This paper discusses the role of marketing in the contemporary environment. Being market-oriented, companies achieve a high level of customer satisfaction and loyalty, get competitive advantage, improve financial performance, secure long-term sustainable development and create superior shareholder value. Marketing is the “management process responsible for identifying, anticipating and satisfying customer requirements profitably”, but the ability of marketing to contribute to company shareholders’ prosperity and profitability has been often argued during the last decade. Managers emphasized that marketing was very expensive and the results of this activity were not evident. However, there is much evidence that the implementation of marketing strategies helps companies to achieve superior performance in the highly competitive market. This paper summarizes the main arguments for and against marketing that are presented in professional literature. Examples of the positive influence of marketing on company performance and recommendations are given.
Weaknesses of the Old Approaches to Marketing
Shults (2005) made a radical assumption that marketing “either died, was declared impotent or most likely just became irrelevant to many senior managers.” The reason for such an attitude of managers towards marketing was their concentration on short-term results, lack of understanding of major goals that this activity had to pursue and poor quality of market research that did not give pure understanding of consumers. Often companies relied on low-cost techniques and got limited and late results that hampered the effectiveness of the decision-making process (Schults, 2005).
Firstly, the managers’ purpose was to maximize profits, they considered marketing as a tool for improving short-term financial results. Due to this, the role of marketing was directed to “transactions” and “repeated transactions” (Webster, 1992). Marketers had to find and increase the number of buyers, though they did not think about brand value, customer loyalty, product differentiation and competitive advantage.
The other reason for the diminishing importance of marketing was the lack of an integrated approach by companies’ stakeholders. There was a dispute whether marketing had to work in favour of shareholders or consumers. The link between marketing strategy and financial and stock performance was not established, while sophisticated marketing metrics and shareholder focus were missing (Srivastava et al., 1997; Bolton, 2004). In most cases, marketing was considered as expenses, not an investment, as it takes time to prove and justify the impact of marketing activity on the overall performance of a business (Zinkin, 2006).
Contribution to Profitability and Shareholder Value
Nowadays, companies that implement long-term strategies and realize that all their stakeholders are equally important get a competitive advantage. It is impossible to increase profitability and create shareholder value without knowing how to attract, satisfy and retain customers, though marketing initiatives can be supported by the top management only if their potential benefits for company financial performance will be proved. Zinkin (2006) emphasized that the role of strategic marketing is to find the balance between customer value and shareholder value. Marketing is able to do this by “identifying customer needs, both in the present and in the future to deliver shareholder value over time by ensuring that current products and services are protected, while developing a future business base as well” (Zinkin, 2006, p. 164).
Researchers agree that only companies with strong customer focus and a higher level of customer satisfaction are able to achieve a high level of customer loyalty (Zinkin, 2006, Best, 2009, Troilo et al., 2009). Customer satisfaction and loyalty drive repurchases, cross selling, positive word-of-mouth, and reduced price sensitivity. These lead to “lower customer acquisitions and relationships costs, stable customer basis, higher prices and sales, faster market penetration and positive reputation” (Matzler et al., 2005, p. 673). The final effects for companies are accelerated cash flows, eliminated risks, decreased cost of capital and improved residual value of the business (Srivastava et al., 1997). For instance, according to the survey conducted by Reichheld and Sasser (1990), a company’s profit can increase by 25 to 85 per cent if it manages to lower defection of customers by 5 per cent. Realizing how business can benefit from long-term relationships with consumers, all major retailers in the UK now have advantage card loyalty schemes. Tesco’s loyalty scheme shows that 88 per cent of the retailer’s revenue comes from the most loyal 40 per cent of customers (Hill, 2009).
Marketing also contributes to shareholder value by creating and maintaining solid brands, which are important factors for differentiating the product and ensuring customers are retained in its rational and emotional benefits. Successful brands generate a higher level of cash flow through price premiums, more rapid development and lower costs. Due to consumers’ trust and loyalty, and reduced vulnerability, well-known brands that extend the product lifecycle and eliminate risks thus end up with a higher net present value and shareholder value (Doyle, 2001). A few years ago, when Marks & Spencer was suffering from declining sales as shoppers moved to more trendier alternatives it not only refreshed stores and product lines, but also launched a new promotion campaign, ‘Your M&S’, which reminded consumers of the company’s values. It resulted in an increased number of customer visits to the shop and an upturn in sales over the previous year. As a consequence, M&S share price rose more than 60 per cent (Hollis, 2007).
To justify the expenses for marketing and prove its influence on profitability and stock performance, the system of marketing metrics was established. The net marketing contribution metric shows the contribution of marketing to company profit. Evaluating the effect of marketing strategy on profitability and sales revenue is the role of a marketing return on sales metric. The estimation of marketing strategy with respect to marketing profits and investment belongs to a marketing return on investment metric (Best, 2009).
Advantages of Market Orientation
Companies that have a strong market focus, understand their position and have a clear vision of their future demonstrate much better results than others. Narver and Slater (1990, p. 21) suggested the concept of “market orientation” as “a business culture that most effectively and efficiently creates superior value for customers and thus continuous superior performance for the business”. The concept includes such components as “customer orientation”, “competitor orientation” and “inter-functional coordination”.
Customer orientation allows companies to understand their consumers in the present and in the future and allocate resources more precisely. The knowledge of needs and values of consumers that are a source of high income for companies makes it possible to select target groups. Due to this, companies can spend money more wisely through providing communications aimed at this audience and investing in research and development of products that have more chance to be in demand in the future (Zinkin, 2006). Retaining satisfied, loyal customers for a long period is a significant goal for marketing. It can be achieved by offering modified products and providing superior value such as pre-purchase consultations and post-purchase service.
Companies should constantly monitor the attitude of their customers. With such metrics as customer satisfaction, retention, loyalty, net promoter score business can forecast potential revenues, profits in the future, possible negative or positive changes. Only using the combination of these indexes business can get deep understanding of the situation. For instance, if customers are loyal, but would not recommend the company, or retention rate is high but consumers are not loyal, there is no guarantee that they will stay with the company for a long time (Best, 2009).
Mutually beneficial relationships with customers become even more important in the era of rapid technological development when information spreads in a real time through various channels. Personal communications and trustworthy relationships with online communities should be one of the priorities for companies. Through listening to the target audience and getting positive feedback in social media and blogs, companies get competitive advantage and vice versa. For instance, Ford has a clear strategy for Twitter, Facebook, You Tube and implemented promotion programmes for the new Fiesta car launch in social media. For a successful 2009 Fiesta campaign, Ford gave a new car to 100 bloggers to drive and review, which resulted in gaining the audience’s attention. The company created a buzz as well as got feedback from bloggers that was used to improve the new product. This resulted in 50,000 requests of information about the modified car in six days after sales had started (Interbrand, 2010). Online resources are the most reliable source of recommendations what brands should avoid. According to the research of marketing agency Millward Braun (2010), 45 per cent of internet users said they received negative information about brands from the internet. At the same time, when making a decision about what products to choose, people give preference to word-of-mouth advertising. A total of 74 per cent of shoppers in the US and 63 per cent in the UK confessed that they built their opinion on friends’, neighbours’ and colleagues’ advice.
Market-oriented companies also understand the competitors’ strengths, weaknesses, capabilities and strategies. With such knowledge, companies can differentiate their products, thus making it difficult for the customers to switch. Competitive benchmarking helps companies to find the gaps between its own and rivals’ performance and work out the ways to overcome the obstacles for pulling over consumers to their side. The business also should distinguish the situation in which it operates through evaluating the attractiveness of the industry on a constant basis. The analysis of the threat of new entrants, existing and potential substitutes, power of buyers and suppliers and competitive rivalry allow companies to correct their behaviour and their strategy (Best, 2009). Companies get a much better position in the market if they are able to build strong brands and long-term customer relationships (Zinkin, 2006). Marketing knows what strategy is better to choose to defeat the competitors and eliminate their power. Companies with strong reputations can afford to behave aggressively thus get advantage and maximize financial performance (Weinzimmer et al., 2003). Apple’s aggressive entry into the cell phone market in 2007 turned into a success. Having launched a promotion programme for iPhone six months in advance, the company asked consumers to wait for the innovative product. For Apple, it was possible to be more aggressive as it had a strength of a leading product like iPod (Forbes, 2007).
Inter-functional coordination is aimed at the dissemination of knowledge about customers, competitors and market conditions throughout companies. The distinctive features of market-oriented companies are high perception of new knowledge (Slater and Narver, 1995), strong potential for innovativeness, and imitation of existing successful products (Olavarietta and Friedmann, 1999). Day (1994) identified three types of marketing capabilities: “outside-in, inside-out and spanning capabilities.” Marketing’s outside-in capabilities give companies understanding of the environment where they operate and create trustworthy relationships with customers, suppliers and distributors. The purpose of inside-out capabilities is to define company internal capabilities to fulfil the market demand and potential for development. Due to spanning capabilities marketing departments share information about external conditions with other divisions to integrate market knowledge into internal processes. Companies with a strong market focus are more aware of customers’ needs and can overperform against their rivals, introducing improved or completely new products. The capability to imitate successful products also gives advantage as competitors’ success will be eliminated (Day. 1994).
Conclusions and Recommendations
The importance of marketing in a contemporary highly competitive environment cannot be overestimated. It is possible to achieve the major business targets, increased profits and shareholder value, but only if companies are market oriented and marketing strategies are embedded in their overall business strategies. Marketing contributes to a company’s prosperity by attracting customers, satisfying and retaining them as well as creating solid brands that lead to reduced costs, premium prices and eliminated risks. It also helps companies to get competitive advantage due to the knowledge of market conditions and performance of competitors. Due to its unique capabilities, marketing collects information about external conditions and disseminates it throughout the whole organization, creating a platform for meeting potential threats and possibilities for the organization. Using the combination of metrics marketing can get accurate data about customers, competitors and a market situation. If managers anticipate this information, they take decisions that allow companies to demonstrate their superior performance.
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