fundamentals of modern marketing thoughtof marketing,its key components and limitations 2 the...

1Marketing in the modern firm

2Marketing planning: an overview of marketing

3Understanding consumer behaviour

4Understanding organizational buying behaviour

Fundamentals of Modern Marketing Thought

PA RT O N E

5The marketing environment

6Marketing research and information systems

7Market segmentation and positioning

‘Management must think of itself not as producing products, but as providing

customer-creating value satisfactions. It must push this idea (and everything it means

and requires) into every nook and cranny of the organization. It has to do this

continuously and with the kind of flair that excites and stimulates the people in it

THEODORE LEVITT

Learning Objectives This chapter explains:

1 The marketing concept: an understanding of the natureof marketing, its key components and limitations

2 The difference between a production orientation andmarketing orientation

3 The differing roles of efficiency and effectiveness inachieving corporate success

4 The differences between market-driven and internallydriven businesses

5 The dimensions of market-driven management

6 How an effective marketing mix is designed and thecriticisms of the 4-Ps approach to marketingmanagement

7 How to create customer satisfaction and value

8 The relationship between marketing characteristics,market orientation, adoption of a marketing philosophyand business performance

Marketing in the Modern Firm

C H A P T E R O N E

In general, marketing has a bad press. Phraseslike ‘marketing gimmicks’,‘marketing ploys’and‘marketing tricks’ abound. The result is that

marketing is condemned by association. Yet this is unfortunate and unfair because the essenceof marketing is value not trickery. Successful companies rely on customers returning to repurchase; the goal of marketing is long-termsatisfaction, not short-term deception.This themeis reinforced by the writings of top managementconsultant Peter Drucker, who stated:1

Because the purpose of business is to create and keep customers, it has only two centralfunctions—marketing and innovation.The basicfunction of marketing is to attract and retaincustomers at a profit.

What can we learn from this statement? First, itplaces marketing in a central role for business success since it is concerned with the creationand retention of customers. Second, it implies that the purpose of marketing is not to chase any customer at any price. Drucker used profit as a criterion.While profit may be used by manycommercial organizations, in the non-profit sector other criteria might be used such as socialdeprivation or hunger. Many of the concepts,principles and techniques described in this bookare as applicable to Action Aid as to Renault.

Third, it is a reality of commercial life that it ismuch more expensive to attract new customersthan to retain existing ones. Indeed, the costs ofattracting a new customer have been found to beup to six times higher than the costs of retainingold ones.2 Consequently marketing-orientatedcompanies recognize the importance of buildingrelationships with customers by providing satis-faction and attracting new customers by creatingadded value. Grönroos has stressed the import-ance of relationship building in his definition ofmarketing in which he describes the objective of marketing as to establish, develop and com-mercialize long-term customer relationships sothat the objectives of the parties involved aremet.3 Finally,since most markets are characterizedby strong competition,the statement also suggeststhe need to monitor and understand competitors,since it is to rivals that customers will turn if theirneeds are not being met.

Marketing exists through exchanges.Exchange is the act or process of receivingsomething from someone by giving something inreturn.The ‘something’ could be a physical good,

service, idea or money. Money facilitatesexchanges so that people can concentrate onworking at things they are good at, earn money(itself an exchange) and spend it on productswhich someone else has supplied.The objective isfor all parties in the exchange to feel satisfied soeach party exchanges something of less value thanthat which is received.The idea of satisfaction isparticularly important to suppliers of productsbecause satisfied customers are more likely toreturn to buy more products than dissatisfiedones. Hence, the notion of customer satisfactionas the central pillar of marketing is fundamental tothe creation of a stream of exchanges upon whichcommercial success depends.

The rest of this chapter will examine some ofthese ideas in more detail and provide an intro-duction to how marketing can create customervalue and satisfaction.

The marketing concept

The above discussion introduces the notion of the marketing concept, that is that companiesachieve their profit and other objectives by satisfying (even delighting) customers.4This is thetraditional idea underlying marketing. However,it neglects a fundamental aspect of commerciallife: competition. The traditional marketing con-cept is a necessary but not a sufficient conditionfor corporate achievement. To achieve successcompanies must go further than mere customersatisfaction; they must do it better than com-petition. Many also-ran products on the marketwould have been world-beaters in the mid-1990s.The difference is competition.The modernmarketing concept can be expressed as:

The achievement of corporate goals throughmeeting and exceeding customer needs betterthan the competition.

To apply this concept three conditions should bemet. First, company activities should be focusedupon providing customer satisfaction rather than,for example,producer convenience.This is not aneasy condition to meet. Second, the achievementof customer satisfaction relies on integratedeffort. The responsibility for the implementationof the concept lies not just within the marketingdepartment. The belief that customer needs arecentral to the operation of a company should run

Chapter one Marketing in the modern firm 3

right through production, finance, research anddevelopment, engineering and other depart-ments.The role of the marketing department is toplay product champion for the concept and tocoordinate activities.But the concept is a businessphilosophy not a departmental duty. Finally, forintegrated effort to come about, managementmust believe that corporate goals can be achievedthrough satisfied customers (see Fig. 1.1).

Unfortunately the realities of commercial lifeare such that there can be a conflict between theinterests of suppliers and customers. Price fixing,for example,can raise profit levels while loweringcustomer satisfaction. Such anticompetitive activities can hinder the adoption of the marketing philosophy as the means to corporateprosperity. In France the supermarket chainLeclerc has mobilized the marketing philosophyto break down anticompetitive supplier activities,and to lower prices for its customers.Marketing inAction 1.1 describes the way in which Leclerc hasmarried customer satisfaction with commercialsuccess.

Marketing versusproduction orientation

There is no guarantee that all companies willadopt a marketing orientation. A competingphilosophy is production orientation.* This is represented by an inward-looking stance that caneasily arise given that many employees spendtheir working day at the point of production.

Production orientation manifests itself intwo ways. First, management become cost-focused. They believe that the central focus of their job is to attain economies of scale by producing a limited range of products (at the limitjust one) in a form that minimizes productioncosts.Henry Ford is usually given as an example ofa production-orientated manager because he builtjust one car in one colour—the black Model T—in order to minimize costs. However, this is unfair

to Mr Ford since his objective was customer satisfaction: bringing the car to new market segments through low prices.The real production-orientated manager has no such virtues. Theobjective is cost reduction for its own sake, anobjective at least partially fuelled by the greatercomfort and convenience that comes from producing a narrow product range.

The second way in which production orien-tation reveals itself is in the belief that the business should be defined in terms of its pro-duction facilities. Levitt has cited the example offilm companies defining their business in terms ofthe product produced which meant that theywere slow to respond when the demand to watchcinema films declined in the face of increasingcompetition for people’s leisure time.5 Had theydefined their business in marketing terms—enter-tainment—they may have perceived television asan opportunity rather than a threat.

Figure 1.2 illustrates production orientation inits crudest form. The focus is on current pro-duction capabilities which define the businessmission. The purpose of the organization is tomanufacture products and aggressively sell themto unsuspecting customers. A classic example ofthe catastrophe that can happen when this philosophy drives a company is Pollitt andWigsell, a steam engine producer which sold itsproducts to the textile industry. They made thefinest steam engine available and the companygrew to employ over 1000 people on a 30 acresite.Their focus was on steam engine productionso when the electric motor superseded the earliertechnology they failed to respond.The 30 acre siteis now a housing estate.

Marketing-orientated companies focus on customer needs.Change is recognized as endemicand adaptation considered to be the Darwiniancondition for survival. Changing needs presentpotential market opportunities which drive thecompany. Within the boundaries of their distinc-tive competences market-driven companies seekto adapt their product and service offerings to the demands of current and latent markets. Thisorientation is shown in Fig. 1.3.

Marketing-orientated companies get close totheir customers so that they understand theirneeds and problems. When personal contact isinsufficient or not feasible, formal marketingresearch is commissioned to understand customer motivations and behaviour. Part of thesuccess of German machine tool manufactures

4 Part one Fundamentals of modern marketing thought

* This of course is not the only alternative business philos-ophy. For example, companies can be financially or sales-orientated. In the first case companies focus on short-termreturns, basing decisions more on financial ratios than customer value; and sales-orientated companies emphasizesales push rather than adaptation to customer needs.However,we shall concentrate on the fundamental difference in corporate outlook: marketing versus production orientation.

can be attributable to the willingness to developnew products with lead customers: those companies who themselves were innovative.8

This contrasted sharply with the attitude of UKmachine tool manufacture who saw marketingresearch only as a tactic to delay new product proposals and feared that involving customers innew product design would have adverse effectson the sales of current products. Marketing-orientation is related to the strategic orientationof companies. Marketing-orientated firms adopt aproactive search for market opportunities, usemarket information as a base for analysis and organizational learning, and adopt a long-termstrategic perspective on markets and brands.9

Efficiency versuseffectiveness

Another perspective on business philosophy canbe gained by understanding the distinctionbetween efficiency and effectiveness.10

Efficiency is concerned with inputs and outputs.An efficient firm produces goods economically: itdoes things right.The benefit is that cost per unitof output is low and, therefore, the potential for offering low prices to gain market share, orcharging medium to high prices and achievinghigh profit margins, is present. However, to be successful a company needs to be more than


Integrated effort

All staff accept theresponsibility forcreating customer

satisfaction

Goal achievement

The belief thatcorporate goals canbe achieved throughcustomer satisfaction

Customer orientation

Corporate activitiesare focused upon

providing customersatisfaction

Marketing concept

The achievement of corporate goalsthrough meeting and exceeding customer

needs better than the competition

Figure 1.1 Key components of the marketing concept

Productioncapabilities

Manufactureproduct

Aggressivesales effort Customers

Figure 1.2 Production orientation

Customerneeds

Potentialmarket

opportunities

Marketingproducts and

servicesCustomers

Figure 1.3 Marketing orientation

just efficient: it need to be effective as well.Effectiveness means doing the right things. Thisimplies operating in attractive markets and making products that consumers want to buy.Conversely, companies that operate in unat-tractive markets or are not producing what consumers want to buy will go out of business,the only question is one of timing. The linkbetween performance and combinations of efficiency and effectiveness can be conceived asin Fig 1.4.A company that is both inefficient andineffective will go out of business quickly becauseit is a high-cost producer of products that

consumers do not want to buy.A company that isefficient and ineffective may last a little longerbecause its low cost base may generate more profits from the dwindling sales volume it isachieving. Firms that are effective but inefficientare likely to survive because they are operating inattractive markets and are marketing productsthat people want to buy.The problem is that theirinefficiency is preventing them from reaping themaximum profits from their endeavours. It is thecombination of both efficiency and effectivenessthat leads to optimum business success. Suchfirms do well and thrive because they are


1 . 1 M a r ke t i n g i n A c t i o nLeclerc Applies the Market Philosophy

Leclerc is a French supermarket and hypermarket chain set up by Eduard Leclerc, who is recognized as the founding father of modern retail distribution in France.The chain’s philosophy isbased upon a highly original formula combining shrewd commercial sense with concern for the customer.The success of the chain owes much to the passionately held beliefs of its founder and histraining in the church. His experience in retailing led him to believe that the interests of the consumer were not always being served by big business in France. His son, Michel, explains:

France is dominated by big companies. But unlike Anglo-Saxon countries where these companieshave stood for modern thinking, consumer rights and the exchange of liberal ideas, big companies inFrance have been the force behind protectionism against foreign countries and against competition.We wanted to prove that not only could we sell groceries cheaper but also leisure goods, healthproducts and cultural items. Each time, we came against price fixing, regulations or restrictivepractices which prevented us from selling cheaper. So we had to fight.

Their battles were fought in the law courts as well as the media. In total 1400 court cases werebrought, some even going to the European Court of Justice. For example, battles were foughtagainst fixed prices for petrol, and against chemists, who it was claimed held the monopoly in thedistribution of cosmetics.

The campaigns made good publicity. Advertising backed up this image of the consumer’s friend.‘Wanted—For Selling Cheaper’ ran one poster campaign.The result was that the consumer believedthat Leclerc stood for giving the biggest choice and the best prices. ‘Honest, trustworthy’, ‘Defenderof the consumer’, ‘You always pay less at the Leclerc check-out’ and ‘Everything is cheaper’ are someof the comments that customers made.

By following a mission based upon putting the customer first Leclerc has created a clear positionin the minds of its customers and has built its success by adopting the fundamental marketing principle of creating customer satisfaction. It is this formula that has established Leclerc as one ofFrance’s retail market leaders along with Intermarché and Carrefour.

Based on: BBC2 Television (1993);11 Anonymous (1998)12

operating in attractive markets, are supplyingproducts that consumers want to buy, and are benefiting from a low cost base.

A company which set out to establish itself as both efficient and effective is Virgin Atlantic.Innovations in service delivery (for example,personal televisions built into the seating) andlow costs (for example,promotional expendituresare kept low by Richard Branson’s capacity to generate publicity for the airline) mean that both objectives are achieved. Direct Line, the UKinsurance company, has also achieved efficiencythrough eliminating the broker through its directmarketing operation, while becoming highlyeffective through its service excellence (forexample, convenient motor repairs through itsnationwide dealer network which eliminates theneed to ‘get two quotes’,a fast telephone responsefacility which removes the need to fill in forms,and a car return service).

The essential difference between efficiencyand effectiveness, then, is that the former is cost-focused while the latter is customer-focused. An

effective company has the ability to attract andretain customers.

Market versus internallydriven businesses

A deeper understanding of the marketing conceptcan be gained by contrasting in detail a market-driven business to one which is internally orientated. Table 1.1 summarizes the key differences.

Market-driven companies display customerconcern throughout the business.All departmentsrecognize the importance of the customer to thesuccess of the business. In internally focused businesses convenience comes first. If what thecustomer wants is inconvenient to produce,excuses are made to avoid giving it.

Market-driven businesses know how theirproducts and services are being evaluated againstcompetition.They understand the choice criteriathat customers are using and ensure that the marketing mix matches those criteria better thanthe competition. Internally driven companiesassume that certain criteria—perhaps price and performance if the company is supplyingindustrial goods—are uppermost in all customers’minds.They fail to understand the real concerns ofcustomers.

Businesses that are driven by the market base their segmentation analyses on customer differences that have implications for marketing


Market-driven businesses Internally orientated businesses

Customer concern throughout business Convenience comes firstKnow customer choice criteria and match with Assume price and product performance key to

marketing mix most salesSegment by customer differences Segment by productInvest in market research (MR) and track market changes Rely on anecdotes and received wisdomWelcome change Cherish status quoTry to understand competition Ignore competitionMarketing spend regarded as an investment Marketing spend regarded as a luxuryInnovation rewarded Innovation punishedSearch for latent markets Stick with the sameBeing fast Why rush?Strive for competitive advantage Happy to be me-too

Table 1.1 Marketing-orientated businesses

Does wellThrivesDies slowlyEfficient

SurvivesGoes out ofbusiness quicklyInefficient

EffectiveIneffective

Figure 1.4 Efficiency and effectiveness

strategy. Businesses that are focused internally segment by product (e.g. large bulldozers versussmall bulldozers) and consequently are vulnerablewhen customers’ requirements change.

A key feature of market-driven businesses istheir recognition that marketing research expen-diture is an investment that can yield rich rewards through better customer understanding.Internally driven businesses see marketingresearch as a non-productive intangible and preferto rely on anecdotes and received wisdom.Market-orientated businesses welcome the organ-izational changes that are bound to occur as anorganization moves to maintain strategic fitbetween its environment and its strategies. In contrast, internally orientated businesses cherishthe status quo and resist change.

Attitudes towards competition also differ.Market-driven businesses try to understand com-petitive objectives and strategies and anticipatecompetitive actions. Internally driven companiesare content to ignore the competition. Marketingspend is regarded as an investment that has long-term consequences in market-driven businesses.The alternative view is that marketing expendi-ture is viewed as a luxury that never appears toproduce benefits.

In marketing-orientated companies thoseemployees who take risks and are innovative arerewarded. Recognition of the fact that most newproducts fail is reflected in a reluctance to punishthose people who risk their career championing anew product idea. Internally orientated businessreward time-serving and the ability not to makemistakes. This results in risk avoidance and thecontinuance of the status quo. Market-driven businesses search for latent markets: markets thatno other company has exploited.The 3M’s ‘Post-it’product filled a latent need for a quick, temporaryattachment to documents, for example. Internallydriven businesses are happy to stick with theirexisting products and markets.

Intensive competition means that companiesneed to be fast to succeed. Market-driven companies are fast to respond to latent markets,innovate, manufacture and distribute their products and services.They realize that strategicwindows soon close.9 Dallmer,the chief executiveof a major European company, told a story whichsymbolizes the importance of speed to com-petitive success.10 Two people were walkingthrough the Black Forest where it was rumoureda very dangerous lion lurked. They took a break

and were sitting in the sun when one of themchanged from his hiking boots to jogging shoes.The other one smiled and laughed and asked,‘Youdon’t think you can run away from the lion withthose jogging shoes?’‘No,’he replied,‘I just need tobe faster than you!’ Internally driven companieswhen they spot an opportunity take their time.‘Why rush?’ is their epitaph.

Finally, marketing-orientated companies strivefor competitive advantage. They seek to serve customers better than the competition. Internallyorientated companies are happy to produce me-too copies of offerings already on the market.

Dimensions of market-driven management

What is required to achieve marketing orien-tation? Figure 1.5 summarizes some of the keydimensions.

Peters and Waterman’s research stressed theimportance of shared values and beliefs as a necessary prerequisite for successful marketingimplementation.13 Achieving this can be a prob-lem for long-established companies that hithertodid not put the customer first.In general,changingattitudes is a hard-won battle.The second dimen-sion concerns the skills in understanding andresponding to customers. Peters and Watermancalled it getting and keeping close to the customer.

Kohli and Jaworski interviewed 62 managers inmarketing, non-marketing and senior manage-ment positions to gain an idea of what marketingmeant to practitioners.14 Their results stress theimportance of market intelligence to an under-standing of market orientation. They defined market orientation as ‘the organization wide generation of market intelligence pertaining tocurrent and future customer needs,disseminationof the intelligence across departments and organ-ization wide responsiveness to it’. The starting-point of market orientation was intelligence gathering, which included not only customers’needs and preferences but also an analysis andinterpretation of the faces that influence thoseneeds and preferences. Information gathering wasnot the exclusive responsibility of the marketingdepartment.Individuals and departments through-out the organization often gathered informationinformally, such as research and development


(R&D) engineers at scientific conferences andsenior executives with trade journals.

Next, information needs to be disseminatedthroughout the company by formal and informalmeans. Kohli and Jaworski tell how marketingmanagers in two consumer products companiesdeveloped and circulated periodic newsletters to facilitate the spread of information. While in another manufacturing company a managerencouraged the process of dissemination by storytelling. She told stories about customers,their needs, personalities, and even their families.The idea was to have secretaries, engineers andproduction personnel get to know customers.Finally, responsiveness highlighted the need toselect target markets, design and offer productsand services that cater to current and anticipatedneeds, and producing, pricing, distributing and

promoting those products and services in a waythat customers value.

Third, a customer focus implies market-ledstrategies and the desire to meet needs better thanthe competition.However,as Davidson points out,the reality of the marketplace should be alignedwith the assets (distinctive competences) of thecompany.15 When looking to enter new markets,companies should be aware of their inherent corporate strengths and weaknesses. Organiz-ational structure must reflect marketing strategy.As markets change, marketing strategy changesand the structure and systems may require modifi-cation to implement strategy. This may involveusing new distribution systems, the introductionof marketing information systems, the develop-ment of customer-based sales and marketingorganizations, the sharing of skills between


Skills inunderstandingand respondingto customers

Customer focus

Shared

customer first

Implementationpeople

incentives

communications

persuasion

Structure

Market-ledstrategy

linking distinctivecompetencies tomarket opportunities

competitive advantagethe driving force

structure basedon strategy

team work

Figure 1.5 Key dimensions of market-driven management

business units, and between organizationsthrough strategic alliances, and the breakingdown of barriers between departments to fosterinnovation.16

The last dimension of market-driven manage-ment is implementation, which requires clearcommunication of strategy so that it is not under-mined by those who deal with the customer atfirst hand. Kashani cites the example of the intro-duction by a French company of a CT-scanner inGermany.17 The product was positioned with apremium price based upon advanced technologywhich conferred economic and psychologicalbenefits to the customer. However, this strategywas being undermined by the salesforce, whowere heavily price discounting when meetingcustomer resistance. The result was that the strategy was discredited and adoption in Germanywas slow. Persuasion of the need to adopt the marketing concept may be necessary to changethe value system within an organization. BritishAirports Authority uses financial incentives forstaff to reflect its belief in a customer focus.Bonuspayments are made based upon regular customersatisfaction surveys of passengers using his airports.

Limitations of themarketing concept

A number of academics have raised importantquestions regarding the value of the marketingconcept.Three issues—the marketing concept asan ideology, marketing and society, and marketingas a constraint on innovation—will now beexplored.

Marketing concept as an ideology

Brownlie and Saren argue that the marketing concept has assumed many of the characteristicsof an ideology or an article of faith that shoulddominate the thinking of organizations.18

They recognize the importance of a consumer-orientation for companies but ask why after 40 years of trying has the concept not been fullyimplemented? They argue that there are othervalid considerations that companies must takeinto account when making decisions (e.g.economies of scale) apart from giving customers

exactly what they want. Marketers’ attentionshould therefore be focused not only on propa-gation of the ideology but also on its integrationwith the demands of other core business functions in order to achieve a compromisebetween the satisfaction of consumers and theachievement of other company requirements.

Marketing and society

A second limitation of the marketing concept concerns its focus on individual market trans-actions. Since many individuals weigh heavilytheir personal benefits while discounting the societal impact of their purchases, the adoption of the marketing concept will result in the production of goods and services which do notadequately correspond to societal welfare. Pro-viding customer satisfaction is simply a means toachieve a company’s profit objective and does notguarantee protection of the consumer’s welfare.This view is supported by Wensley, who regardsconsumerism as a challenge to the adequacy ofthe atomistic and individual view of market transactions.19 An alternative view is presented byBloom and Greyser, who regard consumerism asthe ultimate expression of the marketing conceptcompelling marketers to consider consumerneeds and wants that hitherto may have beenoverlooked.20 ‘The resourceful manager will look for the positive opportunities created by consumerism rather than brood over its restraints.’

Marketing as a constraint oninnovation

In an influential article Tauber showed how marketing research discouraged major inno-vation.21 The thrust of his argument was that relying on customers to guide the development ofnew products has severe limitations. This isbecause customers have difficulty articulatingneeds beyond the realm of their own experience.This suggests that the ideas gained from market-ing research will be modest compared to thosecoming from the ‘science push’ of the researchand development laboratory. Brownlie and Sarenagree that, particularly for discontinuous inno-vations (e.g.Xerox,penicillin), the role of productdevelopment ought to be far more proactive than


this.22 Indeed technological innovation is theprocess that ‘realizes’ market demands whichwere previously unknown. Thus the effectiveexploitation and utilization of technology indeveloping new products is at least as importantas market-needs analysis.

However, McGee and Spiro point out that these criticisms are not actually directed towardsthe marketing concept itself but towards its faulty implementation: an overdependence oncustomers as a source for new product ideas.23

They state that the marketing concept does notsuggest that companies must solely depend on the customer for new product ideas. Rather theconcept implies that new product developmentshould be based on sound interfacing betweenperceived customer needs and technologicalresearch. Project SAPPHO, which investigatedinnovation in the chemical and scientific instru-ment industries, found that successful innovationswere based on a good understanding of userneeds.24 Unsuccessful innovations, on the otherhand, were characterized by little or no attentionto user needs.

Creating customer valueand satisfaction

Customer value

Marketing-orientated companies attempt to create customer value in order to attract andretain customers.Their aim is to deliver superiorvalue to their target customers. In doing so, theyimplement the marketing concept by meetingand exceeding customer needs better than thecompetition. For example, McDonald’s global success has been based on creating added valuefor its customers which is based not only on the food products it sells but on the completedelivery system that goes to make up a fast-foodrestaurant. It sets high standards in what is calledQSCV—Quality, Service, Cleanliness and Value.Customers can be sure that the same high standards will be found in all of McDonald’s outlets around the world. This example shows that customer value can be derived from manyaspects of what the company delivers to its customers—not just the basic product.

Customer value is dependent on how the

customer perceives the benefits of an offering andthe sacrifice that is associated with its purchase.Therefore:

Customer value � Perceived benefits� Perceived sacrifice

Perceived benefits can be derived from theproduct (for example,the taste of the hamburger),the associated service (for example, how quicklycustomers are served and cleanliness of the outlet) and the image of the company (for example, is the image of the company/productfavourable?).

A further source of perceived benefits is therelationship between customer and supplier.Customers may enjoy working with supplierswith whom they have developed close relation-ships. They may have developed close personaland professional friendships and value the convenience of working with trusted partners.

Perceived sacrifice is the total costs associatedwith buying the product. This consists of not just monetary cost but the time and energyinvolved in purchase. For example, with fast-foodrestaurants,good location can reduce the time andenergy required to find a suitable eating place.Butmarketers need to be aware of another criticalsacrifice in some buying situations. This is thepotential psychological cost of not making theright decision.Uncertainty means that people per-ceive risk when purchasing. McDonald’s attemptsto reduce perceived risk by standardizing its complete offer so that customers can be confidentof what they will receive before entering its outlets. In organizational markets, companies offer guarantees to reduce the risk of purchase.Figure 1.6 illustrates how perceived benefits andsacrifice affect customer value. It provides aframework for considering ways of maximizingvalue.The objective is to find ways of raising per-ceived benefits and reducing perceived sacrifice.

Customer satisfaction

Exceeding the value offered by competitors is keyto marketing success. Consumers decide uponpurchases on the basis of judgements about thevalues offered by suppliers. Once a product isbought, customer satisfaction depends uponits perceived performance compared to thebuyer’s expectations. Customer satisfactionoccurs when perceived performance matches or


exceeds expectations. Expectations are formedthrough post-buying experiences, discussionswith other people, and suppliers’ marketing activities.Companies need to avoid the mistake ofsetting customer expectations too high throughexaggerated promotional claims since this canlead to dissatisfaction if performance falls short ofexpectations.

In today’s competitive climate, it is often notenough to match performance and expectations.Expectations need to be exceeded for commercialsuccess so that customers are delighted with theoutcome. In order to understand the concept of customer satisfaction the Kano model (see Fig. 1.7) helps to separate characteristics thatcause dissatisfaction, satisfaction and delight.

Three characteristics underlie the model: ‘mustbe’,‘more is better’ and ‘delighters’.

‘Must be’ characteristics are expected to bepresent and are taken for granted. For example, ina hotel,customers expect service at reception anda clean room. Lack of these characteristics causesannoyance but their presence only brings dissatisfaction up to a neutral level.‘More is better’characteristics can take satisfaction past neutralinto the positive satisfaction range. For exampleno response to a telephone call can cause dissatis-faction, but a fast response may cause positive satisfaction or even delight. ‘Delighters’ are theunexpected characteristics that surprise the customer. Their absence does not cause dissatis-faction but their presence delights the customer.For example a UK hotel chain provides free measures of brandy in the rooms of their adultguests. This delights many of its customers whowere not expecting this treat. Another way todelight customer is to under promise and overdeliver. For example, by saying that a repair willtake about five hours but getting it done aftertwo.25

A problem for marketers is that over timedelighters become expected. For example, somecar manufacturers provided small unexpecteddelighters such as pen holders, and delay mech-anisms on interior lights so that there is time tofind the ignition socket at night. These are standard on most cars now and have become‘must be’ characteristics as customers expectthem.This means that marketers must constantlystrive to find new ways of delighting. Innovativethinking and listening to customers are key ingredients in this. Marketing in Action 1.2explains how to listen to customers.


Energycosts

Timecosts

Monetarycosts

Imagebenefits

Relationalbenefits

Servicebenefits

Productbenefits

Psychologicalcosts

Perceivedbenefits

Perceivedsacrifice

Customervalue

NegativePositive

Figure 1.6 Creating customer value

Cus

tom

er s

atis

fact

ion

Dissatisfaction

Neutral

Delight

Absent Fulfilled

‘Must be’

‘Delighters’

‘More is better’

Presence of the characteristic

Figure 1.7 Creating customer satisfaction.Source: Joiner, B.L. (1994) Fourth Generation Management,New York: McGraw-Hill

Developing an effectivemarketing mix

Based upon its understanding of customers, acompany develops its marketing mix. The marketing mix consists of four major elements:product, price, promotion and place.These ‘4-Ps’are the four key decision areas that marketersmust manage so that they satisfy or exceed customer needs better than the competition. Inother words, decisions regarding the marketingmix form a major aspect of marketing conceptimplementation.The second module of this booklooks at each of the 4-Ps in considerable detail.Atthis point, it will be useful to examine each element briefly so that we can understand theessence of marketing mix decision-making.

Product

The product decision involves deciding whatgoods or services should be offered to a group ofcustomers.An important element is new productdevelopment. As technology and tastes change,products become out-of-date and inferior to competition so companies must replace themwith features that customers value.The launch ofthe £40 000 Range Rover Vogue incorporated anew suspension system based upon 10 litres ofmicroprocessed air.26 Four air springs are operated by an electronic control unit under theright front seat which reads height sensors, roadand engine speed, foot and handbrake, autotrans-mission level and door-closing switches. The airsprings offer five different height settings varying


1 . 2 M a r ke t i n g i n A c t i o nListening to Customers

Top companies recognize the importance of listening to their customers as part of their strategy tomanage satisfaction. Customer satisfaction indices are based on surveys of customers and the results plotted over time to reveal changes in satisfaction levels.The first stage is to identify thosecharacteristics (choice criteria) which are important to customers when evaluating competingproducts. The second stage involves the development of measuring scales (often statements followed by strongly agree–strongly disagree response boxes) to quantitatively assess satisfaction.

Marketing research can also be used to question new customers about why they first bought,and lost customers (defectors) on why they have ceased buying. In the latter case, a second objective would be to attempt a last-ditch attempt to keep the customer. One bank found that a quarter of its defecting customers would have stayed had the bank attempted to rescue the situation.

One company which places listening to customers high on its list of priorities is Kwik-Fit, the carrepair group.Customer satisfaction is monitored by its customer survey unit which telephones 5000customers a day within 72 hours of their visit to a Kwik-Fit Centre.

A strategy also needs to be put in place to manage customer complaints, comments and questions. A system needs to be set up that solicits feedback on product and service quality andfeeds the information to the appropriate employees.To facilitate this process front-line employeesneed training to ask questions, to listen effectively, to capture the information and to communicateit so that corrective action can be taken.

Based on: Jones and Sasser Jr (1995);27 Morgan (1996);28 White (1999)29


Brittany Ferries promote the benefit of relaxation

by 13 cm: high profile for wading or off road,standard for normal road use, low which auto-matically engages under 50 m.p.h., extended toregain traction when the bottom is grounded,and access for getting into and out of the vehicle.Sensors read each wheel 100 times a second for aride of remarkable smoothness. These featureshave been built into the Range Rover becausethey confer customer benefits. For example, thenew lower level for access was incorporated intothe design because marketing research had dis-covered that women occasionally found it embar-rassing to climb into the old version. Some motor-ing journalists have christened this the ‘modesty’level. The illustration opposite shows how Brittany Ferries promote the benefit of relaxationduring their crossing.

Product decisions also involve choices regarding brand names, guarantees, packaging and the services which should accompany the product offering. Guarantees can be an important component of the product offering.For example, the operators of the AVE,Spain’s high-speed train capable of travelling at300 km.p.h. are so confident of its performancethat they guarantee to give customers a full refund of their fare if they are more than five minutes late.

Price

Price is a key element of the marketing mixbecause it represents on a unit basis what thecompany receives for the product or servicewhich is being marketed.All of the other elementsrepresent costs, for example, expenditure onproduct design (product), advertising and sales-people (promotion) and transportation and distribution (place). Marketers, therefore, need tobe very clear about pricing objectives, methods,and the factors which influence price setting.They also must take into account the necessity todiscount and give allowances in some trans-actions. These requirements can influence thelevel of list price chosen,perhaps with an elementof negotiation margin built in. Payment periodsand credit terms also affect the real price receivedin any transaction. These kinds of decisions canaffect the perceived value of a product or serviceoffering.

Promotion

Decisions have to be made with respect to the promotional mix: advertising, personal selling, sales promotions, public relations, direct marketing and Internet and on-line marketing. Bythese means the target audience is made aware of the existence of a product or service and thebenefits (both economic and psychological) thatit confers to customers. Each element of the promotional mix has its own set of strengths andweakness and these will be explored in the second module of this book. Advertising, for example, has the property of being able to reachwide audiences very quickly. Procter and Gambleused advertising to reach the emerging market of 290 million Russian consumers. They ran a 12-minute commercial on Russian television as their first promotional venture in order to introduce the company and its range of products.30 A growing form of promotion is theuse of the Internet as a promotional tool. A keyadvantage is that small companies can expand the scope of their market at relatively low cost.E-Marketing 1.1 illustrates how the use of theinternet can radically change the fortunes of asmall business.

Place

Place involves decisions concerning the distri-bution channels to be used and their manage-ment, the locations of outlets, methods of transportation and inventory levels to be held.Theobjective is to ensure that products and servicesare available in the proper qualities, at the righttime and place. Distribution channels consist oforganizations such as retailers or wholesalersthrough which goods pass on their way to customers. Producers need to manage their relationships with these organizations wellbecause they may provide the only cost-effectiveaccess to the marketplace.

Key characteristics of aneffective marketing mix

There are four hallmarks of an effective marketingmix (see Fig. 1.8).


The marketing mix matchescustomer needs

Sensible marketing mix decisions can be madeonly when the target customer is understood.Choosing customer groups to target will be discussed in Chapter 6, which examines theprocess of market segmentation and target marketing. Once the decision about the targetmarket(s) is taken, marketing management needsto understand how customers choose betweenrival offerings.They need to look at the product orservice through customers’ eyes and understand,among other factors, the choice criteria they use.

Figure 1.9 illustrates the link between cus-tomer choice criteria and the marketing mix.Thestarting-point is the realization that customers

evaluate products on economic and psychologicalcriteria. Economic criteria include factors such asperformance, availability, reliability, durability andproductivity gains to be made by using the product. Examples of psychological criteria areself-image, a desire for a quiet life, pleasure,convenience and risk reduction. These will be discussed in detail in Chapter 3. The importantpoint at this stage is to note that an analysis of customer choice criteria will reveal a set of key customer requirements that must be met inorder to succeed in the marketplace. Meeting orexceeding these requirements better than thecompetition leads to the creation of a competitiveadvantage.Style is an example of a choice criterionand is used by Ericsson to create a competitiveadvantage, as the illustration overleaf shows.

The marketing mix creates acompetitive advantage

A competitive advantage may be derived fromdecisions about the 4-Ps.A competitive advantageis a clear performance differential over the competition on factors which are important tocustomers.The example of the Range Rover Voguelaunch is an example of a company using productfeatures to convey customer benefits in excess ofwhat the competition is offering.Variable heightadjustment can therefore be regarded as anattempt to establish a competitive advantagethrough product decisions. Aldi, the Germansupermarket chain, is attempting to establish acompetitive advantage in the UK by low prices,a key customer requirement of its chosen targetgroup of customers.

Using advertising as a tool for competitive


Creates acompetitiveadvantage

Wellblended

Effectivemarketing

mix

Matches customerneeds

Matches corporateresources

Figure 1.8 Hallmarks of an effectivemarketing mix

Economic

Performance

Availability

Reliability

Durability

Productivity

Psychological

Self-image

Quiet life

Pleasure

Convenience

Risk reduction

Customer

Product

Price

Promotion

Place

Marketing mix

Keycustomer

requirements

Competitiveadvantage

Figure 1.9 Matching the marketing mix to customer needs

advantage is often used when product benefits areparticularly subjective and amorphous in nature.Thus the advertising for perfumes such as Chanel,Givenchy and Yves St Laurent is critical in pre-serving the exclusive image established by suchbrands.The size and quality of the salesforce canact as a competitive advantage.A problem that acompany such as Rolls-Royce faces is the rela-tively small size of its salesforce compared to theirgiant competitors Boeing and General Electric.Finally, distribution decisions need to be madewith the customer in mind not only in terms ofavailability but also with respect to service levels,image and customer convenience. Scotcade builtup a successful mail order business with directdistribution of consumer goods—for example,clothing and accessories—by using Sunday

magazines to advertise their products. This is an example of where the combination of two elements of the marketing mix were usedtogether in a novel way to satisfy customer needsfor convenience of purchase at a time when they were relaxed and had time to send for themerchandise.

The marketing mix should be wellblended

The third characteristic of an effective marketingmix is that the four elements—product, price,promotion and place—should be well blended to form a consistent theme. If a product gives


1 . 1 e - M a r ke t i n gPromoting through the Internet

Through market research, Paul Smedley found that many people would like to buy high-qualitychocolates but were unable to buy them within the UK. His initial idea was to import chocolatesfrom mainland Europe and to sell these through mail order. However, during the business planningprocess, he found that mail order companies face certain restrictions concerning taking credit card payments over the telephone. His solution was to open a shop known as Sweet Seduction inLeamington Spa in the West Midlands of the UK and to run mail order as a part of the overall business operation.

The company advertised the mail order business through the shop, through flyers and direct mailshots.The business did not advertise on a national basis and hence the majority of the mail ordersales came from customers in the immediate vicinity of the shop. Paul used a personal computer toprepare the company accounts, and through contacts with the local computer industry he becameinterested in the potential opportunities which might be available from exploiting the Internet.He established a dial-up Internet connection through the Internet Service Provider, Demon, andthen worked with a consultant to develop software which would permit Sweet Seduction to sellchocolates over the Internet. As the company already had a PC, there was no need to purchase any new hardware other than a modem. Hence the additional expenditure was restricted to thepayment of a rental fee for use of the Parallax site.

The launch of the website was accompanied by a national and local press campaign to make people aware of the website address, www.parallaxco.uk.seduct.The launch of the Internet site hada dramatic impact on the mail order business, bringing in both new customers and increased repeatpurchase by existing customers. Within only a few months retail shop sales were overtaken by revenue generated from the mail order and Internet operation.

Based on: Lymer et al. (1998)31


Style is an important choice criterion for brands that are conspicuous in use

superior benefits to customers, price, which maysend cues to customers regarding quality, shouldreflect those extra benefits.All of the promotionalmix should be designed with the objective ofcommunicating a consistent message to the targetaudience about these benefits, and distributiondecisions should be consistent with the overallstrategic position of the product in the market-place.The use of exclusive outlets for up-marketfashion and cosmetic brands—Armani, ChristianDior and Calvin Klein, for example—is consistentwith their strategic position.

The marketing mix should matchcorporate resources

The choice of marketing mix strategy may be constrained by the financial resources of the company. Laker Airlines used price as a com-petitive advantage to attack British Airways andTWA in transatlantic flights.When they retaliatedby cutting their airfares Laker’s financial resourceswere insufficient to win the price war. Certainmedia, for example television advertising, requirea minimum threshold investment before they areregarded as feasible. In the UK a rule of thumb is that at least £1 million per year is required to achieve impact in a national advertising campaign. Clearly those brands which cannotafford such a promotional budget must use otherless expensive media, for example posters or salespromotion, to attract and hold customers.

A second internal resource constraint may bethe internal competences of the company. A marketing mix strategy may be too ambitious for the limited marketing skills of personnel toimplement effectively.While an objective may beto reduce or eliminate this problem in themedium to long term, in the short term marketingmanagement may have to heed the fact that strategy must take account of competences. Anarea where this may manifest itself is within theplace dimension.A company lacking the personalselling skills to market a product directly to endusers may have to use intermediaries (distributorsor sales agents) to perform that function.

To bring to life the opportunities associatedwith developing an effective marketing mix,Marketing in Action 1.3 examines the rise of IKEA;the Swedish-based retailer, to become an inter-national force in stylish furniture.

Criticisms of the 4-Psapproach to marketingmanagement

Some critics of the 4-Ps approach to the marketingmix argue that it oversimplifies the reality of marketing management. Booms and Bitner forexample argue for a 7-Ps approach to servicesmarketing.32 Their argument, which will be discussed in some detail in Chapter 20 on servicesmarketing, is that the 4-Ps do not take sufficientaccount of people,process and physical evidence.In services people often are the service itself;the process or how the service is delivered to thecustomer is usually a key part of the service,and the physical evidence—the décor of therestaurant or shop for example—is so critical tosuccess that it should be considered as a separateelement in the services marketing mix.

Rafiq and Ahmed argue that this criticism of the 4-Ps can be extended to include industrialmarketing.33 The interaction approach to under-standing industrial marketing stresses that successdoes not come solely from manipulation of themarketing mix components but long-term relationship building whereby the bond betweenbuyer and seller become so strong that it effec-tively acts as a barrier to entry for out-suppliers.34

This phenomenon undoubtedly exists to such anextent that industrial buyers are now increasinglyseeking long-term supply relationships with suppliers. Lucas (a UK components producer) aspart of its Strategic Sources Review sought suchpartnerships with preferred suppliers. Lucashelps investment with such suppliers who in turnallow Lucas to understand their costs. Bosch, theGerman producer of industrial and consumergoods, conducts quality audits of its suppliers.These kinds of activities are not captured in the 4-Ps approach, it is claimed.

Nevertheless, there is no absolute reason whythese extensions cannot be incorporated withinthe 4-Ps framework.35 People, process and physical evidence can be discussed under ‘product’, and long-term relationship buildingunder ‘promotion’, for example. The importantissue is not to neglect them, whether the 4-Psapproach or some other method is used to conceptualize the decision-making areas of marketing. The strength of the 4-Ps approach isthat it represents a memorable and practical


framework for marketing decision-making and hasproved useful for case study analysis in businessschools for many years.

Marketing and businessperformance

The basic premise of the marketing concept isthat its adoption will improve business perform-ance.Marketing is not an abstract concept: its acidtest is the effect that its use has on key corporateindices such as profitability and market share.Fortunately in recent years three quantitativestudies in both Europe and North America havesought to examine the relationship between marketing and performance. The results suggestthat the relationship is positive.We examine eachof the three studies in turn.

Marketing characteristics andbusiness performance

In a study of 1700 senior marketing executivespublished in 1985, Hooley and Lynch reported the marketing characteristics of high versus lowperforming companies.36 The approach that theyadopted was to isolate the top 10 per cent ofcompanies (based on such measures as profit

margin, return on investment and market share)and to compare their marketing practice with theremainder of the sample.The high fliers differedfrom the also-rans as follows:

1 More committed to marketing research.

2 More likely to be found in new, emerging orgrowth markets.

3 Adopted a more proactive approach tomarketing planning.

4 More likely to use strategic planning tools.

5 Placed more emphasis on productperformance and design rather than pricefor achieving a competitive advantage.

6 Worked closer with the finance department.

7 Placed greater emphasis on market share as amethod of evaluating marketingperformance.

Marketing orientation and businessperformance

Narver and Slater studied the relationshipbetween marketing orientation and business performance.37 Marketing orientation was basedupon three measures: customer orientation,competitor orientation, and the degree of inter-functional coordination.They collected data from113 strategic business units (SBUs) of a major


Prof

itabi

lity

Low HighMedium

Market orientation

Prof

itabi

lity

Low HighMedium

Market orientation

Commodity businesses Non-commodity businesses

Figure 1.10 The relationship between market orientation and profitability

US corporation. The businesses comprised 36commodity businesses (forestry products) and 77non-commodity businesses (speciality productsand distribution businesses). They related theSBU’s profitability,as measured by return on assets

in relation to competitors over the last year in the SBU’s principal served market, to their three-component measure of market orientation.

Figure 1.10 shows the results of their study.For commodity businesses the relationship was


1 . 3 M a r ke t i n g i n A c t i o nIKEA Expands Internationally

The success of IKEA, the Swedish-based furniture and home furnishings store, is impressive. In fourdecades it has grown from a single store in Sweden to become one of the most successful international retailers in the world. The first store outside Scandinavia opened in Switzerland in1973. Since then IKEA has opened 70 stores around Europe and has expanded into 29 countrieswith 158 on four continents. It is now the world’s largest furniture retailer. Its clean, simple designshave become fashionable around the world, making it one of the few retailers to sell products thatare able to cross national boundaries.

Two factors make IKEA’s growth even more remarkable. First, unlike most furniture retailerswhich have been badly affected by the recession, IKEA has proven recession resistant. Second, IKEA’ssales per square foot are over 2.5 times the industry average.What are the bases of their success?

First, they have a clear marketing-orientated business philosophy. ‘We shall offer a wide range ofhome furnishing items of good design and function at prices so low that the majority of people canafford to buy them.’ The key has been to use huge volumes and simple self-assembly designs to keepprices low, while selling more stylish products than the competition.The products are based uponSweden’s strong design skills which produce products from furniture to household items such ascrockery and linen.Variations in national tastes have been smoothed into a uniform, modern look.IKEA sell a range of 12 000 products that are all designed in-house but manufactured around the world. The combination of stylish products, an enormous range from which to choose,and inexpensive prices produces a powerful competitive advantage to middle-income people,particularly young homemakers, their primary target market segment.

IKEA augment their offering by providing a playroom for 3–7-year-olds, a children’s cinema, baby-care rooms, and children’s buggies to appeal to couples with young children.They provide a familyrestaurant (with Swedish specialities), a bistro and a Sweden shop selling such items as biscuits, jamsand preserved fish to enhance the experience of shopping there. Finally, they cater for customers’needs by supplying a home delivery service, the possibility of buying or borrowing a roof rack,wheelchairs for disabled people, and a one-month no-nonsense returns policy.

The distribution policy is to build vast out-of-town stores which cater for regions.Their policy isone of cautious expansion. In 1992 IKEA had five stores in the UK; by 2000 this had grown to 10,with plans to open another 20.They attempt to penetrate one region successfully before movingon to the next.

IKEA is a classic example of how the marketing mix can be designed to meet customer needsbetter than the competition.Their strong competitive advantages are the bases of their success.

Based on: Lynn (1992);38 Thornhill (1992);39 Jones. (1996);40 Anonymous (1999);41 Baird. (1998);42 Bring et al. (1999); 43

Clark;44 Moss (2000)45

U-shaped, with low and high market-orientationbusinesses showing higher profitability than thebusinesses in the mid-range of market orientation.Businesses with the highest market orientationhad the highest profitability and those with thelowest market orientation had the second highest profitability.They explained this result by suggesting that the businesses lowest in marketorientation may achieve some profit successthrough a low cost strategy, though not the profitlevels of the high market orientation businesses,an explanation supported by the fact that they were the largest companies of the threegroups.

For the non-commodity businesses the relation-ship was linear,with the businesses displaying thehighest level of market orientation achieving the highest levels of profitability and those withthe lowest scores on market orientation havingthe lowest profitability figures. As the authorsstate: ‘The findings give marketing scholars andpractitioners a basis beyond mere intuition forrecommending the superiority of a market orientation.’

The marketing philosophy andbusiness performance

A study published in 1990 by Hooley, Lynch andShepherd sought to develop a typology ofapproaches to marketing and to relate thoseapproaches to business performance.46 Based ona sample of over 1000 companies, they identifiedfour distinct groups of companies, as shown inFig. 1.11.

The marketing philosophers saw marketing as a function with the prime responsibility foridentifying and meeting customers’needs and as aguiding philosophy for the whole organization:they did not see marketing as confined to the marketing department, nor did they regard it asmerely sales support. The sales supporters sawmarketing’s primary functions as being sales andpromotion support. Marketing was confined towhat the marketing department did and had littleto do with identifying and meeting customerneeds.

The departmental marketers not only sharedthe view of the marketing philosophers that marketing was about identifying and meeting

customer needs but also believed that marketingwas restricted to what the marketing departmentdid.The final group of companies—the unsures—tended to be indecisive regarding their marketingapproach.Perhaps the term stuck-in-the-middlerswould be apt for these companies.

The attitudes,organization and practices of thefour groups were compared, with the marketingphilosophers exhibiting many distinct character-istics. In summary:

1 Marketing philosophers adopted a more proactive aggressive approach towards thefuture.

2 They had a more proactive approach to newproduct development.

3 They placed a higher importance onmarketing training.

4 They adopted longer time horizons formarketing planning.

5 Marketing had a higher status within thecompany.

6 Marketing had a higher chance of beingrepresented at board level.

7 Marketing had more chance of workingclosely with other functional areas.

8 Marketing made a greater input into strategicplans.

The performance of the four groups was alsocompared using two criteria: a subjectivelyreported return on investment (ROI) figure, andperformance relative to major competitors. Themarketing philosophers achieve a significantlyhigher ROI than the remainder of the sample.Thedepartmental marketers performed at the sampleaverage, while the unsures and sales supportersperformed significantly worse. The marketingphilosophers performed significantly better thaneach of the other groups. Using the performancerelative to competitors’ criteria, the marketingphilosophers again came out top, followed by thedepartmental marketers.

Hooley et al.’s conclusion was that marketingshould be viewed not merely as a departmentalfunction but as a guiding philosophy for thewhole organization. ‘Our evidence points toimproved performance among companies thatadopt this wider approach to business.’47

What overall conclusions can be drawn fromthese three studies? In order to make a balancedjudgement their limitations must be recognized.


They were all cross-sectional studies based uponself-reported data. With any such survey there isthe question of the direction of causality. Perhapssome respondents inferred their degree of marketing orientation by reference to their per-formance level. However, this clearly did notoccur with the commodity sample in the Narverand Slater study.48 What these three separate studies have consistently and unambiguouslyshown is a strong association between marketingand business performance. As one condition forestablishing causality, this is an encouraging resultfor those people concerned with promoting themarketing concept as a guiding philosophy forbusiness.

Summary

Marketing achieves company goals by meetingand exceeding customer needs better than thecompetition. The focus is on giving extra value

rather than widespread cost cutting. Marketing-orientated companies attempt to achieve not onlyefficiency but also effectiveness—the ability toattract and retain customers.They show customerconcern throughout the business and encourageinnovation so that new products can be developed to meet the needs of tomorrow’s customers.

However, it should be recognized that the marketing concept has its limitations. It shouldnot be regarded as an ideology; societal as well asindividual considerations need to be taken intoaccount,and the limitations of marketing researchas a means of developing fundamentally newproducts should be acknowledged.

A key marketing task is to understand customerneeds and develop a competitive advantagethrough marketing mix decisions.The marketingmix comprises the 4-Ps: product, price, pro-motion, and place. Implementing the marketingconcept in organizations can be difficult but studies have shown that the rewards in terms ofbetter business performance can be expected.


Unsures

Marketingphilosophers

A guiding philosophyfor the wholeorganization

Philosophy

Identifying andmeeting

customer needs

Departmentalmarketeers

Confined to whatthe marketing

department does

Primarily sales andpromotional support

Function

Salessupporters

Figure 1.11 Marketing approaches.Source: Hooley, G. J., J. E. Lynch, and J. Shepherd (1990) The Marketing Concept: Putting Theory into Practice, European Journal ofMarketing, 24 (9), 11. Reproduced with permission


Marketing concept

Sites to visithttp://www.virgin.co.ukhttp://www.gucci.comhttp://www.ikea.comhttp://www.starbucks.com/

ExerciseCompare and contrast the four organizations’ marketing orientation.

Internet exercise

1 What are the essential characteristics of amarketing-orientated company?

2 Are there any situations where marketingorientation is not the most appropriatebusiness philosophy?

3 Explain how the desire to becomeefficient may conflict with beingeffective.

4 What barriers may a marketing managerface when trying to convince otherpeople within an organization that theyshould adopt the marketing concept?

5 To what extent do you agree with the crit-icisms of the marketing concept and the4-Ps approach to marketing decision-making?

Study questions

1. Drucker, P. F. (1999) The Practice of Management,London: Heinemann.

2. Rosenberg, L. J. and J.A. Czepeil (1983) A MarketingApproach to Customer Retention, Journal of ConsumerMarketing, 2, 45–51.

3. Grönroos, C. (1989) Defining Marketing:A Market-Oriented Approach, European Journal of Marketing,23 (1), 52–60.

4. Houston, F. S. (1986) The Marketing Concept:What It Isand What It Is Not, Journal of Marketing, 50, 81–7.

5. Levitt,T. (1969) The Marketing Mode, New York:McGraw-Hill.

6. Parkinson, S.T. (1991) World Class Marketing: From LostEmpires to the Image Man, Journal of MarketingManagement, 7 (3), 299–311.

7. Morgan, R. E. and C.A. Strong (1998) Market Orientationand Dimensions of Strategic Orientation, EuropeanJournal of Marketing, 32 (11/12), 1051–73.

8. Brown, R. J. (1987) Marketing:A Function and aPhilosophy, Quarterly Review of Marketing, 12 (3),25–30.

9. Abell, D. F. (1978) Strategic Windows, Journal ofMarketing, July, 21–6.

10. Anonymous (1989) Fortress Europe, Target Marketing,12 (8), 12–14.

11. BBC2 Television (1993) Hypermarketing. France MeansBusiness series, 23 February.

12. Anonymous (1998) Global Powers in Retailing, Stores,34–5.

13. Peters,T. J. and R. H.Waterman Jr (1982) In Search ofExcellence: Lessons from America’s Best RunCompanies, New York: Harper and Row.

14. Kohli,A. K. and B. J. Jaworski (1990) Market Orientation:The Construct, Research Propositions and ManagerialImplications, Journal of Marketing, 54 (April), 1–18.

15. Davidson, H. (1998) Offensive Marketing,Harmondsworth: Penguin.

16. Saunders, J. and V.Wong (1985) In Search of Excellencein the UK, Journal of Marketing Management, winter,119–37.

17. Kashani, K. (1984) Managing the Transition fromMarketing Strategy to Sales Force Action, Journal ofSales Management, 1 (2), 21–5.

18. Brownlie, D. and M. Saren (1992) The Four Ps of the Marketing Concept: Prescriptive, Polemical, Permanentand Problematical, European Journal of Marketing,26 (4), 34–47.

19. Wensley, R. (1990) The Voice of the Consumer?Speculations on the Limits to the Marketing Analogy,European Journal of Marketing, 24 (7), 49–60.

20. Bloom, P. N. and S.A. Greyser (1981) The Maturity ofConsumerism, Harvard Business Review, Nov.–Dec.,130–9.

21. Tauber, E. M. (1974) How Marketing Research

References


Discourages Major Innovation, Business Horizons, 17(June), 22–6.

22. Brownlie and Saren (1992) op. cit.23. McGee, L.W. and R. L. Spiro (1988) The Marketing

Concept in Perspective, Business Horizons, May–June,40–5.

24. Rothwell, R. (1974) SAPPHO Updated: Project SAPPHOPhase II, Research Policy, 3.

25. White, D. (1999) Delighting in a Superior Service,Financial Times, 25 November, 17.

26. Samuel, J. (1992) Marketing Air Waves, GuardianWeekend, 3 October, 39.

27. Jones,T. O. and W. E. Sasser, Jr (1995) Why SatisfiedCustomers Defect, Harvard Business Review,November–December, 88–99.

28. Morgan,A. (1996) Relationship Marketing,Admap,October, 29–33.

29. White D. (1999) Delighting in a Superior Service,Financial Times, 25 November, 17.

30. Freeman, L. and L.Wentz (1990) P and G’s First Soviet TVSpot, Advertising Age, 12 March, 56–7.

31. Lymer, A., A. Nayak, R. Johnson and B. Spaul (1998) UKBusiness and The Information Highway,ACCA OccasionalResearch Paper No.23,Association of Chartered CertifiedAccountants, London, 41–3

32. Booms, B. H. and M. J. Bitner (1981) Marketing Strategiesand Organisation Structures for Service Firms, in Don-nelly, J. H. and W. R. George (eds) Marketing of Services,Chicago:American Marketing Association, 47–52.

33. Rafiq, M. and P. K.Ahmed (1992) The Marketing MixReconsidered, Proceedings of the Marketing EducationGroup Conference, Salford, 439–51.

34. Ford, D., H. Håkansson and J. Johanson (1986) How Do

Companies Interact? Industrial Marketing andPurchasing, 1 (1), 26–41.

35. Buttle, F. (1989) Marketing Services, in Jones, P. (ed.)Management in Service Industries, London: Pitman,235–59.

36. Hooley, G. and J. Lynch (1985) Marketing Lessons fromUK’s High-Flying Companies, Journal of MarketingManagement, 1 (1), 65–74.

37. Narver, J. C. and S. F. Slater (1990) The Effect of a MarketOrientation on Business Profitability, Journal ofMarketing, 54 (October), 20–35.

38. Lynn, M. (1992) Booming IKEA Conquers Britain’sMiddle Classes,Sunday Times,13 September,section 3,5.

39. Thornhill, J. (1992) IKEA’s Logic Furnishes a MarketRiddle, Financial Times, 20 October, 27.

40. Jones, H. (1996) IKEA’s Global Strategy is a WinningFormula, Marketing Week, 15 March, 22.

41. Anonymous (1999) IKEA Sparks Border Clashes,Marketing, 26 August, 53.

42. Baird, R. (1998) IKEA Avoids Free Fall in FurnitureSector, Marketing Week, 15 October, 21.

43. Bring, J., J. Zaleski, P. Gediman and C.Abbott (1999)Leading by Design:The IKEA Story, Publishers Weekly,19 July, 174.

44. Clark,A. (2000) Branching Out, The Guardian, 20 June,30.

45. Moss, S. (2000) The Gospel According to IKEA, TheGuardian, 26 June, 2.

46. Hooley, G., J. Lynch and J. Shepherd (1990) TheMarketing Concept: Putting the Theory into Practice,European Journal of Marketing, 24 (9), 7–23.

47. Hooley, Lynch and Shepherd (1990) op. cit.48. Narver and Slater (1990) op. cit.

exchange the act or process of receiving somethingfrom someone by giving something in return

marketing concept the achievement of corporategoals through meeting and exceeding customerneeds better than the competition

marketing orientation companies with amarketing orientation focus on customer needs asthe primary drivers of organizational performance

production orientation a business approach thatis inwardly focused either on costs or on adefinition of a company in terms of its productionfacilities

effectiveness doing the right thing, making thecorrect strategic choice

efficiency a way of managing business processes toa high standard, usually concerned with costreduction; also called ‘doing things right’

customer value perceived benefits minusperceived sacrifice

customer satisfaction the fulfilment of customers’requirements or needs

marketing mix a framework for the tacticalmanagement of the customer relationship,including product, place, price, promotion (4Ps). Inthe case of services three other elements to betaken into account are: process, people andphysical evidence.

product a good or service offered or performed byan organization or individual which is capable ofsatisfying customer needs

price (1) the amount of money paid for a product;(2) the agreed value placed on the exchange by abuyer and seller

promotional mix advertising, personal selling,sales promotions, public relations and directmarketing

place the distribution channels to be used, outletlocations, methods of transportation

competitive advantage a clear performancedifferential over competition on factors that areimportant to target customers

Key terms

Virgin’s entry into financial services

You bought the record, you drank the cola, youtook the aeroplane to New York, RichardBranson’s Virgin empire is more than a casualassortment of consumer goods; in marketingterms, it is a whole way of life. But Branson’sbaby boomers are about to grow up.With allthe pre-publicity of a Hollywood film premiere,Virgin is set to enter its least glamorous market:the personal equity plan.1

Ask any member of the Virgin Direct team whyRichard Branson was interested in the financialservices market and you will get the answer ‘if anindustry needs “sorting out”, Richard Branson isinterested in doing so’.The brand image of goodservice, good value for money and of challengingthe status quo has led Richard Branson’s VirginGroup to diversify into a variety of seeminglyunrelated sectors. If the customers needs could be met better, then there is a challenge for the Virgin brand. In the words of Jayne-Anne Gadhia,operations director of Virgin Direct:

The Virgin brand is about taking on the rest ofthe industry. It is a brand with personality.Richard Branson is seen by the public as acustomers’ champion, who is allowed toquestion how to do things better and differently.

In March 1995 the Virgin Group set up a jointventure with Norwich Union to enter the financialservices market using the telephone as its distribution method. On entry into the market,Virgin stated its aims:

to advertise itself as the friendly face in a worldof financial cowboys.The combination of easy-to-understand products and low initial chargeswill soon be applied to pensions and lifeinsurance, where public faith has been shaken byaccusations of miss-selling and over-charging.2

The Virgin PEP was Richard Branson’s attempt toattract new customers into a market that he feltwas over-complicated.After experiences of tryingto invest his own money, Branson said of the financial services market:

My impression was that it was packed withhidden charges, pushy salesmen, poorperformance and meaningless jargon. I couldn’tbelieve it could all be so complicated, so I puttogether a team to do it better.3

Virgin Direct’s target market can be broadlydescribed as aged 35�, ABC1 adults.The companyhas a wide appeal and, while viewed as a young brand, has been particularly successful inattracting the older age groups.The opportunitycreated by an often ill-served customer cuts rightacross the demographic groups.

The managing director of Virgin Direct, RowanGormley, regards traditional financial services asproduct-oriented.They are concerned at creatingclever products even though these are expensiveand ineffective in meeting customers’ needs:

They create new options, new bells and whistles.Once these have been sold, they need to payadministration costs to run a massive number ofvariants.The customer is paying for this and forthe sales force. Resources are going into keepingthe business ticking over.Yet the fundamentalsare so simple. Obviously we need tocommunicate with the customer.We do this viathe telephone rather than by employing agentsor a salesforce.And we take a jigsaw approachto products: no gaps, no overlaps.That way thereis real value creation.

Virgin Direct’s approach to financial services is that of a virtuous circle. Identify a genuine customer need, design products to meet thatneed,offered by a company that can be trusted. Inthis way the maxim that financial services must besold, because they are not voluntarily bought, canbe broken.

26

Case 1 Virgin Direct 2000:Market-Orientated Personal Financial Services

1 Richard Wolffe Financial Times, 11 February 1995,WeekendMoney: Putting the Pop into PEPs, 1.2 Tony Wood, Virgin Direct Marketing Director, quoted inRichard Wolffe, Financial Times (1995) 11 February,WeekendMoney: Putting Pop into Peps—Virgin is about to expand intofinancial products but will sell them only by telephone, 1.

3 Richard Branson, Head of Virgin Group quoted in RichardWolffe, Financial Times, (1995) 4 March, 7.

An expanding portfolio of services

With its initial product, the Personal Equity Plan(PEP), Virgin made innovative use of index-tracking, a technique of investment which shadows the performance of the All Share stockmarket index, rather than using fund managerswho pick and choose the companies in whichthey invest.At the time of its launch this was thelowest price PEP, with no entry and exit charges.4

By July 1997, Virgin Direct managed over £1 billion on behalf of its 20 000 customers andthe Virgin Growth PEP had established itself as theUK’s most popular PEP. Virgin’s entry into this market forced established firms to review theircharges and brought a number of other non-financial services firms into the ‘no-frills’ sector.

Building on their early success, in June 1996Virgin launched life insurance, health and criticalillness plans and, on 1 November 1996, enteredthe pensions market. The introduction of thesenew, more complex financial products was a significant step. Virgin’s PEP products were initially sold on an execution-only basis;customers made their own decisions about thesuitability of the product based on the infor-mation provided. With a core product range inplace,Virgin Direct introduced a service to advisecustomers about the best financial choices fortheir own particular circumstances.Although it isearly days to judge the success of the move intolife insurance and pensions,Virgin received 6000phone calls a day during the launch of its pensionsand has over twice the industry conversion ratefrom interest into purchase.

The Virgin experience

Virgin Direct has two main communication rules.The first is about what is said. Everything must beabout the customer or for the customer. State-ments of fact should be used, not claims. The second is about the way things are said; clear,straightforward, not patronizing, witty, surprisingand different.Television has played a key role incommunicating the Virgin message. However, amajor challenge is that the target audience arelight viewers of television.Therefore the thrust ofadvertising has been through poster campaigns

and in the national press. Messages include:‘Beware of the charges of the light fingeredbrigade’ and ‘Choose the wrong pension and youmight be condemned to an extra eighteen monthsof hard labour’.

Part of Virgin Direct’s strategy is to put the customer firmly in control by giving the infor-mation they need. If a customer rings to ask aboutPEPs, an information pack will be sent with a simplified application form which has alreadybeen filled in with as many details as possible toreduce the time required to fill it in.A follow-upcall will check that the pack has arrived, but thecustomer will never be chased to return an application. This is part of Virgin’s ‘no pester promise’, a response to the hard sell tactics traditionally associated with the industry. In itssimplicity and clarity, Virgin Direct literature differs markedly from the complex financial formulae usually found and is one of the majortools in showing Virgin’s different approach to thebusiness.

The Call Centre is where the customers comeinto contact with the ‘Virgin Experience’. The systems are designed to be user friendly and tooffer quick quotes to customers. Every contactwith the customer is important and is carefullythought through.When the caller gives his or herpostcode, a database is called forward which provides details of any previous transactions withthe firm. Virgin undertakes not to supply this database to anyone else.

It is quite usual in life insurance to have to gothrough several stages of form filling before aquote can be given.At this stage the customer hasalready invested significant time and effort, butmay not even be eligible. Also, when needing toclaim, the definitions are so vague that it may notbe clear whether the person is covered.

To overcome this problem, Virgin Direct hasintroduced an expert system to allow the tele-operator to fill in the answers to a series of basicquestions. In the majority of cases, this will resultin an immediate quotation, although if there aresome pre-existing medical conditions, this may beprovisional pending a medical examination. Hereagain, Virgin have taken an innovative approach.Rather than telling the customer to go away,have a medical and then begin the process again,Virgin has a ‘nurse on a motorbike’. If a medical isnecessary, a date can be agreed there and thenwith the customer and someone will come tothem to carry it out.


4 Financial Times (1995) 4 October, Midweek Money:Branson Competes on Price—Bond Peps/Smart Money.

The launch of Virgin One

In October 1997, a year after the launch of pensions,Virgin Direct entered the retail bankingmarket with the words:

We are delighted to announce that we aretaking on the banks and building societies.Thenewspapers have been talking about it formonths, our competitors have feared it for agesand our customers have been asking for it foryears.We have teamed up with the Royal Bankof Scotland plc to launch the Virgin One accountwhich could change the way you manage yourmoney forever.(Launch Announcement, October 1997)

The Virgin One account offered the combined features of a mortgage, loan and current account(see Appendix C1.1). Richard Branson said, onlaunch, that it was:

set to turn personal banking on its head bybreaking down the artificial barrier betweensavings and borrowings . . . banking is inherently avery straightforward business: it astonishes methat it has been allowed to become socomplicated.

This new form of banking was aimed at busy people ‘who have got better things to do than tochase around trying to get a return on theirmoney’. It set a new challenge to traditional banksand building societies through the five principleswhich were used to create the account:

✦ One account, One statement and One phonenumber.

✦ All borrowings at mortgage rate.

✦ Your money works, you don’t.

✦ It’s your money not ours.

✦ You’ll be treated as an adult.

By late 1998, one year after launch, Virgin Onelending had reached the £500 million mark andhad 5000 account holders.

Creating sustainable advantage

During 1997 Virgin Direct saw business grow dramatically.Funds under management passed the£1 billion mark. By late 1999 Virgin Direct hadreached £2.1 billion in assets, employed 800 staffand reached around 300 000 customers (close to

50 per cent of the direct market). Underlying thissuccess was Virgin’s ongoing commitment to givecustomers what they want.Accolades include that1998 Marketing Society’s brand of the year in thefinance category5 and the 1999 Unisys Manage-ment Service Excellence award. Surveys showthat 99.4 per cent of customers describe Virgin’sservice as good or excellent.

Complacency is not, however, a company failing. Said Rowan Gormley in September 1999:‘We believe we have until the end of 1999 to builda position for ourselves . . . the rest of the industryis fighting back’.6

Appendix C1.1

Key features of the One account

Customers decide how much money they willneed to meet their financial needs, including theirmortgage, credit cards, other loans etc.

We’ll agree a suitable credit limit with thecustomer.This is called their ‘facility’.

They pay their monthly income into the account.

There is no tax to pay whilst the One account isin net debit.This is because the customer ispaying back borrowings rather than saving.

The account can be used for all the usualfinancial transactions, including cashwithdrawals, direct debits, cheque payments,Switch and Visa cards.

There’s one rate of interest for the entire facility.

Interest will be calculated each day and chargedto the account monthly.

Customers can run their One account over thetelephone 24 hours a day, any day of the year.

Other important information:

Minimum facility is £50 000.

Customers must agree to use their home assecurity

The facility must be repaid on, or before,retirement.

All accounts will be held by the Royal Bank ofScotland.

This case was prepared by Susan Bridgewater, Lecturerin Marketing, University of Warwick.


5 Marketing Week (1998) Brand of the Year:Virgin Direct, 23April, 54.6 MT (1998) September.


1 Why were customers dissatisfied withtraditional financial services?

2 In what ways does Virgin Direct meetcustomers’ needs?

3 What major challenges must Virgin Directface to sustain its competitive advantagein the direct financial servicesmarketplace?

Questions

Introduction

Mushrooms have been one of Ireland’s agricul-tural success stories. Mushroom productionthroughout the island has grown from just over15 000 tonnes in 1983 to over 83 000 tonnes in 1997. The total number of growers in theRepublic of Ireland has risen from 330 in 1987 to554 in 1998, with the largest concentration ofgrowers in counties like Monaghan, Cavan,Roscommon and Mayo. It is estimated that growernumbers in Northern Ireland are in the region of400. The bulk of Irish mushroom production isexported fresh to the UK where it is mainly soldvia the major multiples. In 1991, it was estimatedthat the Republic of Ireland mushroom industryhad a 36 per cent share of the UK retail mushroombusiness. Currently this share of market stands at45 per cent. Sylvan Ireland is Ireland’s leadingmanufacturer of mushroom spawn, the ‘seeds’which are used to grow mushrooms. The key challenges facing the company is how to buildand sustain its dominance of the Irish market.

Growing mushrooms and themushroom industry in Ireland

Much of the success of the Irish mushroom industry is down to the organization of the industry which is characterized by specializationand outsourcing. Mushrooms are the fruit (like anapple) of the mushroom ‘plant’.The body of themushroom is called mycelium, which is a vast network of interconnected cells that permeatesthe ground and lives perennially. Mushrooms aregrown from spawn, which is a pure culture of amycelium on a solid substance such as cerealgrains. The mycelium chosen for spawn pro-duction must be of first-class quality,that is, it mustbe healthy and show no signs of degeneration.Inoculation and growth must take place understerile conditions to prevent infection and poortransport and storage can also severely damagethe quality of the spawn. Spawn manufacturerssell their product to mushroom companies whoproduce mushroom compost.The spawn is thenmixed through the compost, which is in turn sold to growers.A successful crop of mushrooms

cannot be obtained from poor quality compostand nor will it be achieved unless there is a complete and rapid colonization of the compostby mushroom mycelium.

Irish mushroom growers use a system of growing in plastic bags and tunnels rather thanthe traditional tray system and the former has thepotential to produce very high quality mush-rooms at relatively low production cost.The typeof mushroom produced is almost exclusively thewhite button mushroom (Agaricus bisporus).The outsourcing of the growing phase of the production process to a system of ‘satellite’growers greatly improves the efficiency of theoverall production system. Growing has a highlabour content and strict discipline is required in picking and grading mushrooms. Mushroomsare grown in tunnels (or houses) that are usually33.5 metres long and 7.0 metres wide. Floors aremade of concrete and the tunnels are covered andinsulated using polythene.The two basic require-ments for mushroom growing are good compostand the right environmental conditions.The taskof the grower is to concentrate on crop manage-ment from the day the compost is delivered untilthe house is emptied.The principal managementfactors that need attention are temperature monitoring, watering, carbon dioxide levels at different stages of the production cycle, humiditycontrol,air movement and good hygiene practicesto control pests and diseases.

After the mushrooms are picked and graded,they are sold to the mushroom companies whoare responsible for marketing and distributing thecrop, usually fresh to the UK retail sector but alsofor domestic consumption in Ireland and for sale in the processing industry. Ireland’s leadingcompany is Monaghan Mushrooms Ltd, whichwas founded in 1981 and is responsible for justunder 50 per cent of Ireland’s exports of mush-rooms. Other leading competitors include WalshMushrooms in Co. Wexford and Carbury Mush-rooms in Co. Kildare. Consolidation in the Britishretail sector is likely to create further downwardprice pressure in the future. Supermarkets haveover 76 per cent of the retail trade in the UK with the big four, Sainsbury, Tesco, Safeway andAsda accounting for 66 per cent of the total.Traditionally, mushrooms have been an extremelyprofitable line of the supermarket fresh produce

30

Case 2 Sylvan Ireland

department. For example in 1996, prices in theregion of £1.59/lb left significant margins for theretailer. Since then competition has intensifiedwith prices falling to 99p/lb.

Sylvan Ireland

In 1986, Mel O’Rourke, who had been laid offfrom his job in Baileboro Co-operative decided toform a company manufacturing mushroomspawn. The company which was called Inter-national Spawn was set up using personal savingsand funding provided by three Business Expansion Scheme (BIS) investors. InternationalSpawn signed a technology acquisition agreementwith L. F. Lambert Spawn Company based in Pennsylvania, which is the oldest spawn manu-facturer in the USA. This agreement gave International access to a wide range of spawnstrains and it began production in 1988. It marketed itself as Ireland’s only supplier of mushroom spawn and emphasized the quality ofits product and its level of technical support. Inthose days, Mel placed a strong emphasis on developing direct relationships with the growers.He travelled around the country, getting to knowthe growers and establishing a rapport with them.This strategy worked very successfully and by1991,International Spawn had over 50 per cent ofthe Irish market. But then disaster struck. Onebatch of spawn which had been sent to Co.Wexford failed.This raised doubts over the qualityof International Spawn’s products leading to a 90 per cent drop in sales and significant cash flowproblems for the growing company. However,International Spawn recovered from the problem.Quality control was tightened and the company’sfinancial difficulties were alleviated when thestate venture capital company, Nadcorp took a 30 per cent stake. The company also set up a sophisticated tracking system to minimize theeffect of any such quality problems in the future.Now all batches of spawn that are sold to a composter are tracked through to the grower sothat if there is a problem batch, InternationalSpawn is able to identify which growers have thisspawn and can take immediate action.

Sylvan Inc. built its first commercial spawnplant in Kittanning, Pennsylvania, in 1981. Sincethen, the company has grown rapidly to becomethe world leader in the supply of products andservices to the mushroom growing industry. In

1991, Sylvan acquired Somycel S.A. based inLangeais, France, which at that time was Europe’s largest spawn company. Subsequently,it purchased the Swiss-headquartered, HauserChampignonkulturen AG in 1992 and has builtspawn plants in the Netherlands, Australia andHungary. It now manufactures spawn at sevenlocations and sells its products in more than 45countries. It is the market leader in the sale ofmushroom spawn in the United States, Canada,Holland, the UK, Belgium, Germany, Hungary,Scandinavia and Australia while having significantpositions as well in Italy, France and South Africa. As well as a range of products includingspawn, supplements, casing inoculum, growersupplies and pesticides, Sylvan Inc. providesextensive technical support including spawnstrain selection, sanitation and pesticide pro-grammes, disease identification and eradicationand yield and quality improvements.

In May 1998 Sylvan Inc. acquired InternationalSpawn and Sylvan Ireland was formed. Prior tothis acquisition, Sylvan Inc. had targeted the Irishmarket through its distribution centre based inCo. Armagh, Northern Ireland. After the two companies came together, it was decided to consolidate production at International Spawn’sold plant in Navan, Co. Meath.A £2 million invest-ment programme is currently being undertaken atthe plant to incorporate blender technology and to give Sylvan Ireland the most modern andadvanced spawn manufacturing facility in theworld.

Sylvan Ireland is the dominant spawn manu-facturer on the Irish market with a 58 per centmarket share. Its nearest competitor is Amycelwith an 18 per cent share, followed by Le Lionwith 12 per cent, Italspawn with 10 per cent andEurosemy and Le Champion with 1 per cent of themarket each.It provides a comprehensive range ofmushroom spawn strains, including, white mush-rooms 501, 2001, 130, A15, 512 and 806 andbrown mushrooms 81 and 856. It has five customer support representatives, three based inIreland and two in the UK. Whereas Sylvan Inc. had traditionally emphasized its technicalexpertise when dealing with the customer base,International Spawn had tended to be more commercial, relying on sales promotions such asthe chance to win free tickets for major sportingevents based on purchases of spawn products.Sylvan Ireland has continued with this approachand its promotional programme for 2000 offers


growers the opportunity to enter into a draw for afree computer or a two-week mushroom growingcourse in Holland with every purchase of a Sylvanspawn strain.The major issue currently facing thecompany is how to build on its expertise and reputation to continue to be the Irish marketleader in the face of growing competition.

This case was prepared by John Fahy, University ofLimerick, Ireland. Copyright © John Fahy 2000.

This case is intended to serve as a basis for class-room discussion rather than to show either effectiveor ineffective handling of an administrative situation.The author gratefully acknowledges the assistance and support of the management and staff of Sylvan Ireland. The case was developed as part of the National Action Learning Programme, a pilot project under Article 6 of the European Social Fund and administered by the Irish Management Institute.


1 How would you characterize the businessorientation of Sylvan Ireland?

2 What kind of marketing research wouldbe useful to Sylvan Ireland?

3 How could Sylvan Ireland create morevalue for its customers?

Questions

fundamentals of modern marketing thoughtof marketing,its key components and limitations 2 the...

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