Development of the marketing concept by Geoff Lancaster©
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The concept of marketing is not a particularly complicated or even original idea. Sayings such as ‘the customer comes first’, or ‘the customer is always right’, have been used by forward-thinking entrepreneurs throughout the ages. Based on that age-old principle, marketing is really a more formalized business orientation that has developed into a management discipline over the years.
1 An Early Historical perspective
Marketing is basically concerned with exchange or trade. Trade in its most basic form has existed ever since mankind has been capable of producing a surplus. Historically, this surplus was usually agricultural produce that was often traded for manufactured goods such as textiles or earthenware. Exchange brought into existence places that facilitated trade, such as village fairs and local markets. The emergence of trade allowed people to specialize in producing particular goods and services that could be exchanged in markets for other goods they needed.
The period 1760 - 1830 saw the UK economy transformed during the Industrial Revolution, losing its dependence on agriculture with a dramatic increase in industrial production. Before the Industrial Revolution, the production and distribution of goods tended to be on a small scale. Industrialization resulted in dramatic gains in productivity, mainly due to the development of machines. Production became more geographically concentrated and was carried out in purpose-built mills or factories. Enterprises became larger, production runs longer and products more standardized. Firms produced in volume, not only for local markets, but for a national and even an international market. The growth of the ‘factory system’ caused the migration of the population from the countryside to the new and rapidly expanding industrial towns.
Because of developments during the period of the Industrial Revolution, firms could produce more in terms of volume than the local economy could absorb. Consumption therefore became dispersed over greater geographical distances and producers no longer had immediate contact with their markets. To overcome this problem, many forward thinking entrepreneurs of the time started to plan their business operations in a ‘marketing orientated’ manner, although the terms ‘marketing’ or ‘marketing orientation’ were not formally used to describe this process until well into the twentieth century as we explain later.
In order for producers to be able to manufacture goods and services that would appeal and sell in widely dispersed markets, it became necessary for them to carefully analyse and interpret the needs and wants of customers and to manufacture products which would ‘fit in’ with those needs and wants.
The process of matching the resources of a firm to the needs and wants of the market place is called entrepreneurship. Men such as Josiah Wedgwood (1730-95) came to epitomize the traditional entrepreneur with their ability to ‘sense’ what the market wanted in terms of design, quality and price, then organize production and distribution to satisfy effective demand at a profit. The early entrepreneurs were practising an early, albeit simplistic, form of marketing activity, although it was not called marketing as such.
A craftsman, such as a blacksmith or potter, develops a high degree of skill in a particular activity. Industrialization took the processes of specialization and division of labour a stage further, resulting in greater productivity which, in turn, reduced costs and hence the selling price of products. However, the rise in job specialization also increased the need for exchange. Larger-scale production meant that marketing channels had to be created to facilitate the distribution of goods to enable the effective demand from the much larger market to be met. This development laid the foundations of the modern industrial economy, which is still based on the fundamental concept of trade or exchange.
During the first half of the nineteenth century Britain was the dominant force in the world economy. The main factor underlying Britain’s industrial growth was the development in international trade. Britain was first and foremost a trading nation that had secured supplies of raw materials and held a virtual monopoly in the supply of manufactured goods to the relatively underdeveloped countries which collectively made up the British Empire.
2 The modern era
The first half of the twentieth century saw the emergence of Germany and the United States as competing industrial powers. Although the United Kingdom faced fierce competition from the economically emerging nations in the areas of textiles, coal and steel, the British economy continued along a path of industrial expansion in the period up to the First World War. The incomes generated in other countries resulted in a worldwide increase in total effective demand for goods and services. The total value of UK trade increased even though its share of international trade started to decline.
In order to better understand the notion of marketing orientation, which puts customers first, we must trace back its historical development as it took place in the UK. We must also examine the different philosophical views that pertained in relation to business at different periods of time.
Perhaps the most enduring of quotations that emphasizes marketing orientation comes from Adam Smith at the time of the Industrial Revolution when he wrote in his now classic Wealth of Nations in 1766:
‘Consumption is the sole end and purpose of all production and the interests of the producer ought to be attended to only as far as it may be necessary for promoting that of the consumer.’
However, he went on in this same quotation to point out that producers do not take this obvious logic seriously:
‘The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of producers who seem to consider production, and not consumption, as the ultimate end and object of all industry and commerce.’
This was long-sighted vision on the part of Adam Smith and it was said at the time of the Industrial Revolution. It is also true that the notion of marketing orientation and putting customers first has only been taken up relatively recently as we shortly explain.
Before we examine the notion of marketing orientation in more detail, it is worthwhile reflecting for a moment on the three principal types of production:
- Job production - which is essentially ‘one off’ production where every aspect of production and manufacture is done as a separate task from the design stage to the completion stage. Here, skilled personnel are needed in design and manufacturing processes as ‘no two jobs are alike’. As such, it tends to be a relatively expensive process.
- Batch production - is similar in terms of its philosophy to job production, but the numbers produced are more than one. Sometimes a batch is produced, followed by another similar batch later, and the times between batches are a reflection of when products are needed by customers.
These are the two types of production that pertained in world manufacture until 1913. This is the date that Henry Ford set up the first ever continuous flow line production assembly plant in Detroit, USA to manufacture the Model ‘T’ Ford motor car. The first Model ‘T’ Ford was produced in 1908 using batch production methods, and this car was developed out of the original Model ‘A’ Ford that dated back to 1903. This then was the start of mass or flow production.
- Flow production - is where all aspects of manufacture are broken down into their simplest components of labour. It uses a continuous production line. As such, unskilled (and less expensive) labour can be used. More to the point, it is a quicker and more efficient method of production and the savings in production costs should mean that these can be passed onto customers in terms of reduced prices.
Henry Ford was not secretive about this outstanding development in manufacturing technique. In fact he opened up his Detroit plant for inspection as a model for world manufacturing and before long other motor manufacturers in the USA emulated this system. In a very short space of time the cost of purchasing cars was reduced to approximately one third of what it was during the days of batch production. Consequently, in the USA, motoring became available to many classes of consumer who would have never hitherto considered purchasing a motor car because of its capital cost. By 1923 over 2 million Model ‘T’ Fords had been produced and sold.
Despite the apparent advantage of flow production technology, the system did not gain widespread approval and adoption in the United Kingdom and manufacturers preferred to stick with job and batch production. This was not due to chauvinism on the part of the British, but it was owing to the fact that society in the UK was very unequal. The majority of the country’s wealth was concentrated in very few hands and the vast majority within society were very poor, with relatively few people falling between these two extremes. In the USA it was a more equal society with wealth being more equally spread between the extremes of the wealthy and the poor. Consequently, in the USA it was easier to market these much cheaper cars to middle income layers. In the UK, there were very few people in middle income brackets to which to market them. Most people fell in the lowest layer, and here it was a situation of subsistence living, so even if cars were given away, people would not have been able to afford to run them. The rich, on the other hand, would not have been interested in such things as mass produced cars, preferring to order ‘bespoke’ automobiles from British manufacturers, which more befitted their status within society.
Second World War
The Second World War, which started on September 3 1939, was the flashpoint in the UK for the widespread adoption of flow production technology. Men either volunteered or were conscripted to the armed forces, unless they were in protected professions where their contribution to the war effort was viewed to be better fulfilled in a non-combative role. Factories switched from making civilian goods to making goods and materials to assist the war effort. The result was that the factories had to be staffed largely by women, most of who had never worked before in a productive capacity, as the UK was then a very male dominated society. All of this had to be done quickly, and it was realized that training would take many years. The answer was to adopt flow production technology, so advice was taken from the Americans who helped to switch over factories and production systems to the manufacture of munitions and related war goods by an essentially female workforce using flow production techniques. The ‘experiment’ worked remarkably well, and it is now widely recognized that without this adaptable and industrious female workforce the outcome of the war could have been significantly different.
The war officially ended on May 7 1945, but rationing ended more than nine years later on July 3 1954. Consequently, war shortages still pertained until well after the war, and it made sense to continue using flow production line techniques in a civilian goods manufacturing context, as such manufacturing techniques were seen to be more efficient in terms of attempting to overcome these shortages. Needless to say, there was much disquiet on the part of men returning after the war to find that their skilled jobs were at risk, and in many cases their original jobs no longer existed, as a result of these new manufacturing techniques.
The Government during the war was a coalition government led by Winston Churchill and party politics did not officially feature, because the top priority was to try to win the war. Although Churchill, who led the Conservative party, was much admired as a war leader, this popularity did not carry over to the general election in July 1945 when he was ousted by Clement Atlee. As leader of the Labour Government, he embarked on a programme of nationalization and wide ranging social reforms. Churchill was widely held to be responsible for the pre-war depression, so the popular vote went to Atlee whose proposed reforms were to bring about a radical redistribution of wealth through common ownership and better wages and working conditions for the less well off. The first industry to be nationalized was the coal industry on 1 January 1947, followed by rail on 1 January 1948 and electricity on 1 April of that year, and this was followed by a number of other major industries.
High personal taxation
During this period, taxes rose with the top rate of personal taxation being 98% on investment income. Strangely nowadays perhaps, investment income, being deemed to be ‘not worked for’ income, attracted extra taxation of 15% on top of 83% which was the top rate insofar as earned income was concerned. The idea was to tax inherited income, into which most income of this nature fell, but it was certainly a disincentive to savers who also happened to be high earners. These high rates of taxation lasted well into the 1970s and in the tax year 1974/5 the rates, after tax free personal allowances had been taken off, were as follows:
Basic and Higher Rates for 1977/78
Slice of income Rate Total income Total tax
£4500 (£0 - £4500) 33% £4500 £1485
£500 (£4500 - £5000) 38% £5000 £1675
£1000 (£5000 - £6000) 43% £6000 £2105
£1000 (£6000 - £7000) 48% £7000 £2585
£1000 (£7000 - £8000) 53% £8000 £3115
£2000 (£8000 - £10000) 58% £10000 £4275
£2000 (£10000 - £12000) 63% £12000 £5535
£3000 (£12000 - £15000) 68% £15000 £7575
£5000 (£15000 - £20000) 73% £20000 £11225
An additional rate of 15% is charged on all investment income apart from normally the first £2000. The top investment income rate is thus 83% + 15% = 98%
Source: H.M.Inspector of Taxes 1977/78 Tax Tables
Death duties (now more appropriately termed ‘Capital Transfer Tax’) were set at punitive levels and the rich were debarred from taking their assets abroad. In fact foreign holidays were discouraged and at one time the maximum amount of currency that individuals were allowed to take abroad as ‘spending money’ was £20. Many stately home property which are now owned by the National Trust are the results of agreements with the tax authorities upon the death of benefactors whereby inherited property was given to the state in lieu of death duties.
At the same time, we also witnessed the emergence of the so-called ‘welfare state’, with increased social benefits for absence from work through illness. (Although the actual start of the welfare state is more truly attributed to Lloyd George, the Liberal Prime Minister on May 4 1911 when he introduced the National Health Insurance Bill). Increased child allowances and numerous other forms of assistance were established to help the less better off. Wages rose at far more than the rate of inflation and we witnessed the ascent of a more powerful Trade Union movement who successfully fought for better conditions and wages for their members.
Redistribution of wealth
The net effect of all of this was to redistribute wealth such that the rich became less rich and the poorer became much better off. The polarization within society that existed before the second world-war disappeared as we moved towards a more egalitarian society. In terms of the net effect of all this upon marketing, it meant that goods which had hitherto been classed as luxury products had become utility products which were needed as part of everyday living. A good example of this is the telephone which was a luxury service well into the nineteen-sixties, but which is nowadays very much a utility item and required as a virtual necessity for those wishing to pursue a ‘modern’ lifestyle. This has meant that people tend to need more ‘belongings’ in terms of gadgets and accessories, so although the population might have expanded in numerical terms, it has also expanded in terms of greater individual purchasing power. People also need more in terms of clothes and personal belongings. For instance, during the post-war rationing period, it was commonplace to only have two pairs of shoes - one pair as ‘best’ and the other pair for everyday use - a far cry from the multifarious sets of footwear that most people now possess as part of their general wardrobe.
This switch in the personal incomes pyramid and its effect on purchasing patterns is what sociologists call ‘the silent revolution’. Its implications for marketing are now explained.
In terms of our time perspective, we have now explained what happened up to around the late nineteen-fifties when demand usually exceeded supply and production was the starting point for business planning. However, this was a time when war shortages almost imperceptibly began to be fulfilled, together with increased spending power and a generally satisfied feeling of ‘well-being’ being experienced by the population as a whole as a result of the silent revolution. Shortages began to be a thing of the past. This was the era when the then Conservative Prime Minister, Harold Macmillan said of the population: ‘You have never had it so good!’ However, management did not react to a slowing down of company sales by investigating their customers with a view to ascertaining their true needs and then manufacturing products to suit these needs. This would have been the logical thing to do. Instead, they employed functional aids to selling in order to persuade customers that they needed more or tried to convince them that what they had was in premature need of replacement. There was still an attitude that production should be at the start of business planning, so a whole raft of tactical approaches were imported from the USA in terms of sales techniques, sales promotional methods and advertising. Some of these tactics made good business sense and are still in use today, but a number were nothing less than confidence tricks and many people suffered as a result. This became the era of the ‘hard sell’ and to a certain extent, the poor image that often surrounds marketing nowadays is a result of these techniques that came to the UK during the nineteen-sixties.
To compound the problem, there was very little around in terms of consumer protection that was enshrined in the legal system, as the era of consumerism, and its attendant laws to assist consumers, belonged very much to the nineteen-seventies. This was a time during which the unscrupulous benefited at the expense of many consumers.
Today, we have a situation where a large number of producers compete for a share of a finite market, not only in the domestic, but in the world arena. It is no longer enough to produce a good product, as it was in time of shortages or rationing when producers enjoyed a ‘sellers’ market’. Today, for producers to achieve a sufficient level of effective demand, they must produce goods and services that the market perceives as valuable and, more importantly, that the customers will actually buy in sufficient volume. The final customer’s needs and wants not only have to be taken into account, but the identification and satisfaction of these needs and wants has become the most important factor in the long-term survival of a firm. This, then, is the cornerstone of marketing orientation.
3 Different types of business orientation
Marketing maturity tends to be a gradual developmental process, and by evolving through lower stages of development, enlightened firms begin to appreciate that the satisfaction of consumers’ needs and wants is the rationale for everything the company does. Such companies have progressed to a marketing orientation. Of all the stakeholders in a business enterprise the customer is by far the most important, for it is by the satisfaction of customer needs and the profit that should result from doing so that all other stakeholders’ needs are satisfied.
To summarise what has been said and to give us an idea of what is now universally recognised within business, it can be said that generally speaking , there are three basic types of business orientation:
- production orientation
- sales orientation
- marketing orientation
Each of these is now briefly explained.
4 Production orientation
In the nineteenth and early twentieth centuries, the primary purpose of all business and industrial activity was thought to be production. Manufacturers were in a ‘supplier’s market’ and were faced with a virtually insatiable demand for anything that could be produced. Henry Ford made a famous statement when he produced his first production line Model ‘T’ Ford:
‘You can have any colour you like, as long as it is black’
This was certainly a production orientated statement and during this period firms concentrated on improving production efficiency in an attempt to bring down costs. In America, in the economic recession of the 1920s and 1930s, to simply produce was no longer good enough and firms had to begin to focus their attention on the changing needs of the market place. This ultimately led to the idea of marketing orientation and it was in America in the 1930s that saw the origin of this commonsense philosophy.
5 Sales orientation
Gradually business people began to appreciate that in a highly competitive environment it was simply not enough to produce goods as efficiently as possible. The sales department was thought to hold the key to the firm’s prosperity and survival, and sales volume became the success criterion. In a sales-orientated firm, selling is a major management function, and is often given status equal with that of production and finance. Here the emphasis is on ‘pushing’ a company’s products or services to sometimes unwilling customers.
6 Marketing orientation
Under the marketing concept it is the customer who becomes the centre of business attention. Firms no longer see production or sales as the key to prosperity, growth and survival, but the identification and satisfaction of customers’ needs and wants. In a marketing-orientated organization, the whole firm appreciates the central importance of the customer and realizes that without satisfied customers there will be no business.
The Chartered Institute of Marketing sums up what marketing is in its formal definition of the subject:
‘Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably’.
An alternative definition is put forward by the American Marketing Association:
‘Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives’
The Chartered Institute of Marketing definition, perhaps more succinctly sums up the overall aim of marketing, but it is felt that the American Marketing Association’s definition is more precise as it identifies the tools with which marketing realises its objectives. These tools are collectively known as the ‘marketing mix’ - a term coined by Neil Borden and essentially this means manipulating the ‘four P’s’ (a term coined by E Jerome McCarthy and which embraces price, product, place and promotion) in their most effective way. This theme is expanded in later chapters.
It is really only since the end of the Second World War that marketing has developed in the United Kingdom as a formalised business concept with a codified philosophy and a set of techniques. It has also been demonstrated that marketing is now central to planning in businesses that operate in a competitive environment. The marketing orientated firm achieves its business objectives by identifying and anticipating the changing needs and wants of specifically defined target markets. Business planning, therefore, starts with customers, and it is the responsibility of marketing to marshal these requirements through the marketing plan into the corporate business plan. As a consequence, it is from customers’ needs and subsequent marketing planning to meet these needs, that other functions in a business operation take their respective leads.