as buyers need credit.
• Share the risk with joint marketing, such as demonstrations at trade fairs, direct contact with government agencies and contractors, and rental options.
• Start with a single national distributor and expand to regional dealers as the market grows.
• Handle large government or project tenders through direct involvement of the company, with dealers supporting after-sales.