Management Studies: October 2013

Meaning and Features of Marketing, Core Concepts of Marketing

What is marketing? Producers say the activity of production of goods or services is marketing. Sellers say the activity of selling of goods or services is marketing. Similarly, buyers say the activity of purchasing goods or services is marketing. Advertisers say the activity of promoting sale of goods or services by making effective advertisement is marketing.

Most of the general public says the promoting sale and advertisement is marketing. According to them, promoting sale of goods or services through effective advertisement is called marketing. But any one of these definitions cannot give satisfactory meaning of marketing.

Sale and advertisement are the two activities among many activities of marketing. Nowadays, marketing is understood not from the old concept ‘Telling and selling’ but it is understood from the concept of ‘Satisfying customers’ needs’. This means the modern concept does not accept the marketing is to collect as much profit as can be by selling goods or services through effective advertisement and influencing customers. The modern concept of marketing gives first priority to customers’ satisfaction. It accepts profit as the gift of customers’ satisfaction.

The age of today is the age of marketing. All types of organizations need marketing to exist and develop. It helps to produce goods or services by identifying wants and needs of customers. So, marketers should at first identify wants of customers and produce goods or services accordingly. Many writers and experts have defined marketing, but some of the important ones are given as follows:

According to William J. Stanton, Michael J. Etzel and Bruce J. Walker, “ Marketing is total system of business activities designed to plan price, promote and distribute want-satisfying products to target market to achieve organizational objectives.”

According to Prof. Philip Kotler and Gray Armstrong, “Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.”

According to American Marketing Association, “Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfies individuals and organizational objectives.”

According to Prof. Pyle, “Marketing comprises both buying and selling.”

In conclusion, the whole activity of providing goods or services to satisfy targeted market in order to achieve organizational goal is called marketing. This includes planning, pricing, promoting, selling and distributing. Various activities are included in marketing. All these activities are related to product, price, place and promotion. The activities of marketing satisfy the wants of customers. Besides, the activities help to achieve organizational goal. The above mentioned definitions of marketing have given emphasis to market research and customers’ satisfaction. Marketing conducts its activities by focusing on customers. Different activities such as selection of goods or services, planning, production, development of goods, packaging, labeling, advertisement etc. are performed to satisfy the customers.

Features of Marketing

According to the above mentioned definitions, the features of marketing are as follows:

Satisfying customers’ needs: Marketing begins from human wants, needs and demands. Marketing satisfies customers’ wants, needs etc. by producing goods and supplying them to the customers’ according to their needs, wants and demands.
Helps to achieve organizational goal: Organizations are established and conducted with certain objectives. Marketing helps to achieve such objectives.
Marketing consists of various activities: Marketing consists of various activities. They are related to product, place, price and promotion.
Facilitates exchanges: Giving and taking between buyer and seller is called exchange. Marketing facilitates such exchange. As a result, exchange becomes effective.

Core Concepts of Marketing

The following figure makes the core concept of marketing clear:

Core Marketing Concept

1. Needs, Wants and Demands

Needs

The necessity of something is need. Food is needed when one is hungry; water is needed when one is thirsty. Human needs are of complex nature. When one want is fulfilled, another want is felt. There are different types of human wants, which the human tries to fulfill one after another. They are physical needs (food, shelter, and clothes), security needs (free from fear, security of job etc.), social needs (giving importance by society, involvement in social activities etc.), need ego (respected post, honor, praise etc.) and self actualization needs (creativeness, expectation of challenging task, expectation to take part in decision making etc.) Such needs were not found out by marketers. They are basic aspects of human life.

Wants

Expectation of the things for meeting the need is called want. There are various types of wants of human being. Such wants are directly influenced by level of income, family, education, friends, school, personality, life style etc. Wants are also affected by religious, cultural and social elements. For example, a hungry Nepalese wants to eat bitten rice, curry, momo, water etc., but a hungry American wants Hamburger, Coke, and French fries etc. Here needs are same but wants are different.

Demands

The want with willingness and ability to pay price of things is called demand. If a poor man wants to buy a car, it is not a demand, because he cannot have ability to pay the price of car even if he was willingness. Similarly, if a rich but miser man wants to buy a car, he does not become ready to pay the bill of the car. So, it is compulsory to the both willingness and ability to pay the price to be a demand.

2. Product

The thing which satisfies human wants and needs is called products. Product may or may not have physical existence. Machines, tools, foods, clothes, etc. have physical existence but service, experience, ideas, personality, etc. have no physical existence. The broad meaning of product includes characters, form, quality, diversity, branding, packaging, color, price, dignity of seller, etc.

3. Value, Satisfaction and Quality

Value

The capacity of the goods to satisfy the want of customers’ as expected is called value. Cost of the goods is taken as the basis to estimate its value. Although wise customers can measure the value and cost of the goods but cannot measure it with accuracy. They select goods on the basis of their perceived value. Value may be in the form of status, image, benefit, beauty, attractiveness, confidence etc.

Satisfaction

The customer feels satisfied from the value of the goods what he/she expects to get from. Satisfied customer becomes brand loyal. He or she tells his friends and neighbors about the value of the goods that full satisfaction can be got from the goods. As a result, advertisement of the goods is done automatically. So, the goods should be produced according to the expectation of the customers to satisfy their wants.

Quality

Customers’ satisfaction depends on the quality of the goods. In the recent years, most of the companies are found to have followed the total quality management – TQM. They are trying to improve the quality of goods, services and the process of marketing. Quality should be looked through customers’ satisfaction not through absence of defects. The quality of goods or services starts from wants of customers and ends in their satisfaction.

4. Exchange, Transaction and Relationship

Exchange

Giving something and taking any other needed thing from others is called exchange. In simple words, the task of giving and taking things to fulfill mutual interest is called exchange. Giving things for things is called barter system and giving money for things is called exchange money. In the ancient marketing (before the invention of money), the whole part of exchange was taken by barter system. But not it has been taken by money-exchange of money. Exchange is the main concept of marketing. The following conditions should be fulfilled to be called exchange:-

At least there should be two sides (parties),
Each side should have some value/ utility, which each other side should like,
Each side should agree to exchange,
Each side should be free to accept or reject the proposal of one another side,
Each side should be able to communicate and handover.

Transaction

Trade between two or more sides is called transaction. In other words, the result of exchange is transaction. Transaction can be made in barter system or in money exchange. For example, taking rice by giving any thing is called barter transaction. Taking (buying) a television by giving money is monetary transaction.

Relationship

The transaction taken place between two or more parties/sides establishes relationship among them. A marketer should establish good and long lasting relationship with customers, distributors, dealers and suppliers. There is also a saying – Build good relationship and profitable transactions will follow. So, good relationship should be established with the concerned sides. Confidence should also be given to strengthen such relationship.

5. Markets

The process of buying and selling of goods or services is called markets. Some concepts have been developed about markets. They are: place concept, product concept, area concept, demand concept and exchange concept. Market has been defined on the basis of all these concepts. Goods, buyer, seller, price and area are necessary to be a market.

Need and Working of Incomes Policy

The necessity for an appropriate incomes policy is being increasingly felt on account of the intensification of the tendencies towards cost inflation, because the proportion of incomes and prices determined in non-competitive markets is likely to increase with increasing industrial employment, growing unionization, and collective bargaining and increasing scale of enterprises. Further, longer experience of consistently high level of aggregate demand as enunciated above may lead to encouragement of a more aggressive attitude on the part of labor and more permissive attitude on the part of the employers towards wage increases, leading to a strengthening of the bargaining position of unions.

The inducement to adopt income policy is stronger in some countries than in others, depending on the prevailing socio-economic circumstances. The inducement is more where relative price stability is needed to facilitate expansion of employment (either before or when the employment objective is met) or to improve a critical balance of payments position. Disciplinarians in the field of international economics prefer incomes policy to set right chronic balance of payments to a policy of devaluation or deflation.

However, when it comes to guidelines for other types of incomes like profit, rent and interest, its policy prescription is less clear. While the general objective, as discussed above, has been laid down in many developed countries like Netherlands, Sweden, France, Norway, U.K. and U.S.A., no operational incomes policy has been adopted in any country except Netherlands. In U.K., first attempt at incomes policy was made during the Second World War and met with a little success due to accompanying circumstances (exceptional in nature) like subsidies, price controls, rationing, compulsory savings etc., all played an important part in holding down prices. There was a good deal of suppressed inflation in the economy but towards the end of 1950, wage restraint began to break down and incomes policy was held in abeyance in U.K. during the fifties. The labor government which took office in 1964 presented a policy on productivity, prices and incomes as an integral part of its plan for promoting economic growth but later on due to bad economic conditions, balance of payments difficulties and rising prices and incomes ran into difficulty. The U.S. abandoned wage price controls in 1974. European incomes policy, however, did not fare badly, though it proved to be a costly experiment and in the long run not only inflation continued but it also led to distortions in the economy giving rise to more severe inflations in U.K., U.S.A. and Japan from 1974 onward. In U.K., where a beginning was made, many practical implications came to light during the course of its working. One of these is that in a period of excessive overall demand an incomes policy though useful can play a role only subordinate to fiscal, monetary and other economic policies to fight cost inflation.

i) Monetary Policy Measures

Following are the monetary measures, which can be used to curb inflationary pressures:

1. Increased re-discount

To curb inflation, the Central Bank generally increases the re-discount rates. An increase in the re-discount rates leads to an increase in bank rates, because there is a definite relationship between the two. An increase in bank rates tends to discourage borrowing by businessmen from banks, resulting in a fall in the intensity of inflationary pressures in the economy. An increase in interest-rates consequent upon the increase in the bank rate will make savings attractive than before and induce people to spend less on consumer goods. But the increase in re-discount rates as a weapon to check an inflationary boom has its limitations tool. Firstly, if the bank rates do not rise with the rise in re-discount rates, there will be no decline in business borrowings, and hence, the inflationary pressures will continue, even though the re-discount rates have been raised. Secondly, the effectiveness of higher re-discount rates as an anti-inflationary weapon shall be considerably undermined if the commercial banks have an easy access to additional reserves.

2. Sales of government securities in the open market

Another method to check the inflationary boom is to resort to sale of government securities to the public by the central bank. As the buying public purchases and pays for those government securities, the commercial banks’ reserves with the central bank are correspondingly reduced and they are obliged to adopt a restriction credit policy in relation to business requirements. But the sale of government securities as an anti-inflationary weapon is also subject to limitations. Firstly, this policy may be rendered ineffective if the commercial banks are able to increase their reserves by selling their stocks of government securities to the central bank. Secondly, this policy may also be offset by increased borrowing from or by increased sales of treasury bills to the central banks of the commercial banks.

3. Higher reserve requirements

An increase in reserve requirements of the member banks also serves as an anti-inflationary weapon during inflation. It absorbs the excess reserves of the banking system and, thus, prevents them from forming a basis for further credit expansion. But this method is also subject to limitations. Firstly, if the commercial banks happen to have very large excess reserves, even the raising of the reserve requirements may not significantly curtail their power to create credit. Secondly, the ability of commercial banks to increase the reserves through sale of government securities may render higher reserve requirements ineffective to check credit expansion.

4. Consumer credit control

During an inflationary boom, facilities for installment buying are reduced to the minimum to curtail excessive spending on the part of the consumers. This is done (i) by raising the minimum initial payments on specified goods, (ii) by extending the application of consumer credit control to a large number of consumer goods, and (iii) by reducing the length of the payment period, etc.

5. Higher margin requirements

It is a method of selective credit control. The central bank is its pursuance of higher levels. The central bank in its pursuance of an anti-inflationary policy may raise the margin requirements of loans to higher levels. The higher the margin requirements, the lower the amount of loan that the borrower can obtain from the bank. Thus, higher margin requirements have the effect of checking undue monetary expansion.

ii) Fiscal Policy Measures

The major anti-inflationary fiscal measures are the following:

1. Government expenditure

To counteract increased private spending at a time of inflation, the government should, at such a time, reduce its own expenditure to the minimum extent possible to help limit the aggregate demand. As against this, it may, however, be said that it is not so easy to reduce government expenditure particularly during the war period. Secondly, any drastic cut in government expenditure to cure inflation may actually land the economy in a slump.

2. Taxation

The problem during inflation is to reduce the size of disposable income in the hands of the general public in view of the limited supply of goods and services in the market. It is, therefore, necessary to take away the excess purchasing power from the public in the form of taxes. The rates of existing taxes should be steeply increased, while new taxes should be imposed on commodities so as to leave less money supply with the public to spend.

3. Public borrowing

The object of public borrowing is to take away from the public excess purchasing power which, if left free, would surely exert an upward pressure on the price-level in view of the limited supplies of goods and services in the economy. If voluntary borrowing does not yield adequate results, it may become necessary to resort to compulsory borrowing from the public.

4. Debt management

The existing public debt should be managed in such a manner as to reduce the existing money supply and prevent further credit expansion. Anti-disciplinary debt management usually requires the repayment of bank-held debt out of a budgetary surplus. The idea is that the government securities held by commercial banks should be retired by the government out of the budgetary surplus. This would check the power of commercial banks to cash their securities and add to the reserve for the purpose of credit expansion.

5. Overvaluation

An overvaluation of domestic currency in terms of foreign currencies will also serve as an anti-inflationary measure. Firstly, it will discourage exports and thereby increase the availability of goods in the domestic market. Secondly, by encouraging imports from abroad, it will add to the domestic supply of goods in the economy. But, overvaluation as an anti-inflationary weapon suffers from several limitations.

6. A suitable income policy

At a time of inflation, the government must also adopt a suitable price-income policy. It should strictly control wages, salaries and profits to keep spending at a low level to fight inflation.

iii) Other Measures

These measures can be used to supplement monetary and fiscal measures undertaken to contain inflationary pressures.

1, Expansion of output

Increased production is the best antidote to inflation because inflation arises partly due to inadequacy of output. But it becomes rather difficult to increase output at a time of inflation because of the full utilization of resources. It is suggested that if it is not possible to increase output as a whole, steps should be taken to increase the output of those goods which seem to be extremely sensitive to inflationary pressures by shifting productive resources from the less inflation-sensitive goods. In other words, a reallocation of productive goods, such as food, clothing, housing, etc. Steps may also be taken to increase supply of consumer goods through large-scale imports from other countries to absorb excess money supply.

2. Wage policy

During an inflationary boom, the wages have to be controlled so as to curb the inflationary pressures in the economy. Wage increases may be allowed to workers only if their productivity increases. If this principle is observed, higher wage shall not lead to higher unit costs and hence, it higher unit prices.

3. Price control and rationing

The object of control is to lay down the upper limit beyond which the price of a particular commodity would not be allowed to rise. To ensure the successful functioning of price control, two conditions will have to be satisfied. Firstly, the government should have under its control adequate stocks of the commodities concerned. Secondly, the demand for the concerned commodities should be controlled through rationing, failing which the richer sections shall be able to buy a major portion of the available stocks.

Effects on Production

Decrease in the quality of goods: The demand for goods increase due to inflation. So, any type of goods can be sold. As a result, the profit seekers lessen the quality of goods to increase the profit.
Reduces saving: Due to inflation, most of the income is spent on consumption. So the saving reduces. As a result, there is less capital investment.
Encourages holding and speculation: The producers start to store the necessary goods. Due to this, the goods become even scarce; the businessmen hide the goods and create artificial scarcity, for black marketing.
Reduction in productivity: In the time of inflation, there is less capital formation. As a result, it is difficult to make available factors of production. It brings uncertainties in the economy, and entrepreneurs become discouraged in the production.
Devaluation of money and loss in faith: People have less trust of money due to the devaluation of money and its decreasing purchasing power. Foreign investors also can return their investment due to the loss of faith.

Effects on Consumption

Change in consumption pattern: In the time of inflation, the demand for quantity decrease as the price of the quantity increases. Those who have various sources of income buy luxury goods, foreign goods and goods of comfort but those who have limited source of income start to buy only essential goods. Most of the consumers start to consume artificial goods than natural ones.
Debt instead of saving: In the time of inflation, the consumer surplus slowly decreases because he has to pay more than he wants to pay. If there is high inflation, he will get loan.
Unequal consumption and lifestyle: In the time of inflation, the lifestyles of rich and poor will become more polarized. Those who have only limited income, is compelled to buy only the essential goods. Due to this, life becomes more difficult. But those, who have various sources of income feel opposite of that.

Effects on Distribution

Fixed income groups: Government officials, pensioners and those depend on post savings are the fixed income group. In the time of inflation, general price increases, so the expenditure on living increases and the life becomes harder.
Creditors and debtors: In the time of inflation, creditors are in loss and debtors are in profit because of the decrements in the purchasing power of money. As the creditor give the money having more purchasing power and get it back when it has less purchasing power. Therefore, they get in loss.
Salary and wage earners’ group: This group will be in hard time as the expenditure of living increases where as wage and salary do not increase.
Merchants and industrialists benefited: In the time of inflation, merchants and industrialists get sudden profit. The price of assets (stock) increase but the cost of current capital does not increase so much, so merchants and industrialists get extra profit.
Effect on Balance of Payment: Inflation has negative effect on balance of payment. Indigenous goods happen to be more expensive than foreign goods. So the farmer cannot compete with foreign goods. As a result, import increase and export decrease. Thus, balance of payment becomes negative. In the long run, it creates scarcity in the foreign exchange.

Supply Shock Inflation / Cost Push Inflation

Inflation is also caused by increase in the cost of production. As a result of increase in the cost of production, the aggregate supply schedule shifts downwards to the left, indicating that a lesser quantity is supplied at the existing prices. Aggregates demand schedule remaining unchanged, any leftward shift in the aggregate supply schedule will push the prices upwards as could be seen in figure.

Cost Push Inflation

In the figure, DD is the aggregate demand schedule which remains unchanged; S1S1 is the original aggregate supply schedule which intersects DD at point K. At the full employment equilibrium point K, the level of full employment output is OY0 and the price level is OP1. With increase in the costs (may be due to rise in wage rates, higher prices or inputs, etc.), the aggregate supply schedule shifts to S2S2 intersecting the aggregate demand schedule DD at point K1. At new equilibrium point K1, the level of real output OY1 is less than the full employment output, therefore, the price level rises to OP2. A further shift in the aggregate supply schedule to S3S3 pushes the price level of OP3.

Causes of Cost Push Inflation

Cost-push inflation is generally caused by three factors.

Increase in money wages: In the modern business world, trade unions have become very well-organized and have been also to secure higher wages for their members. Whenever the products are compelled to accept the demand for higher wages by the trade unions, they try to shift the burden of increasing costs on to the consumers by charging higher prices for the final goods and services. This leads to ‘wage-price-spiral’. Increase in the wage rates leads to rise in prices, the real wages of the workers decline. To neutralize this fall, still higher wages are demanded and granted, and thus inflationary spiral continues.
Higher profit margins: As discussed earlier aspiration for higher profit margin sets in motion ‘profit-push inflation’. This situation is typical to a sellers’ market in which demand exceeds the supply. Pressure on demand leads to increase in prices. Taking advantages of this situation, the producers set higher profit margins, which again would push the prices upwards.
Rise in the prices of basic inputs: Scarcity of strategic and basic raw materials results in an increase in their prices, and in turn, the prices of final goods and services are increased. A fall in the supply of cement, iron and steel, sugarcane, cotton, etc., would raise their costs, and finally, the prices of the finished goods will also go up. The cost-push inflation may also be caused by the scarce supply of imported raw materials and intermediate goods.
Administered higher prices of inputs: The prices of inputs do not always increase due to their scarcity but may increase due to some administrative action on the part of the government. Higher administered prices of basic inputs would affect the prices of final goods and services of the concerned business units. Thus, rises in administered prices sets in motion, the cost push inflationary forces in the economy.
High rate of taxes: Taxes imposed on goods and services (i.e., indirect taxes) also generate inflationary pressure in the economy. As a result of increase in indirect taxes, the prices of raw material in international market. It is also known as supply shock inflation.
International reasons: Another case of supply inflation on cost-push inflation is prices of the raw material in international market. It is also known as supply shock inflation.

Demand Pull Inflation

Demand pull inflation occurs when there is an excess demand over the available supplies at existing prices. Excess demand means aggregate real demand for output in excess of maximum feasible, or potential, or full employment output. Excess demand is generated by forces operating on the demand side of the commodity market.

As a result of increase in demand, the aggregate demand function shifts upwards to the right (supply function remaining constant). In this case, rise in price is caused exclusively by the increase in demand as could be seen in the figure.

In the figure, OU shows the full-employment level of real output. Beyond OU, rise in prices does not, result in increase in the real output. As the demand for real output increases from D1 to D2 and D3 to D4, the prices level also rises from P1 to P2, P3 and P4 respectively.

Causes of Demand Pull Inflation

Demand-pull inflation is caused by the following factors.

i) Excess demand

Prof. Keynes has explained the effect of excess demand on prices through his notion of ‘inflationary gap’. Inflationary gap may be defined as an excess of aggregate demand for goods over their aggregate supply measured at constant prices.

ii) Increase in money supply

Monetarists held excess increase in the quantity of money responsible for inflation. According to the quantity theory of money, at a given level of national income (potential as well as actual) the general price level (P) rises in the same proportion as increase in the quantity of money (M), the velocity of money being held constant. In a static economy, M is policy-determined; therefore, the rate of inflation also becomes policy-determined.

In a dynamic economy, the real demand for money grows over time and the national income also grows over time. Apparently, the rate of growth of real demand for money will be equal to the rate of growth of the national income. However, excess increase in the stock of money will lead to increase in prices. Excess supply of money is nothing but the excess demand for output that causes inflation.

iii) Disposable income

It refers to the income payments to factors after personal taxes have been paid. An increase in disposable income results in increased purchased power with the people. There is increasing pressure on the demand for goods and services, as a result, prices tend to rise.

iv) Increase in business outlays

During the prosperity phase of business activities, increase in business outlays or capital expansion take on a speculative character. New equipment and plans are often financed by speculative borrowings. Most of business outlay finds their way into the income stream via dividends, wages and other factor of payments. These business outlays are inflationary in character.

v) Increase in foreign demand

Increase in the export demand for domestic goods and services also lead to inflation. This is particularly true for the economies which maintain considerable inflationary pressure on domestic areas of shortages which may be a focal point of spreading inflation.

vi) Increase in government expenditure

There may be an increase in the government expenditure of government revenue. This might have been made possible through government borrowings from banks or through deficit financing, which implies an increase in the money supply.

vii) Reduction of taxation

If government reduces taxes, households are left with more disposable income in their pockets. This leads to increase consumer spending, thus increasing aggregate demand and eventually causing demand pull inflation.

Pages

Features of Marketing

Core Concepts of Marketing

1. Needs, Wants and Demands

Needs

Wants

Demands

2. Product

3. Value, Satisfaction and Quality

Value

Satisfaction

Quality

4. Exchange, Transaction and Relationship

Exchange

Transaction

Relationship

5. Markets

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Need and Working of Incomes Policy

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i) Monetary Policy Measures

ii) Fiscal Policy Measures

iii) Other Measures

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Effects on Production

Effects on Consumption

Effects on Distribution

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Supply Shock Inflation / Cost Push Inflation

Causes of Cost Push Inflation

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Demand Pull Inflation

Causes of Demand Pull Inflation

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