1.2 Marketing: An Historical Perspective

To understand what marketing is, and what it is not, we are going so take an historical look at business and how it has evolved over the last century and a half.  As we discuss the historical perspectives below, realize that businesses in developed countries tend to have the same perspectives at the same time.  For example, during the time known as the Production Era, most of the industries operating during that time had a production orientation.  However, individual organizations and even individual people might have had a different view or orientation.  Thus it is important to differentiate between an era, which is a specific period of time, and an orientation, which is a way of thinking and approaching decision making.  In the following discussion you will learn what the different orientations are and the implications of those orientations as well as the era when those orientations were most prevalent.  You will also understand the vital role marketing plays in business.  Marketing developed to address the disconnect between what businesses wanted to offer and what customers wanted to buy.

The evolution from production-oriented organizations to marketing-oriented organizations was driven by a shift toward a marketplace that catered to meeting customer wants and needs rather than strictly delivering product features and functionality. In today’s business world, it can be argued that customer desires, concerns, and opinions, rather than industry profits, are the driving force behind many strategic business decisions. However, those consumer opinions, if respected and addressed, will lead to long-term profitability.

Production Orientation

Until the 1950s, organizations relied on the assumption that their businesses would be profitable so long as they produced high quality products that were durable and worked well. This business model — known as a production orientation — soon became outdated as the marketplace turned increasingly crowded and global.

Economies of Scale in Production-Oriented Organizations

During the Industrial Age of the 18th and 19th centuries, production-oriented companies thrived due to both the scarcity and high demand for mass-produced, high quality goods and services. Industrial firms focused on production orientation models that exploited economies of scale to reach maximum efficiency at the lowest cost.

Economies of scale is a concept that states that by driving efficiency, companies (particularly production-oriented organizations) will realize significant cost advantages as they expand operations. For example, companies that focus on increasing economies of scale will see reductions in unit cost as the size of facilities and the usage levels of other inputs increase. In theory, such organizations can ramp up production until the minimum efficient scale is reached. Some common sources of economies of scale include:

• Purchasing -bulk buying of materials through long-term contracts
• Managerial – increasing the specialization of managers
• Financial – obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments
• Marketing – spreading the cost of promotion over a greater range of output in media markets
• Technological – taking advantage of returns to scale in the production function

This orientation assumes as more products are produced, they will be purchased.  By the end of the 1940’s, competition grew in most industries to the point that this assumption was no longer valid.  As competition increased, options available increased, customers had more choices, which led to companies not selling products as easily as in the past. A new approach had to be considered as customers became more selective and demanding.

Sales Orientation

Approaching marketing with a selling orientation was popular for companies in the 1950s and 1960s. Up to this point, a growing population and lack of significant competition combined to create an environment in which production and product orientations could lead to success. However, after the untapped demand caused by the second World War was saturated in the 1950s, it became obvious that products were not selling as easily as they had been. The answer was to concentrate on selling. The 1950s and 1960s are known as the sales era, as the guiding philosophy of business at the time was the sales orientation. As opposed to a production orientation, a sales orientation focuses primarily on the selling and promotion of a particular product.

As we learned in the previous discussion on production orientation, companies started having difficulty selling all the product they produced due to the increase in competition and product options for the buyer.  Since their products were not selling as easily, producers had to deal with the unsold product, or inventory.  Additional storage to house the inventory is needed, which is an added expense.  How can producers move this inventory they now have to store?  The focus changed to the selling and promotion of a particular product, instead of just producing the product. Emphasis is not placed on determining new consumer desires rather on simply selling an already existing product and using promotion techniques to attain the highest sales possible. This mindset of encouraging potential buyers to buy existing products is known as a selling orientation.

A sales orientation tends to have a short-term focus as the goal is selling already produced product.  A short-term focus led some organizations to make unethical decisions in terms of promotions, pressuring customers, and making promises that could not be kept. During this time, most people viewed salespeople in a negative light because of the pressure and false promises.  As we will learn soon, that stereotype does not apply to most salespeople and sales efforts today.

This short-term focus did not lead to long-term profitability, stability, or innovation.  In addition, society was changing. The amount of competition being realized at that point was unprecedented, and the scale of consumerism was rising. For the first time, a more significant effort had to be made to understand the desires of potential customers.

These concerns led to the realization that a better way had to be found. That better way was marketing.

Courtesy of Columbus Board of Realtors

Marketing Orientation

Marketing orientation is a business model that focuses on delivering products designed according to customer desires, needs, and requirements, in addition to product functionality and production efficiency (i.e., production orientation). As stated by Bernard J. Jaworski and Ajay K. Kohli in the “Journal of Marketing”, marketing orientation is “The organization-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments and organization wide responsiveness to it.”

The Shift Toward Marketing Orientation

Beginning in the 1970s, Harvard Professor Theodore Levitt and other academics argued that the sales orientation model was ill-equipped to deliver products tailored to customer wants and needs. Instead of manufacturing products for the sole purpose of generating profit, they argued for businesses to shift their strategy toward developing products based on customers’ desires, insights, and opinions. Using this customer intelligence, companies could produce products that supported their overall business strategy, compete effectively in an increasingly global and competitive market, and delivere solutions for current and future customer needs.

With the widespread adoption of Internet technology, e-commerce, and social media technologies, the customer has clearly become the driving force behind contemporary business strategies. Marketing-oriented companies revolve around internal business processes that gather, synthesize, and package market intelligence into integrated marketing communications programs (i.e., advertising campaign, new product launch, promotional offer, etc.). Furthermore, it involves a brand planning its marketing activities around a singular concept — the customer — and supplying products to suit diverse tastes.

Competitive analysis is also a significant component of market orientation. Generally, companies gather this information using market research, consumer surveys, and focus groups with prospective customers to identify needs, preferences, as well as competitor strengths and weaknesses. Since its introduction, marketing orientation has been reformulated and repackaged under numerous names including customer orientation, marketing philosophy, and customer intimacy.

A marketing-oriented business starts with the customer, finds out what they want, and then develops and produces a product to meet that desire.  The process starts with the potential customer, through research.

Focus on the Customer: One way for a company to focus on customers’ desires is to have a database of all its customers. Today, the information garnered about individual customers and about segments of customers, allow more customization of an organization’s offerings. The image below shows a spreadsheet, courtesy of ImportGenius, that shows what a customer ordered, where the product was sourced from, the total weight of the product purchased, etc.

Courtesy of Flickr

Marketing Orientation Components

Components which define a marketing orientated organization include:

1. Customer orientation
2. Goal orientation (typically profitability)
3. Integrated coordination

As stated, the most important focus in a market-orientated business is the customer. Like a production-oriented company, one of the primary goals of marketing-oriented or customer-oriented businesses is long-term profitability. Nevertheless, organizations that follow a marketing orientation model realize that delivering superior customer value through product innovation, as well as products and services tailored to customer needs, directly correlates with generating revenue.  When a company adopts the three components listed above, the company is said to have adopted the Marketing Concept.  It should be noted that all organizations, including non-profits, can adopt the marketing concept.

Holistic Orientation

The history of marketing has seen a fair amount of evolution over time, particularly with the integration of technology and big data. The origins of marketing are much simpler than modern marketing, revolving primarily around managing relationships and personal selling. Marketing tactics and methods have changed over time, spanning from simple personal selling to advertising, promotions, affiliate advertising, social media, PR, branding, and market research to support each of these investments and initiatives.

Holistic marketing incorporates integrated marketing, relationship management, internal marketing, and social responsibility to build a unified and shared brand.

As globalization, mass production, and big data became prevalent across industries, marketing evolved to be more targeted and specific across many different potential channels. This resulted in marketing segmentation, or the strategic decisions to pursue specific groupings within the broader population of the market. Segmentation through target markets has been (and currently is) a powerful trend in marketing strategy and tactics.

This targeting and segmentation through broader market opportunities has substantial advantages and is a useful perspective for marketing managers to consider. However, holistic marketing assumes that segmentation is as much a threat as it is an opportunity. The prospect of ‘divide and conquer’ is potentially more expensive than uniting the market based on shared initiatives and needs. Holistic marketing unites the market on shared ideals and vision, creating an inclusive, relationship-oriented, and socially responsible strategy. This typically includes four perspectives:

1. Relationship Marketing – A large field (often referred to as retention), relationship marketing is the simple idea that retaining a customer is significantly cheaper than getting new ones. Relationship is about building a meaningful engagement with current customers, not so much to make a sale but simply to ensure a continued relationship with the organization.
2. Integrated Marketing – Another substantial branch of marketing is referred to as integrated marketing communications. Integrated marketing focuses on aligning the messaging, communication, and brand image across a variety of channels, customer groups, stakeholders, and other communications. By having a consistent brand across the board, companies can build a sense of trust, reliability, and shared expectations when dealing with the firm.
3. Internal Marketing – Viewed as a facet of integrated marketing, it is important to keep in mind that internal stakeholders such as employees require careful organizational brand management as well. Employees impact what the organization stands for (brand), and play an integral role in driving the organization towards its objectives, mission, and vision. Internal consistency of intention and vision is therefore a critical part of external consistency.
4. Socially Responsible Marketing – Finally, the modern holistic view of marketing considers some of the ethical criticisms of the past advertising eras (and with good reason). Organizations should stand for things that society values. Let’s consider an example. An organization sells carpets and furniture. They realize the negative impact of their operations on the environment. This company decides to define their brand on perfect efficiency in terms of shipping, complete utilization of recycled goods, large donations to environmental research, and local sourcing. As a result, they build meaningful relationships with their consumers based on shared values, while cutting operating costs and capturing subsidies. This is a great utilization of holistic marketing.

While holistic marketing is an evolving field, the general concept is simple. Markets are full of people, and these people are often united on certain initiatives. By aligning the organization with the people who work there and the people it serves, the organization’s brand will evolve holistically across various channels, supported by operations that align with the vision of the customers.  The Holistic Marketing era and orientation is also referred to as the Societal Marketing era /orientation or Value-based Marketing era/orientation.

Table 1.2: The Historical Perspective in Summary

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