MARKETING

Marketing Mix

2010-12-15T10:04:00.000-08:00

What is the marketing mix?
The marketing mix is probably the most famous marketing term. Its elements are the basic, tactical components of a marketing plan. Also known as the Four P's, the marketing mix elements are price, place, product, and promotion. Read on for more details on the marketing mix.

The concept is simple. Think about another common mix - a cake mix. All cakes contain eggs, milk, flour, and sugar. However, you can alter the final cake by altering the amounts of mix elements contained in it. So for a sweet cake add more sugar!

It is the same with the marketing mix. The offer you make to you customer can be altered by varying the mix elements. So for a high profile brand, increase the focus on promotion and desensitize the weight given to price. Another way to think about the marketing mix is to use the image of an artist's palette. The marketer mixes the prime colours (mix elements) in different quantities to deliver a particular final colour. Every hand painted picture is original in some way, as is every marketing mix. If you'd like to see the marketing mix applied to a real business - then take a look at our Ryanair marketing mix.

Some commentators will increase the marketing mix to the Five P's, to include people. Others will increase the mix to Seven P's, to include physical evidence (such as uniforms, facilities, or livery) and process (i.e. the whole customer experience e.g. a visit the Disney World). The term was coined by Neil H. Borden in his article The Concept of the Marketing Mix in 1965.

Price
There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations.
Place
Another element of Neil H.Borden's Marketing Mix is Place. Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer.
Product
For many a product is simply the tangible, phsysical entity that they may be buying or selling. You buy a new car and that's the product - simple! Or maybe not. When you buy a car, is the product more complex than you first thought?

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline). Read more...
The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products or services that customers NEED throughout their lives.
Promotion
Another one of the 4P's is promotion. This includes all of the tools available to the marketer for 'marketing communication'. As with Neil H.Borden's marketing mix, marketing communications has its own 'promotions mix.' Think of it like a cake mix, the basic ingredients are always the same. However if you vary the amounts of one of the ingredients, the final outcome is different.

Physical Evidence
Physical Evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so a consumer tends to rely on material cues. There are many examples of physical evidence, including some of the following:

People
People are the most important element of any service or experience. Services tend to be produced and consumed at the same moment, and aspects of the customer experience are altered to meet the 'individual needs' of the person consuming it.
Process
Process is another element of the extended marketing mix, or 7P's.There are a number of perceptions of the concept of process within the business and marketing literature. Some see processes as a means to achieve an outcome, for example - to achieve a 30% market share a company implements a marketing planning process.

Marketing plan

2010-12-15T10:00:00.000-08:00

A marketing plan is a written document that details the necessary actions to achieve one or more marketing objectives. It can be for a product or service, a brand, or a product line. Marketing plans cover between one and five years. A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use.

The marketing planning process
Marketing process can be realized by the marketing mix in step 4. The last step in the process is the marketing controlling. In most organizations, "strategic planning" is an annual process, typically covering just the year ahead. Occasionally, a few organizations may look at a practical plan which stretches three or more years ahead.

To be most effective, the plan has to be formalized, usually in written form, as a formal "marketing plan." The essence of the process is that it moves from the general to the specific, from the vision to the mission to the goals to the corporate objectives of the organization, then down to the individual action plans for each part of the marketing program. It is also an interactive process, so that the draft output of each stage is checked to see what impact it has on the earlier stages, and is amended.

Marketing planning aims and objectives
Behind the corporate objectives, which in themselves offer the main context for the marketing plan, will lie the "corporate mission," which in turn provides the context for these corporate objectives. In a sales-oriented organization, the marketing planning function designs incentive pay plans to not only motivate and reward frontline staff fairly but also to align marketing activities with corporate mission.

This "corporate mission" can be thought of as a definition of what the organization is, of what it does: "Our business is …". This definition should not be too narrow, or it will constrict the development of the organization; a too rigorous concentration on the view that "We are in the business of making meat-scales," as IBM was during the early 1900s, might have limited its subsequent development into other areas. On the other hand, it should not be too wide or it will become meaningless; "We want to make a profit" is not too helpful in developing specific plans.

Abell suggested that the definition should cover three dimensions: "customer groups" to be served, "customer needs" to be served, and "technologies" to be used . Thus, the definition of IBM's "corporate mission" in the 1940s might well have been: "We are in the business of handling accounting information [customer need] for the larger US organizations [customer group] by means of punched cards [technology]."

Perhaps the most important factor in successful marketing is the "corporate vision." Surprisingly, it is largely neglected by marketing textbooks, although not by the popular exponents of corporate strategy - indeed, it was perhaps the main theme of the book by Peters and Waterman, in the form of their "Superordinate Goals." "In Search of Excellence" said: "Nothing drives progress like the imagination. The idea precedes the deed." If the organization in general, and its chief executive in particular, has a strong vision of where its future lies, then there is a good chance that the organization will achieve a strong position in its markets (and attain that future). This will be not least because its strategies will be consistent and will be supported by its staff at all levels. In this context, all of IBM's marketing activities were underpinned by its philosophy of "customer service," a vision originally promoted by the charismatic Watson dynasty. The emphasis at this stage is on obtaining a complete and accurate picture.

A "traditional" - albeit product-based - format for a "brand reference book" (or, indeed, a "marketing facts book") was suggested by Godley more than three decades ago:

1.Financial data—Facts for this section will come from management accounting, costing and finance sections.
2.Product data—From production, research and development.
3.Sales and distribution data - Sales, packaging, distribution sections.
4.Advertising, sales promotion, merchandising data - Information from these departments.
5.Market data and miscellany - From market research, who would in most cases act as a source for this information. His sources of data, however, assume the resources of a very large organization. In most organizations they would be obtained from a much smaller set of people (and not a few of them would be generated by the marketing manager alone).

It is apparent that a marketing audit can be a complex process, but the aim is simple: "it is only to identify those existing (external and internal) factors which will have a significant impact on the future plans of the company." It is clear that the basic material to be input to the marketing audit should be comprehensive.
Accordingly, the best approach is to accumulate this material continuously, as and when it becomes available; since this avoids the otherwise heavy workload involved in collecting it as part of the regular, typically annual, planning process itself - when time is usually at a premium.
Even so, the first task of this annual process should be to check that the material held in the current facts book or facts files actually is comprehensive and accurate, and can form a sound basis for the marketing audit itself.
The structure of the facts book will be designed to match the specific needs of the organization, but one simple format - suggested by Malcolm McDonald - may be applicable in many cases. This splits the material into three groups:

1.Review of the marketing environment. A study of the organization's markets, customers, competitors and the overall economic, political, cultural and technical environment; covering developing trends, as well as the current situation.
2.Review of the detailed marketing activity. A study of the company's marketing mix; in terms of the 7 Ps - (see below)
3.Review of the marketing system. A study of the marketing organization, marketing research systems and the current marketing objectives and strategies. The last of these is too frequently ignored. The marketing system itself needs to be regularly questioned, because the validity of the whole marketing plan is reliant upon the accuracy of the input from this system, and `garbage in, garbage out' applies with a vengeance.

Portfolio planning. In addition, the coordinated planning of the individual products and services can contribute towards the balanced portfolio.
80:20 rule. To achieve the maximum impact, the marketing plan must be clear, concise and simple. It needs to concentrate on the 20 percent of products or services, and on the 20 percent of customers, that will account for 80 percent of the volume and 80 percent of the profit.
7 Ps: Product, Place, Price and Promotion, Physical Environment, People, Process. The 7 Ps can sometimes divert attention from the customer, but the framework they offer can be very useful in building the action plans.
It is only at this stage (of deciding the marketing objectives) that the active part of the marketing planning process begins. This next stage in marketing planning is indeed the key to the whole marketing process.
The "marketing objectives" state just where the company intends to be at some specific time in the future.
James Quinn succinctly defined objectives in general as: Goals (or objectives) state what is to be achieved and when results are to be accomplished, but they do not state "how" the results are to be achieved.[3] They typically relate to what products (or services) will be where in what markets (and must be realistically based on customer behavior in those markets). They are essentially about the match between those "products" and "markets." Objectives for pricing, distribution, advertising and so on are at a lower level, and should not be confused with marketing objectives. They are part of the marketing strategy needed to achieve marketing objectives. To be most effective, objectives should be capable of measurement and therefore "quantifiable." This measurement may be in terms of sales volume, money value, market share, percentage penetration of distribution outlets and so on. An example of such a measurable marketing objective might be "to enter the market with product Y and capture 10 percent of the market by value within one year." As it is quantified it can, within limits, be unequivocally monitored, and corrective action taken as necessary.

The marketing objectives must usually be based, above all, on the organization's financial objectives; converting these financial measurements into the related marketing measurements.He went on to explain his view of the role of "policies," with which strategy is most often confused: "Policies are rules or guidelines that express the 'limits' within which action should occur."Simplifying somewhat, marketing strategies can be seen as the means, or "game plan," by which marketing objectives will be achieved and, in the framework that we have chosen to use, are generally concerned with the 8 P's. Examples are:

1.Price - The amount of money needed to buy products
2.Product - The actual product
3.Promotion (advertising)- Getting the product known
4.Placement - Where the product is located
5.People - Represent the business
6.Physical environment - The ambiance, mood, or tone of the environment
7.Process - How do people obtain your product
8.Packaging - How the product will be protected
(Note: At GCSE the 4 Ps are Place, Promotion, Product and Price and the "secret" 5th P is Packaging, but which applies only to physical products, not services usually, and mostly those sold to individual consumers)

In principle, these strategies describe how the objectives will be achieved. The 7 Ps are a useful framework for deciding how the company's resources will be manipulated (strategically) to achieve the objectives. However, they are not the only framework, and may divert attention from the real issues. The focus of the strategies must be the objectives to be achieved - not the process of planning itself. Only if it fits the needs of these objectives should you choose, as we have done, to use the framework of the 7 Ps.
The strategy statement can take the form of a purely verbal description of the strategic options which have been chosen. Alternatively, and perhaps more positively, it might include a structured list of the major options chosen.

One aspect of strategy which is often overlooked is that of "timing." Exactly when it is the best time for each element of the strategy to be implemented is often critical. Taking the right action at the wrong time can sometimes be almost as bad as taking the wrong action at the right time. Timing is, therefore, an essential part of any plan; and should normally appear as a schedule of planned activities.Having completed this crucial stage of the planning process, you will need to re-check the feasibility of your objectives and strategies in terms of the market share, sales, costs, profits and so on which these demand in practice. As in the rest of the marketing discipline, you will need to employ judgment, experience, market research or anything else which helps you to look at your conclusions from all possible angles.

Detailed plans and programs
At this stage,you will need to develop your overall marketing strategies into detailed plans and program. Although these detailed plans may cover each of the 7 Ps (marketing mix), the focus will vary, depending upon your organization's specific strategies. A product-oriented company will focus its plans for the 7 Ps around each of its products. A market or geographically oriented company will concentrate on each market or geographical area. Each will base its plans upon the detailed needs of its customers, and on the strategies chosen to satisfy these needs. Brochures and Websites are used effectively.

Again, the most important element is, indeed, that of the detailed plans, which spell out exactly what programs and individual activities will take place over the period of the plan (usually over the next year). Without these specified - and preferably quantified - activities the plan cannot be monitored, even in terms of success in meeting its objectives.It is these programs and activities which will then constitute the "marketing" of the organization over the period. As a result, these detailed marketing programs are the most important, practical outcome of the whole planning process. These plans must therefore be:

Clear - They should be an unambiguous statement of 'exactly' what is to be done.
Quantified - The predicted outcome of each activity should be, as far as possible, quantified, so that its performance can be monitored.
Focused - The temptation to proliferate activities beyond the numbers which can be realistically controlled should be avoided. The 80:20 Rule applies in this context too.
Realistic - They should be achievable.
Agreed - Those who are to implement them should be committed to them, and agree that they are achievable. The resulting plans should become a working document which will guide the campaigns taking place throughout the organization over the period of the plan. If the marketing plan is to work, every exception to it (throughout the year) must be questioned; and the lessons learnt, to be incorporated in the next year's .
Content of the marketing plan
A marketing plan for a small business typically includes Small Business Administration Description of competitors, including the level of demand for the product or service and the strengths and weaknesses of competitors

1.Description of the product or service, including special features
2.Marketing budget, including the advertising and promotional plan
3.Description of the business location, including advantages and disadvantages for marketing
4.Pricing strategy
5.Market Segmentation
[edit] Medium-sized and large organizations
The main contents of a marketing plan are:[4]

1.Executive Summary
2.Situational Analysis
3.Opportunities / Issue Analysis - SWOT Analysis
4.Objectives
5.Strategy
6.Action Program (the operational marketing plan itself for the period under review)
7.Financial Forecast
8.Controls
In detail, a complete marketing plan typically includes:[4]

1.Title page
2.Executive Summary
3.Current Situation - Macroenvironment
economy
legal
government
technology
ecological
sociocultural
supply chain
4.Current Situation - Market Analysis
market definition
market size
market segmentation
industry structure and strategic groupings
Porter 5 forces analysis
competition and market share
competitors' strengths and weaknesses
market trends
5.Current Situation - Consumer Analysis [5]
nature of the buying decision
participants
demographics
psychographics
buyer motivation and expectations
loyalty segments
6.Current Situation - Internal
company resources
financial
people
time
skills
objectives
mission statement and vision statement
corporate objectives
financial objective
marketing objectives
long term objectives
description of the basic business philosophy
corporate culture
7.Summary of Situation Analysis
external threats
external opportunities
internal strengths
internal weaknesses
Critical success factors in the industry
our sustainable competitive advantage
8.Marketing research
information requirements
research methodology
research results
9.Marketing Strategy - Product
product mix
product strengths and weaknesses
perceptual mapping
product life cycle management and new product development
Brand name, brand image, and brand equity
the augmented product
product portfolio analysis
B.C.G. Analysis
contribution margin analysis
G.E. Multi Factoral analysis
Quality Function Deployment
10.Marketing Strategy - segmented marketing actions and market share objectives
by product,
by customer segment,
by geographical market,
by distribution channel.
11.Marketing Strategy - Price
pricing objectives
pricing method (e.g.: cost plus, demand based, or competitor indexing)
pricing strategy (e.g.: skimming, or penetration)
discounts and allowances
price elasticity and customer sensitivity
price zoning
break even analysis at various prices
12.Marketing Strategy - promotion
promotional goals
promotional mix
advertising reach, frequency, flights, theme, and media
sales force requirements, techniques, and management
sales promotion
publicity and public relations
electronic promotion (e.g.: Web, or telephone)
word of mouth marketing (buzz)
viral marketing
13.Marketing Strategy - Distribution
geographical coverage
distribution channels
physical distribution and logistics
electronic distribution
14.Implementation
personnel requirements
assign responsibilities
give incentives
training on selling methods
financial requirements
management information systems requirements
month-by-month agenda
PERT or critical path analysis
monitoring results and benchmarks
adjustment mechanism
contingencies (What if's)
15.Financial Summary
assumptions
pro-forma monthly income statement
contribution margin analysis
breakeven analysis
Monte Carlo method
ISI: Internet Strategic Intelligence
16.Scenarios
Prediction of Future Scenarios
Plan of Action for each Scenario
17.Appendix
pictures and specifications of the new product
results from research already completed
[edit] Measurement of progress
The final stage of any marketing planning process is to establish targets (or standards) so that progress can be monitored. Accordingly, it is important to put both quantities and timescales into the marketing objectives (for example, to capture 20 percent by value of the market within two years) and into the corresponding strategies.

Changes in the environment mean that the forecasts often have to be changed. Along with these, the related plans may well also need to be changed. Continuous monitoring of performance, against predetermined targets, represents a most important aspect of this. However, perhaps even more important is the enforced discipline of a regular formal review. Again, as with forecasts, in many cases the best (most realistic) planning cycle will revolve around a quarterly review. Best of all, at least in terms of the quantifiable aspects of the plans, if not the wealth of backing detail, is probably a quarterly rolling review - planning one full year ahead each new quarter. Of course, this does absorb more planning resource; but it also ensures that the plans embody the latest information, and - with attention focused on them so regularly - forces both the plans and their implementation to be realistic.

Plans only have validity if they are actually used to control the progress of a company: their success lies in their implementation, not in the writing'.

Performance analysisThe most important elements of marketing performance, which are normally tracked, are:

Sales analysisMarket share analysis
Few organizations track market share though it is often an important metric. Though absolute sales might grow in an expanding market, a firm's share of the market can decrease which bodes ill for future sales when the market starts to drop. Where such market share is tracked, there may be a number of aspects which will be followed:

overall market share
segment share - that in the specific, targeted segment
relative share -in relation to the market leaders
annual fluctuation rate of market share
also the specific market sharing of customers.
Expense analysisThe key ratio to watch in this area is usually the `marketing expense to sales ratio'; although this may be broken down into other elements (advertising to sales, sales administration to sales, and so on).

Financial analysisThe "bottom line" of marketing activities should at least in theory, be the net profit (for all except non-profit organizations, where the comparable emphasis may be on remaining within budgeted costs). There are a number of separate performance figures and key ratios which need to be tracked:

gross contribution<>net profit
gross profit<>return on investment
net contribution<>profit on sales
There can be considerable benefit in comparing these figures with those achieved by other organizations (especially those in the same industry); using, for instance, the figures which can be obtained (in the UK) from `The Centre for Interfirm Comparison'. The most sophisticated use of this approach, however, is typically by those making use of PIMS (Profit Impact of Management Strategies), initiated by the General Electric Company and then developed by Harvard Business School, but now run by the Strategic Planning Institute.

The above performance analyses concentrate on the quantitative measures which are directly related to short-term performance. But there are a number of indirect measures, essentially tracking customer attitudes, which can also indicate the organization's performance in terms of its longer-term marketing strengths and may accordingly be even more important indicators. Some useful measures are:

market research - including customer panels (which are used to track changes over time)
lost business - the orders which were lost because, for example, the stock was not available or the product did not meet the customer's exact requirements
customer complaints - how many customers complain about the products or services, or the organization itself, and about what

Use of marketing plansA formal, written marketing plan is essential; in that it provides an unambiguous reference point for activities throughout the planning period. However, perhaps the most important benefit of these plans is the planning process itself. This typically offers a unique opportunity, a forum, for information-rich and productively focused discussions between the various managers involved. The plan, together with the associated discussions, then provides an agreed context for their subsequent management activities, even for those not described in the plan itself. Additionally, marketing plans are included in business plans, offering data showing investors how the company will grow and most importantly, how they will get a return on investment.

Budgets as managerial toolsThe classic quantification of a marketing plan appears in the form of budgets. Because these are so rigorously quantified, they are particularly important. They should, thus, represent an unequivocal projection of actions and expected results. What is more, they should be capable of being monitored accurately; and, indeed, performance against budget is the main (regular) management review process.

The purpose of a marketing budget is, thus, to pull together all the revenues and costs involved in marketing into one comprehensive document. It is a managerial tool that balances what is needed to be spent against what can be afforded, and helps make choices about priorities. It is then used in monitoring performance in practice.

The marketing budget is usually the most powerful tool by which you think through the relationship between desired results and available means. Its starting point should be the marketing strategies and plans, which have already been formulated in the marketing plan itself; although, in practice, the two will run in parallel and will interact. At the very least, the rigorous, highly quantified, budgets may cause a rethink of some of the more optimistic elements of the plans.

Marketing strategy

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Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centered around the key concept that customer satisfaction is the main goal.

Key part of the general corporate strategy
Marketing strategy is a method of focusing an organization's energies and resources on a course of action which can lead to increased sales and dominance of a targeted market niche. A marketing strategy combines product development, promotion, distribution, pricing, relationship management and other elements; identifies the firm's marketing goals, and explains how they will be achieved, ideally within a stated timeframe. Marketing strategy determines the choice of target market segments, positioning, marketing mix, and allocation of resources. It is most effective when it is an integral component of overall firm strategy, defining how the organization will successfully engage customers, prospects, and competitors in the market arena. Corporate strategies, corporate missions, and corporate goals. As the customer constitutes the source of a company's revenue, marketing strategy is closely linked with sales. A key component of marketing strategy is often to keep marketing in line with a company's overarching mission statement.

Basic theory:

1.Target Audience
2.Proposition/Key Element
3.Implementation

Tactics and actions
A marketing strategy can serve as the foundation of a marketing plan. A marketing plan contains a set of specific actions required to successfully implement a marketing strategy. For example: "Use a low cost product to attract consumers. Once our organization, via our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer's interaction with the low-cost product or service."

A strategy consists of a well thought out series of tactics to make a marketing plan more effective. Marketing strategies serve as the fundamental underpinning by marketing plans designed to fill market needs and reach marketing objectives. Plans and objectives are generally tested for measurable results.

A marketing strategy often integrates an organization's marketing goals, policies, and action sequences (tactics) into a cohesive whole. Similarly, the various strands of the strategy , which might include advertising, channel marketing, internet marketing, promotion and public relations can be orchestrated. Many companies cascade a strategy throughout an organization, by creating strategy tactics that then become strategy goals for the next level or group. Each one group is expected to take that strategy goal and develop a set of tactics to achieve that goal. This is why it is important to make each strategy goal measurable.

Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned. See strategy dynamics.

Types of strategies

Marketing strategies may differ depending on the unique situation of the individual business. However there are a number of ways of categorizing some generic strategies. A brief description of the most common categorizing schemes is presented below:

Strategies based on market dominance - In this scheme, firms are classified based on their market share or dominance of an industry.

Typically there are four types of market dominance strategies:

Leader
Challenger
Follower
Nicher

Porter generic strategies - strategy on the dimensions of strategic scope and strategic strength. Strategic scope refers to the market penetration while strategic strength refers to the firm’s sustainable competitive advantage. The generic strategy framework (porter 1984) comprises two alternatives each with two alternative scopes. These are Differentiation and low-cost leadership each with a dimension of Focus-broad or narrow.
Product differentiation (broad)
Cost leadership (broad)
Market segmentation (narrow)
Innovation strategies - This deals with the firm's rate of the new product development and business model innovation. It asks whether the company is on the cutting edge of technology and business innovation. There are three types:
Pioneers
Close followers
Late followers
Growth strategies - In this scheme we ask the question, “How should the firm grow?”. There are a number of different ways of answering that question, but the most common gives four answers:
Horizontal integration
Vertical integration
Diversification
Intensification

A more detailed scheme uses the categories:
Prospector
Analyzer
Defender
Reactor

Marketing warfare strategies - This scheme draws parallels between marketing strategies and military strategies.

Strategic models
Marketing participants often employ strategic models and tools to analyze marketing decisions. When beginning a strategic analysis, the 3Cs can be employed to get a broad understanding of the strategic environment. An Ansoff Matrix is also often used to convey an organization's strategic positioning of their marketing mix. The 4Ps can then be utilized to form a marketing plan to pursue a defined strategy.

There are many companies especially those in the Consumer Package Goods (CPG) market that adopt the theory of running their business centered around Consumer, Shopper & Retailer needs. Their Marketing departments spend quality time looking for "Growth Opportunities" in their categories by identifying relevant insights (both mindsets and behaviors) on their target Consumers, Shoppers and retail partners. These Growth Opportunities emerge from changes in market trends, segment dynamics changing and also internal brand or operational business challenges.The Marketing team can then prioritize these Growth Opportunities and begin to develop strategies to exploit the opportunities that could include new or adapted products, services as well as changes to the 7Ps.

Real-life marketing
Real-life marketing primarily revolves around the application of a great deal of common-sense; dealing with a limited number of factors, in an environment of imperfect information and limited resources complicated by uncertainty and tight timescales. Use of classical marketing techniques, in these circumstances, is inevitably partial and uneven.

Thus, for example, many new products will emerge from irrational processes and the rational development process may be used (if at all) to screen out the worst non-runners. The design of the advertising, and the packaging, will be the output of the creative minds employed; which management will then screen, often by 'gut-reaction', to ensure that it is reasonable.

For most of their time, marketing managers use intuition and experience to analyze and handle the complex, and unique, situations being faced; without easy reference to theory. This will often be 'flying by the seat of the pants', or 'gut-reaction'; where the overall strategy, coupled with the knowledge of the customer which has been absorbed almost by a process of osmosis, will determine the quality of the marketing employed. This, almost instinctive management, is what is sometimes called 'coarse marketing'; to distinguish it from the refined, aesthetically pleasing, form favored by the theorists.

"Marketing" -- A Commonly Misunderstood Term

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Before you learn more about marketing, you should get a basic impression of what marketing is. See What's "Advertising, Marketing, Promotion, Public Relations and Publicity, and Sales?". Basically, you might look at marketing as the wide range of activities involved in making sure that you're continuing to meet the needs of your customers and are getting appropriate value in return. Think about marketing as "inbound" and "outbound" marketing. (In the following, consider "product" to be either a tangible product or a service -- nonprofits often refer to these as "programs".)

Inbound Marketing Includes Market Research to Find Out:

What specific groups of potential customers/clients (markets) might have which specific needs (nonprofits often already have a very clear community need in mind when starting out with a new program -- however, the emerging practice of nonprofit business development, or earned income development, often starts by researching a broad group of clients to identify new opportunities for programs)
How those needs might be met for each group (or target market), which suggests how a product might be designed to meet the need (nonprofits might think in terms of outcomes, or changes, to accomplish among the groups of clients in order to meet the needs)
How each of the target markets might choose to access the product, etc. (its "packaging")
How much the customers/clients might be willing pay and how (pricing analysis)
Who the competitors are (competitor analysis)
How to design and describe the product such that customers/clients will buy from the organization, rather than from its competitors (its unique value proposition)
How the product should be identified -- its personality -- to be most identifiable (its naming and branding)

Outbound Marketing Includes:

Advertising and promotions (focused on the product)
Sales
Public and media relations (focused on the entire organization)
Customer service
Customer satisfaction
Too often, people jump right to the outbound marketing. As a result, they often end up trying to push products onto people who really don't want the products at all. Effective inbound marketing often results in much more effective -- and less difficult -- outbound marketing and sales.

Market segmentation

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Market segmentation is a concept in economics and marketing. A market segment is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different amounts. These can broadly be viewed as 'positive' and 'negative' applications of the same idea, splitting up the market into smaller groups.

Examples:

Gender
Price
Interests

While there may be theoretically 'ideal' market segments, in reality every organization engaged in a market will develop different ways of imagining market segments, and create Product differentiation strategies to exploit these segments. The market segmentation and corresponding product differentiation strategy can give a firm a temporary commercial advantage.

"Positive" market segmentation

Market segmenting is dividing the market into groups of individual markets with similar wants or needs that a company divides the market into distinct groups who have distinct needs, wants, behavior or who might want different products & services. Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives. All of these methods of segmentation are merely proxies for true segments, which don't always fit into convenient demographic boundaries.

Consumer-based market segmentation can be performed on a product specific basis, to provide a close match between specific products and individuals. However, a number of generic market segment systems also exist, e.g. the system provides a broad segmentation of the population of the United States based on the statistical analysis of household and geodemographic data.

The process of segmentation is distinct from positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behavior; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved.

Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness

Positioning

Once a market segment has been identified (via segmentation), and targeted (in which the viability of servicing the market intended), the segment is then subject to positioning. Positioning involves ascertaining how a product or a company is perceived in the minds of consumers.

This part of the segmentation process consists of drawing up a perceptual map, which highlights rival goods within one's industry according to perceived quality and price. After the perceptual map has been devised, a firm would consider the marketing communications mix best suited to the product in question.

Using Segmentation in Customer Retention

Segmentation is commonly used by organizations to improve their customer retention programs and help ensure that they are:

Focused on retaining their most profitable customers
Employing those tactics most likely to retain these customers
The basic approach to retention-based segmentation is that a company tags each of its active customers with 3 values:

Tag #1: Is this customer at high risk of canceling the company's service? One of the most common indicators of high-risk customers is a drop off in usage of the company's service. For example, in the credit card industry this could be signaled through a customer's decline in spending on his card.

Tag #2: Is this customer worth retaining? This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer. Managing Customers as Investments.

Tag #3: What retention tactics should be used to retain this customer? For customers who are deemed “save-worthy”, it’s essential for the company to know which save tactics are most likely to be successful. Tactics commonly used range from providing “special” customer discounts to sending customers communications that reinforce the value proposition of the given service.

Process for tagging customers

The basic approach to tagging customers is to utilize historical retention data to make predictions about active customers regarding:

Whether they are at high risk of canceling their service
Whether they are profitable to retain
What retention tactics are likely to be most effective
The idea is to match up active customers with customers from historic retention data who share similar attributes. Using the theory that “birds of a feather flock together”, the approach is based on the assumption that active customers will have similar retention outcomes as those of their comparable predecessor

Price Discrimination

Where a monopoly exists, the price of a product is likely to be higher than in a competitive market and the quantity sold less, generating monopoly profits for the seller. These profits can be increased further if the market can be segmented with different prices charged to different segments charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic. The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices available to members of a lower price segment. This behavior is rational on the part of the monopolist, but is often seen by competition authorities as an abuse of a monopoly position, whether or not the monopoly itself is sanctioned. Examples of this exist in the transport industry (a plane or train journey to a particular destination at a particular time is a practical monopoly) where business class customers who can afford to pay may be charged prices many times higher than economy class customers for essentially the same service.

Marketing Concept and Orientation

2010-11-28T20:33:00.000-08:00

Marketing Concept and Orientation

It is a fundamental idea of marketing that organisations survive and prosper through meeting the needs and wants of customers. This important perspective is commonly known as the marketing concept.

The marketing concept is about matching a company's capabilities with customer wants. This matching process takes place in what is called the marketing environment.

Businesses do not undertake marketing activities alone. They face threats from competitors, and changes in the political, economic, social and technological environment. All these factors have to be taken into account as a business tries to match its capabilities with the needs and wants of its target customers.

An organisation that adopts the marketing concept accepts the needs of potential customers as the basis for its operations. Success is dependent on satisfying customer needs.

What are customer needs and wants?

A need is a basic requirement that an individual wishes to satisfy.

People have basic needs for food, shelter, affection, esteem and self-development. Many of these needs are created from human biology and the nature of social relationships. Customer needs are, therefore, very broad.

Whilst customer needs are broad, customer wants are usually quite narrow.

A want is a desire for a specific product or service to satisfy the underlying need.

Consider this example:

Consumers need to eat when they are hungry.
What they want to eat and in what kind of environment will vary enormously. For some, eating at McDonalds satisfies the need to meet hunger. For others a microwaved ready-meal meets the need. Some consumers are never satisfied unless their food comes served with a bottle of fine Chardonnay.

Consumer wants are shaped by social and cultural forces, the media and marketing activities of businesses.

This leads onto another important concept - that of customer demand:

Consumer demand is a want for a specific product supported by an ability and willingness to pay for it.

For example, many consumers around the globe want a Mercedes. But relatively few are able and willing to buy one.

Businesses therefore have not only to make products that consumers want, but they also have to make them affordable to a sufficient number to create profitable demand.

Businesses do not create customer needs or the social status in which customer needs are influenced. It is not McDonalds that makes people hungry. However, businesses do try to influence demand by designing products and services that are

• Attractive
• Work well
• Are affordable
• Are available

Businesses also try to communicate the relevant features of their products through advertising and other marketing promotion.

Which leads us finally to an important summary point.

Top Ten Reasons Businesses Succeed

2009-06-28T00:05:00.000-07:00

1. The experience and skills of the top managers.
Over half of business failures are directly related to managerial incompetence.

2. The energy, persistence and resourcefulness (the will to make the business succeed) of the top managers.
Many business owners have failed or come close several times before their “instant” success. Don’t give up.

3. A product that is at least a cut above the competition and service that doesn’t get in the way of people buying.
There must be a compelling reason to buy; the product is great, the people love to provide service, and the buying experience is easy and fun.

4. The ability to create a “buzz” around the product with aggressive and strategic marketing.
Make scarce marketing resources count. Do as much homework about your customers and their choices as you can before investing your marketing dollars.

5. Deal-making skills to sell the product at the highest possible price given your market.
It comes down to your customers’ perception of the value of your product and sometimes the power of your personality.

6. The ability to keep developing new products to retain and build a customer base.
Consider gradual product development based on improvements to the current product line and sold to the current customer base.

7. Deal-making skills to work with resource suppliers to keep costs low.
Keeping costs lower than competitors’ and continuing to look for cost reductions even when the business is profitable is key.

8. The maturity to treat employees, suppliers and partners fairly and respectfully.
Trust and respect result in productivity increases in ways that may be difficult to see and quantify.

9. Superior location and/or promotion creating a connection between your product and where it can be obtained.
Studies have shown it can take seeing your product or name seven times before a customer is ready to buy.

10. A steady source of business during both good economic times and downturns.
Over the long term, develop a product mix that will include winners during good economic times and other winners when times are tough.

The 63 Most Common Reasons For Business Failure

2009-06-27T23:33:00.000-07:00

Failure to focus on a specific market because of poor research
Failure to control cash by carrying too much stock, paying suppliers too promptly and allowing customers too long to pay
Failure to control costs ruthlessly
Failure to adapt your product to meet customer needs
Failure to carry out decent market research
Failure to build a team that is compatible and has the skills to finance, produce sell and market
Failure to pay crown taxes (PAYE and VAT)
Failure of businesses need to grow. Merely attempting stability or had even less ambitious objectives, businesses which did not try to grow didn't survive
Failure to gain new markets
Under-capitalisation
Cashflow problems
Non-payment by customers
Poor sales & marketing
Fatal leasing agreements
Loss of financial backing
Tougher market conditions
Poor management
Directors aiming to find new markets, but not making a single sale
Companies diversifying into new, unknown areas without a clue about costs
Companies finding that staff set up as rivals and stealing the business
Company directors spending too much money on frivolous purposes thus using up all available capital
Loss of market
Tax liabilities
A lack of working capital
Bad debts are the cause
Personal extravagance
Fraud
Legal disputes
Falling property values
Poor management
Unsuitable people starting small businesses without the skills or resources they need to succeed
A lack of orders
A lack of control over cash flow
Lack of good management
Bad management of the capital available
Marketing problems
A failure to plan ahead, beyond the day-to-day running of the business
Marketing problems
General rise in costs
Bad financial management
Poor forward planning
Too heavy reliance on grants
Poor collection of debtor book such as greater than 45 days
Extended lines of credit
Rising work-in-progress that is not billed on time
Diminished cash balances
Purchase orders being made by expanding payment periods, not by cash
Over-reached overdraft facilities
Poor cost control with too many people responsible for purchasing
Lack of long-standing relationships with suppliers
The business widening its range of suppliers simply to make more credit available
Rising stock levels and static sales
Contract disputes
Final demands and writs being received
The business being reliant on one or two customers which do not pay as well as they used to
Borrowings being increased just to keep the business running
Outstanding debtors or potential bad debts seem to have rising suddenly
The business is unsure how much it owes and how much it is owed
The business is more than one month adrift in payments to the Inland Revenue or Customs and Excise
The bank is calling the business to say it has exceeded its overdraft limit
Under pricing
Over trading
Poor quality of product or service
Bad labour relations
Niche businesses - These suffered from narrow customer and supplier bases and an inability to react to changes in the market

BUSINESS

2009-04-22T04:53:00.000-07:00

INTRODUCTION

Business, organized approach to providing customers with the goods and services they want. The word business also refers to an organization that provides these goods and services. Most businesses seek to make a profit—that is, they aim to achieve revenues that exceed the costs of operating the business. Prominent examples of for-profit businesses include Mitsubishi Group, General Motors Corporation, and Royal Dutch/Shell Group. However, some businesses only seek to earn enough to cover their operating costs. Commonly called nonprofits, these organizations are primarily nongovernmental service providers. Examples of nonprofit businesses include such organizations as social service agencies, foundations, advocacy groups, and many hospitals.
Business plays a vital role in the life and culture of countries with industrial and postindustrial (service- and information-based) free-market economies such as the United States. In free-market systems, prices and wages are primarily determined by competition, not by governments. In the United States, for example, many people buy and sell goods and services as their primary occupations. In 2001 American companies sold in excess of $10 trillion worth of goods and services. Businesses provide just about anything consumers want or need, including basic necessities such as food and housing, luxuries such as whirlpool baths and wide-screen televisions, and even personal services such as caring for children and finding companionship.

TYPES OF BUSINESSES

There are many types of businesses in a free-market economy. The three most common are (1) manufacturing firms, (2) merchandisers, and (3) service enterprises.

A

Manufacturing Firms

Automobile Plant, Detroit

The automobile industry has been important to the economy of Detroit since the early 1900s. As the foremost automobile manufacturing center in the world, Detroit earned its nickname, The Motor City. Shown here, cars are assembled in one of Detroit’s auto plants.
Gary Cralle/The Image Bank
Manufacturing firms produce a wide range of products. Large manufacturers include producers of airplanes, cars, computers, and furniture. Many manufacturing firms construct only parts rather than complete, finished products. These suppliers are usually smaller manufacturing firms, which supply parts and components to larger firms. The larger firms then assemble final products for market to consumers. For example, suppliers provide many of the components in personal computers, automobiles, and home appliances to large firms that create the finished or end products. These larger end-product manufacturers are often also responsible for marketing and distributing the products. The advantage that large businesses have in being able to efficiently and inexpensively control any parts of a production process is known as economies of scale. But small manufacturing firms may work best for producing certain types of finished products. Smaller end-product firms are common in the food industry and among artisan trades such as custom cabinetry.

B

Merchandisers

Merchandisers are businesses that help move goods through a channel of distribution—that is, the route goods take in reaching the consumer. Merchandisers may be involved in wholesaling or retailing, or sometimes both.
A wholesaler is a merchandiser who purchases goods and then sells them to buyers, typically retailers, for the purpose of resale. A retailer is a merchandiser who sells goods to consumers. A wholesaler often purchases products in large quantities and then sells smaller quantities of each product to retailers who are unable to either buy or stock large amounts of the product. Wholesalers operate somewhat like large, end-product manufacturing firms, benefiting from economies of scale. For example, a wholesaler might purchase 5,000 pairs of work gloves and then sell 100 pairs to 50 different retailers. Some large American discount chains, such as Kmart Corporation and Wal-Mart Stores, Inc., serve as their own wholesalers. These companies go directly to factories and other manufacturing outlets, buy in large amounts, and then warehouse and ship the goods to their stores.
The division between retailing and wholesaling is now being blurred by new technologies that allow retailing to become an economy of scale. Telephone and computer communications allow retailers to serve far greater numbers of customers in a given span of time than is possible in face-to-face interactions between a consumer and a retail salesperson. Computer networks such as the Internet, because they do not require any physical communication between salespeople and customers, allow a nearly unlimited capacity for sales interactions known as 24/7—that is, the Internet site can be open for a transaction 24 hours a day, seven days a week and for as many transactions as the network can handle. For example, a typical transaction to purchase a pair of shoes at a shoe store may take a half-hour from browsing, to fitting, to the transaction with a cashier. But a customer can purchase a pair of shoes through a computer interface with a retailer in a matter of seconds.
Computer technology also provides retailers with another economy of scale through the ability to sell goods without opening any physical stores, often referred to as electronic commerce or e-commerce. Retailers that provide goods entirely through Internet transactions do not incur the expense of building so-called brick-and-mortar stores or the expense of maintaining them.

C

Service Enterprises

Service in the Former Soviet Union

The first McDonald’s fast-food restaurant in Moscow is a popular spot with locals. Service enterprises such as restaurants, hotels, and vacation resorts have grown to become major business sectors in many countries, in some cases even overtaking manufacturing and other production-oriented businesses. A service business, such as McDonald's, often supports a number of related production businesses, from farms to food processing plants to kitchen appliance manufacturers.
MUHS/CARO FOTOS/SIPA
Service enterprises include many kinds of businesses. Examples include dry cleaners, shoe repair stores, barbershops, restaurants, ski resorts, hospitals, and hotels. In many cases service enterprises are moderately small because they do not have mechanized services and limit service to only as many individuals as they can accommodate at one time. For example, a waiter may be able to provide good service to four tables at once, but with five or more tables, customer service will suffer.
In recent years the number of service enterprises in wealthier free-market economies has grown rapidly, and spending on services now accounts for a significant percentage of all spending. By the late 1990s, private services accounted for more than 21 percent of U.S. spending. Wealthier nations have developed postindustrial economies, where entertainment and recreation businesses have become more important than most raw material extraction such as the mining of mineral ores and some manufacturing industries in terms of creating jobs and stimulating economic growth. Many of these industries have moved to developing nations, especially with the rise of large multinational corporations. As postindustrial economies have accumulated wealth, they have come to support systems of leisure, in which people are willing to pay others to do things for them. In the United States, vast numbers of people work rigid schedules for long hours in indoor offices, stores, and factories. Many employers pay high enough wages so that employees can afford to balance their work schedules with purchased recreation. People in the United States, for example, support thriving travel, theme park, resort, and recreational sport businesses.

FORMS OF BUSINESS OWNERSHIP

There are a number of different forms of business ownership. These include (1) sole proprietorships, (2) partnerships, (3) corporations, (4) joint ventures, and (5) syndicates.

A

Sole Proprietorship

The most common form of ownership is a sole proprietorship—that is, a business owned by one individual. At the beginning of the 21st century, there were more than 17 million sole proprietorships in the United States. These businesses have the advantage of being easy to set up and to dissolve because few laws exist to regulate them. Proprietors, as owners, also maintain direct control of their businesses and own all their profits. On the other hand, owners of proprietorships are personally responsible for all business debts and, because they are constrained by the limits of their personal financial resources, they may find it difficult to expand or increase their profits. For those reasons, sole proprietorships tend to be small, primarily service and retail businesses.

B

Partnership

A partnership is an association of two or more people who operate a business as co-owners. There are different types of partners. A general partner is active in the operation of a business and is liable for all of its debts. In small businesses with only two or three owners, all typically will be general partners. A limited partner, by contrast, invests in a business but is not involved in its daily operations. Partnerships, like sole proprietorships, are relatively easy to establish. Furthermore, partners can pool financial resources to fund expansion and can divide their duties and responsibilities according to personal expertise and abilities. For example, one partner may be very good at selling, while another has a knack for maintaining good financial records. As with sole proprietorships, however, partnerships may entail substantial financial risks, as all of the general partners are liable for the debts of the business. And unlike proprietorships, disagreements among partners can harm partnership businesses.

C

Corporation

A corporation is a legal entity that exists as distinct from the individuals who control and invest in it. As a result, a corporation can continue indefinitely through complete changes of ownership, leadership, and staffing. Current owners can sell their holdings to other individuals or, if they die, have their assets transferred to heirs. This is possible because a corporation creates shares of stock that are sold to investors. One strength of the corporate business structure is that stockholders have limited liability, as opposed to the unlimited liability of general partners, so they cannot lose more than their initial investment. Investors may also easily buy and sell stocks of public corporations through stock exchanges. By offering stock publicly, a corporation enables anyone with some money to buy the stock and become a part-owner of the company. As a result, corporations can more easily raise capital for business expansion than can sole proprietorships and most partnerships.
Investors control a corporation through the election of a managing body, known as a board of directors. In a large corporation, investors collectively decide who will oversee the operation of the enterprise. In turn, the board chooses a president, who decides on the key company personnel and helps formulate company strategy.
Many corporations are highly successful business organizations, with profits far exceeding those of many sole proprietorships and partnerships. However, they traditionally have higher tax burdens than other kinds of businesses. Also, the fees involved in creating and organizing a corporation can be expensive.

D

Joint Ventures and Syndicates

In joint ventures and syndicates, individuals or businesses cooperate to create a single product or service package. A joint venture is a partnership agreement in which two or more individual- or group-run businesses join together to carry out a single business project. For example, U.S.-based General Motors Corporation and Toyota Motor Corporation, based in Japan, have a joint venture called New United Motor Manufacturing, Inc., created for the purpose of producing cars in California.
A syndicate is an association of individuals or corporations formed to conduct a specific financial transaction such as buying a business. Quite often syndicates are created for the purpose of buying sports franchises. For example, the Miami Heat basketball team and the New York Yankees baseball team are each owned by syndicates of individuals. Each member of these syndicates is also involved in the operation of other businesses.

BUSINESS OPERATIONS

A variety of operations keep businesses, especially large corporations, running efficiently and effectively. Common business operation divisions include (1) production, (2) marketing, (3) finance, and (4) human resource management.

A

Production

Ford Model T

A Ford Model T rolls off the assembly line. Between 1908 and 1927, Ford built 15 million Model Ts.
UPI/Corbis
Production includes those activities involved in conceptualizing, designing, and creating products and services. In recent years there have been dramatic changes in the way goods are produced. Today, computers help monitor, control, and even perform work. Flexible, high-tech machines can do in minutes what it used to take people hours to accomplish. Another important development has been the trend toward just-in-time inventory. The word inventory refers to the amount of goods a business keeps available for wholesale or retail. In just-in-time inventory, the firm stocks only what it needs for the next day or two. Many businesses rely on fast, global computer communications to allow them to respond quickly to changes in consumer demand. Inventories are thus minimized and businesses can invest more in product research, development, and marketing.

B

Marketing

Marketing From the Skies

The Goodyear Tire & Rubber Company developed its well-known blimp with many marketing goals in mind. The blimp not only makes the Goodyear name highly visible, but also demonstrates the technological expertise of the company and the quality of Goodyear rubber products. The company flies the blimp over crowds at professional sporting events to target an audience of likely tire purchasers.
Jerry Wachter/Photo Researchers, Inc.
Marketing is the process of identifying the goods and services that consumers need and want and providing those goods and services at the right price, place, and time. Businesses develop marketing strategies by conducting research to determine what products and services potential customers think they would like to be able to purchase. Firms also promote their products and services through such techniques as advertising and personalized sales, which serve to inform potential customers and motivate them to purchase. Firms that market products for which there is always some demand, such as foods and household goods, often advertise if they face competition from other firms marketing similar products. Such products rarely need to be sold face-to-face. On the other hand, firms that market products and services that buyers will want to see, use, or better understand before buying, often rely on personalized sales. Expensive and durable goods—such as automobiles, electronics, or furniture—benefit from personalized sales, as do legal, financial, and accounting services.

C

Finance

Finance involves the management of money. All businesses must have enough capital on hand to pay their bills, and for-profit businesses seek extra capital to expand their operations. In some cases, they raise long-term capital by selling ownership in the company. Other common financial activities include granting, monitoring, and collecting on credit or loans and ensuring that customers pay bills on time. The financial division of any business must also establish a good working relationship with a bank. This is particularly important when a business wants to obtain a loan.

D

Human Resource Management

Businesses rely on effective human resource management (HRM) to ensure that they hire and keep good employees, and that they are able to respond to conflicts between workers and management. HRM specialists initially determine the number and type of employees that a business will need over its first few years of operation. They are then responsible for recruiting new employees to replace those who leave and for filling newly created positions. A business’s HRM division also trains or arranges for the training of its staff to encourage worker productivity, efficiency, and satisfaction, and to promote the overall success of the business. Finally, human resource managers create workers’ compensation plans and benefit packages for employees.

BUSINESS IN A FREE MARKET ECONOMY

The economy of the United States, as well as that of most developed nations, operates according to the principles of the free market. This differs from the economies of Socialist or Communist countries, where governments play a strong role in deciding what goods and services will be produced, how they will be distributed, and how much they will cost (see Socialism; Communism). Businesses in free-market economies benefit from certain fundamental rights or freedoms. All people in free-market societies have the right to own, use, buy, sell, or give away property, thus permitting them to own and operate their own businesses as private, profit-seeking enterprises. Business owners in free markets may choose to run their businesses however they like, within the limits of other, mostly non-business-oriented laws. This right gives businesses the authority to hire and fire employees, invest money, purchase machinery and equipment, and choose the markets where they want to operate. In doing so, however, they may not violate or infringe on the rights of other businesses and people. Free-market businesses also have the right to keep or reinvest their profits.
All free-market economies, however, keep the rights of businesses in check to some degree through laws and regulations that monitor business activities. Such laws vary from country to country, but they generally encourage competition by protecting small businesses and consumers from being hurt by more powerful, large enterprises. For example, in the United States the Sherman Antitrust Act, enacted in 1890, and the Clayton Antitrust Act of 1914 forbid business agreements that impede interstate and most international commerce. The Clayton Antitrust Act also protects against unfair business practices aimed at creating monopolies and guarantees the rights of labor to challenge management practices perceived as unfair. The U.S. Federal Trade Commission Act of 1914 prohibits businesses from attempting to control the prices of its products or services, among other provisions. Other laws prohibit mergers that decrease competition within an industry and require large merging companies to notify the Federal Trade Commission (FTC) for approval.

CURRENT TRENDS

Business activities are becoming increasingly global as numerous firms expand their operations into overseas markets. Many U.S. firms, for example, attempt to tap emerging markets by pursuing business in China, India, Brazil, and Russia and other Eastern European countries. Multinational corporations (MNCs), which operate in more than one country at once, typically move operations to wherever they can find the least expensive labor pool able to do the work well. Production jobs requiring only basic or repetitive skills—such as sewing or etching computer chips—are usually the first to be moved abroad. MNCs can pay these workers a fraction of what they would have to pay in a domestic division, and often work them longer and harder. Most U.S. multinational businesses keep the majority of their upper-level management, marketing, finance, and human resources divisions within the United States. They employ some lower-level managers and a vast number of their production workers in offices, factories, and warehouses in developing countries. MNCs based in the United States have moved many of their production operations to countries in Central and South America, China, India, and nations of Southeast Asia.
In the United States, for example, America Online, Inc. (AOL) and Time Warner merged in 2000 to form AOL Time Warner, Inc., (present-day Time Warner Inc.) a massive corporation that brought together AOL’s Internet franchises, technology and infrastructure, and e-commerce capabilities with Time Warner’s vast array of media, entertainment, and news products.
With large mergers and the development of new free markets around the world, major corporations now wield more economic and political power than the governments under which they operate. In response, public pressure has increased for businesses to take on more social responsibility and operate according to higher levels of ethics. Firms in developed nations now promote—and are often required by law to observe—nondiscriminatory policies for the hiring, treatment, and pay of all employees. Some companies are also now more aware of the economic and social benefits of being active in local communities by sponsoring events and encouraging employees to serve on civic committees. Businesses will continue to adjust their operations according to the competing goals of earning profits and responding to public pressures for them to behave in ways that benefit society.