Question 1
Neil Borden (1965) is believed to be the first to have used the term ‘marketing mix’ suggested to him by James Cullington’s (1948) description of a business executive as ‘a mixer of ingredient’ (Van Waterschoot & Van den Bulte, 1992). The term, therefore, referred to the selection and mixture of various elements perceived to be useful in the pursuant of particular market responses. To facilitate the practical application of the concept to concrete business operation problems, early researchers working on the model sought to itemize the various influences on a market response that business executives at the time needed to take into account.
Frey (1956) and Borden (1964) for example, proposed and adopted a checklist approach towards the understanding of the complex yet interrelated nature of the various marketing activities (Eavani & Nazar, 2012). Rasmussen (1955) then developed the ‘Parameter theory’ based on the notion that the determinants of competition and sales are advertising, service, price, and quality (Dominici, 2009). Nevertheless, of the various authors who developed classifications models of marketing activities at the time – Howard (1957); Frey (1961); and Lazer and Kelly (1962) – only the McCarthy’s (1960) 4Ps schemata survived to become one of the dominant designs (Van Waterschoot & Van den Bulte, 1992). According to him, the marketing mix of a product or an enterprise consists of four components. These are Product (with its features such as quality, design, reliability, and brand, etc. from a customer’s perspective), Place (way of product distribution from producers to final consumer), Promotion, and Price (and total pricing policy) (Dominici, 2009).
Question 2
Also known as marketing performance metrics, key performance indicators (KPIs) are one of the most useful tools for both the marketing professionals as well as non-marketing executives of a firm in the today’s highly competitive business environment (Šalkovska & Ogsta, 2014). From the CEO to the sales managers, studies show that the management team of a firm needs marketing KPIs to gauge and understand how various marketing activities and spending attributed to such activities impact the company’s bottom line. The assessment of such activities is of particular importance given that corporations tend to reduce marketing budgetary allocation at times of mergers, downsizing, or during economic downturns. Moreover, as marketers continue to face mounting pressure to demonstrate and substantiate a return on investment (ROI) on their activities, KPIs continue to be identified as the factors essential in helping firms measure the degree to which marketing expenditure contributes to the profits (Cokins, 2005). Marketing metrics are also integral in highlighting how marketing contributes to and complements, business initiatives in other segments of the enterprise such as customer service and sales.
Organizations use various methods to measure, evaluate, and improve their marketing activities and performance. Some of the methods firms use to connect marketing performance to the financial aspect of the organization include Return on Marketing Investment (ROMI), Marketing Performance Management, Marketing Performance Measurement, and Accountable Marketing metrics (Cokins, 2005). Another method of measuring and monitoring marketing activities and performance is the Lifetime Value of a Customer (LTV). Others are the Cost of Customer Acquisition (COCA), Sales Team Response Time, and Lead (Marketing Qualified Leads [MQLs], and Sales Qualified Leads [SQLs]) (Cokins, 2005). According to Šalkovska and Ogsta (2014), the significance of evaluating such marketing metrics arises from the expectation that a firm will prosper if it develops and deploys well and clearly defined strategies and business models. As such, marketing metrics are widely held as strategically important for business progress assessment. They serve as determinants on what areas of the marketing mix – product, place, price, and promotion – need improvement or modification to bolster some aspect of business performance. Monitoring marketing activities and performance are also integral in assessing whether company products (goods or services) meet both the customer and stakeholder needs (Thibodeaux, 2017).
Because KPIs are measurements that show how a company is performing, they are usually tied to organizational goals and therefore reflect what the business wants to achieve as well as its fundamental guiding philosophy. Low-performance indicators thus indicate that the company is performing poorly and that for whatever reasons, employees are not performing as expected and thus are not meeting business objectives. Improving KPIs, therefore, means evaluating the business as well as individual employees, eliminating inefficiency, and addressing discipline and rewards. Some of the ways a company can use to improve marketing performance include utilizing motivational techniques to encourage good-natured competitions, being proactive in the market, conducting regular performance evaluations for each employee, and fully incorporating marketing into the overall business strategy (Thibodeaux, 2017).
Question 3
One of the critical parts of the marketing process is the setting of goals that are not only realistic but also achievable, given the variables of a particular marketing environment and the level of organizational marketing commitment (Baran, Galka, & Strunk, 2008). In marketing, such goals are usually determined and based on the firm’s market share objectives and sales target. Both of these factors have been determined to require accurate forecasts of the total market size, the market size of the target segment, and the likely target share within the targeted segment. Accurate forecasting requires a thorough understanding and precise definition of the market in question. According to Thompson (n.d.), markets can be differentiated by several variables, of which the most important are geography, time, product level, and availability and potential.
Geographically, a market may be defined at the global, regional, national, local, sales territory, store, or even customer levels. Thus, when formulating a forecast, the geographical dimension needs to be clearly indicated. A projection also needs to be defined for a particular period with several levels of the prediction being set at differing levels of specificity for the Short-, medium-, and long-term. Companies tend to set specific forecasts on a monthly, quarterly, or annual basis. Concerning product level, a forecast market demand can be established with the industry, company, and the product as well as for product assortment, line, or item (Thompson, n.d.). On the availability and potential, a marketer needs to estimate the proportion of the population that wants to buy the product, can pay for the product, and is interested in buying the assortment, line, and brand of the product (Thompson, n.d.).
Some of the techniques a marketer can use to accurately measure as well as forecast market demand include estimation of the sales potential using either the breakdown or build-up approach, time-series analysis, and relationship methods (such as Leading Indicators [e.g. Consumer Price Index (CPI)] and regression analysis). Other methods include the independent expert opinion (such as jury of expert advice and the Delphi technique), as well as sales force opinions and customer opinions. Time-series analysis involves the using and defining of data series components of trend, season, cycle, as well as an irregularity and combining them to generate a sales forecast. According to Thompson (n.d.), this technique is useful in predicting the sales of products with stable demand. Sometimes, forecasts can also be made with little statistical analysis relying mostly on the use of experienced judgment by academics, marketing consultants, executives, buyers/sellers, or trade associations.
Question 4
The 80/20 is the rule that states that 80% of outcomes is as a result of 20% of all the various cause of a given event (The Chartered Institute of Marketing, 2009). In business, this rule is often applied in pointing out that 80% of a company’s income is realized from 20% of its total customers. Within this perspective, therefore, the 80/20 rule is used to help business managers identify as well as determine those operating factors that are most important to the firm and should as a consequence receive the most attention, based on the efficient and operational use of resources. Also known as the Pareto Principle, the Law of the Vital Few, or the Principle of Factor Sparsity, at the core of the 80/20 rule is a fundamental statistical distribution of data that asserts that 80% of a particular occurrence can be explained by 20% of the aggregate observations (The Chartered Institute of Marketing, 2009).
One practical application of 80/20 rule is in the analysis of business sales and marketing. It helps marketing managers realize that the majority of sales revenue from a minority of sales inputs. Knowing this, therefore, if 20% of marketers or efforts contribute 80% of the sales results; the manager needs to focus on supporting and rewarding this facets. The point of this principle is hence to help managers recognize that most things are not distributed evenly. He/she should, therefore, make decisions on allocating effort, resources, and time-based on this: management can accomplish as much with a single advertising billboard on a major superhighway as tens of thousands of such billboards on residential alleys. This approach then serves to allow firms launch targeted marketing campaigns designed and aimed at resonating with the most impactful customers.
While the 80/20 rule and other marketing strategies are designed to maximize sales output, it should be noted that the goal of marketing is to not only identify prospective new customers but rather to reach out to existing base of clients through cross-selling. Some of the metrics to evaluate customers include attrition rates, retention (royalty) rates, the customer purchase history – recency, frequency, monetary spend (RFM) triad – and churn prosperity (Baran, Galka, & Strunk, 2008). In, however, the future profitability of a customer is also of vital importance. This element is measured using the Customer Lifetime Value (CLV) metrics, which refers to the prediction of the total net profit a firm attributes to its entire potential future relationship with a customer (The Chartered Institute of Marketing, 2009). CLV also refers to the monetary value of a consumer relationship, based on the current value of the projected future revenue flows from the customer relationship. It can be equated using the formula: CLV=Margin*{Rate of retention (%) ÷ ([1+Discount rate (%)]-Retention Rate (%)}. For example 200USD Avg monthly spend*25% margin÷ 5% monthly churn = $1000 CLV.
Question 5
At its most basic level, the concept of consumption – the process through which customers acquire, use, and dispose of products – is mandated by the phenomenon of needs and wants (Mott, n.d.). However, the mechanism by which they decide which product they select is highly complex and variable. While factors like desire and necessity remain driving forces, psychological tenets have been shown to explain and predict as well as motivate what consumers buy (Oliver, 2010). Four of the underlying psychological factors that underlie the decisions consumers make when they decide to spend on a product include beliefs and attitudes; perception, attention, distortion and retention; motivation and need; and learning and conditioning (Mott, n.d.; Oliver, 2010). Needs motivate buying behavior as in when one buys food when hungry, protective gear to feel safe, and acquire education to facilitate self-accomplishment and self-improvement to reach actualization – the peak of Maslow’s hierarchical pyramid of needs. Thus the more basic the need, the greater the priority it assumes in the consumer’s psychological drive to fulfill it and not others (Gardner, 1985).
Perception, on the other hand, is the basis of the selective way in which the human mind views and process the world around. Learning and conditioning also distort consumer outlooks and mindsets. For instance, if a commercial convinces a consumer to try a product, but the post-purchase experience turns out dissatisfying, he/she in future response learn to avoid the product (Gardner, 1985). Consumer beliefs and attitudes also affect their response towards products. Psychologically, these attitudes can persist even for certain products even though the situation that produces them changes. For instance, if a consumer psychologically perceives a product as beneficial and its competition as harmful, he or she tends to move toward one and shuns the other.
References
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The Chartered Institute of Marketing. (2009). How to Analyze your Business Sales: The 80/20 Rule (CIM 14280). Retrieved from http://www.cim.co.uk/files/8020rule.pdf
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Thibodeaux, W. (2017). How to Improve the Key Performance Indicators. Retrieved January 21, 2017, from thefinancebase.com/improve-key-performance-indicators-1628.html
Thompson, B. (n.d.). Demand Forecasting in Marketing. Retrieved from The University of Western Sydney website: http://highered.mheducation.com/sites/dl/free/0074712292/98071/appendix_c_demand_forecasting_in_marketing.pdf
Van Waterschoot, W., & Van den Bulte, C. (1992). The 4P Classification of the Marketing Mix Revisited. Journal of Marketing, 56(4), 83.
Šalkovska, J., & Ogsta, E. (2014). Quantitative and qualitative measurement methods of companies’ marketing efficiency. Management of Organizations: Systematic Research, 70(70), 91-105.
