“ The centrality of marketing in creating growth and shareholder value suggests a new role for marketing both as a discipline and function… the concept of marketing that will make it more effective in tomorrow’s boardroom is one of contributing to the creation of shareholder value. It can be defined as follows: Marketing is the management process that seeks to maximize returns to shareholders by developing relationships with valued customers and creating a competitive advantage. Doyle, P., (2000), Valued-Based Marketing, Chichester: Wiley, p29. By reference to academic literature, critically evaluate Doyle’s definition of marketing. Indicate how a company could apply this definition to create and manage its marketing strategy. Answer
In recent years, marketing is suggested a new role both as a discipline and function because of the significance of marketing in order to create growth and shareholder value as well. The concept of marketing will become one of contributing to the creation of shareholder value. In this paper, Peter Doyle’s definition of marketing will be evaluated and the example of some companies, which succeed in applying this definition to create and manage its marketing strategy, will be given. According to Doyle (2008), the principal goal in commercial companies is to maximize shareholder value. The essence of the shareholder value approach is the long-term sustainability of the organization through the creation of lasting value. In commercial company, shareholder value can be created when the shareholder return exceeds the share cost- is the return that shareholders expect to obtain in order to feel sufficiently remunerated (Fernandez, 2001). However, shareholder value is often confused with maximizing profits (Doyle, 2012).
Maximizing profitability is short-term and may result in eroding long-term competitiveness through action such as cost cutting and shedding assets to produce quick improvements in earnings. Maximizing shareholder value, on the other hand, requires long-term thinking, the identification of changing opportunities and investment in the building of competitive advantage. However, non-profit organizations do not work for money as a result, shareholder value of those is not related to financial matters. The goals of these organizations are depended on the purpose and the structure of the organization (Anheier, 2000). Take Oxfam as an example, its goal is seeks one overall outcome: to bring about positive change in the lives of people living in poverty. Therefore, financial matters are not the most important goal of Oxfam and in order to achieve the goal, Oxfam generates money from different sources (i.e. people donate their old and unwanted clothes and items to Oxfam’s shops and Oxfam sells it to the consumers.
They also get private donations given to them by people who want to help). They will use this money to makes to help people in Africa get the basic things they need to a hygienic and healthy life such as wells, health care, schools, loos and farms. The marketing concept emerged in the mid-1950s, business shifted from a product-centered (“make-and-sell” philosophy) to a customer-centered (“sense-and-respond” philosophy). According to Theodore Levitt (1960), the marketing concept is different with the selling concept. He stated that selling focuses on the needs of the sellers whereas marketing on the needs of customers. Selling is preoccupied with the seller’s need to convert his product to cash; marketing with the idea of satisfying the needs of the customer by means of the product. Kotler and Keller(2007) suggested that the marketing concept plays an important role in achieving organizational goals because it helps organization operates more effectively than competitors in creating, delivering, and communicating superior value to its chosen target markets.
It is understood that the marketing concept holds that, in increasingly dynamic and competitive markets, the companies or organization that are most likely to succeed are those that take notice of customer expectations, wants and needs and gear themselves to satisfying them better than their competitor. In 2004, the American Marketing Association (AMA) defined marketing as an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders (Marketing News,2004). Marketing is described as a process that is performed within an organization; it is one of functions in organization and leads to a model of “mutually beneficial exchange” between provider and customer. Furthermore, AMA gave another definition of marketing in 2007 that marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large (Marketing News, 2008).
While the 2004 AMA definition focuses on the significance of stakeholders and customers, the 2007 AMA definition notes the importance of society at large to marketing (Balmer, 2011). Marketing is considered as an organization’s vital options regarding to products, markets, marketing activities and marketing resources in the creation, communication or delivery of products that offer value to customers in exchanges with the organization (Rajan, 2009). In the past, the the function of marketing in many firms often has little strategic role, being relegated to public relations (PR), advertising or sales roles (Holley et al.,2008). Marketing management emerges the basic problem is that its ambiguous objectives. The most accepted criteria to measure the effectiveness of marketing are increase in sales and market share (Butterfield, 1999) but Rappaport (1998) notes that sales growth raise economic profits only if the operating margin on the additional sales covers the higher costs and investment incurred to achieve the growth. Major business firms now almost universally accept that the primary task of marketing is to maximize returns to shareholders (Black et al., 1998).
Moreover, Day and Fahey (1988) and Srivastava et al. (1998) have indicated that marketing can greatly increase shareholder value. Nevertheless, there has a change over the last decade since the marketing concept has been recognized to be important in setting the strategic direction and even the culture firms. Marketing has been migrated from being a functional discipline to being a concept of how business should be run (Greyser, 1997). Marketing is talked more and more as a key discipline in not-for-profit enterprises such as charities and or even in the public sector organizations such as universities and the police service. Doyle (2000) notes that marketing is the management process contributing to maximize returns to shareholder by improving the relationships with valued customer and building a competitive advantage. Firstly, marketing is the management process that concerns the need to make decisions- what decisions should be made and how they should be made.
It helps an organization to define its current situation and build up the strategic direction and strategic formulation, select the best alternative to implement and monitor its performance in order that any corrective actions might be ensure that the final results are achieved. Secondly, the customer relationship is one type of intangible asset (Doyle, 2000; Srivastava, Shervani, & Fahey, 1998), the most important asset of a company is customers because maximizing customer asset value leads to maximizing shareholder value (Fornell, 2000). From the viewpoint of the service profit chain theory, the firm’s profitability will grow if customer loyalty will increase due to the customer satisfaction increases (Heskett, Jones, Loveman, Sasser, & Schlesinger, 1994b). The valued customers (or loyal customers) are those who purchase more products of company, they also are cheaper to serve and less sensitive to price and give a company recommendation to others (Chang, Chang & Li, 2012 and Riecheld, 1996). As for the relationship between profitability and customer loyalty, customer loyalty is believed strongly correlated to both sales growth rates and ROA. However, Reinartz & Kumar (2002) find some adverse conclusions in another study that a high level of loyalty does not necessarily lead to increases in profitability.
From their point of view, it is believed that different customers need to be treated in different ways when loyalty and profitability are considered together. According to different type of customers, take “ True Friends” for example, they are the long-term customers who are good fit between company’s offerings and customers’ needs and give highest profit potential. The company’s marketing strategy for this type may be communicate consistently but not too often, build both attitudinal and behavioral loyalty and delight these customers to nurture, defend and retain them. “Butterflies” customers-with a slightly lower profit potential in comparison with “True Friends”, the marketing strategy are: milking the accounts only as long as they are active, aiming to achieve transactional but the key challenge is to cease investing soon enough. In the non-profit world, the concept of customer is taking more time to get established but is no less central. Public sector organizations talk in terms of “clients”, “patients”, “students”, “passengers” and the like.
In reality, all are customers of the services provided. Customers will choose the providers who serve their needs best where they have choice in who provides them with those services (within the public sector or outside it) Thirdly, Doyle suggests another way to maximize the shareholder value by creating a competitive advantage. Competitive advantage is the key concept in creating shareholder value (Day and Fahey, 1988). Competitive advantages offer an edge over company’s competitors and ability to create bigger value for both company and its shareholders. If the company has the sustainable competitive advantage, its rivals will be very difficult to neutralize this advantage. Comparative advantage and differential advantage are two principal kinds of competitive advantage. Comparative advantage (also as known as cost advantage) is the ability of firm to produce a good or service at a lower cost in comparison with competitors’ cost. As a result, firm can sell goods or services at a lower price than its competitors or to create a larger margin on sales.
When firm create products and services differ from its rivals and the customers realize that those products or services are better than a competitor’s products, it is called differential advantage. For instance, Apple is using both innovation and brand popularity as a competitive advantage since each product of Apple contains special or new-developed functions that rivals’ products do not have and Apple’s products mostly satisfy the customers. Consequently, Apple is the first choice of many customers when they decide to buy a high-tech device and has higher percentage in high-tech market share in recent years. Another example of success company which apply Doyle’s definition is MekongAir-a medium-size airline company in Vietnam, the founder of MekongAir realized that the key to success in airline industry market was the tight control of costs. Therefore, he decided to base the airline at Dong Nai province rather than at Ho Chi Minh City in order to reduce the labor costs and airport fees.
Moreover, many ways for the tight management of costs are offered such as using one type of aircraft, no in-flight meals, booking over the internet whenever possible, one type of seating…. As a result, a small airline company as MekongAir gets a considerable percentage in airline market share. Moreover, MekongAir offers a program for their valued customers, each valued customers will be delivered a card with many advantages such as reducing ticket price, free ticket for a short flight, upgrading seat position and canceling flight with no penalties… As a result, the profit of MekongAir increases 15% in only half year because the customers realize the benefits of this program and MekongAir, in turn, succeeds in maximizing their profit for shareholders. For non-profit organizations, some have a strong connection with business companies in order to raise fund easily. However, some organizations do not apply developing relationship with their valued customer (i.e. government or business companies) because they choose different marketing strategy such as selling charity clothes to raise money.
Today, many firms realize that firm’s IT and systems, the supply chain management and in the network of partnerships are more and more concentrated to create advantage competitive. A company with effective system will be provided good communications with suppliers, customers and other industry players. Without these systems, companies cannot create the simple core processes covering operations, innovation and customer support, which are the key factors of sustainable growth. In conclusion, marketing is playing an important part in creating profits for company and returns for shareholders. Commercial Business Company and non-profit-organizations have different marketing strategies, which have highest result for special purpose. Doyle suggests the role of marketing and the ways to make profit for business organizations, while non-profit organizations maybe apply Doyle’s definition but depending on their structure and their goals.
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