Marketing, due to its historical luggage, is gravely misunderstood by many people as something to be done to increase the sales of a product (i.e. promoting), whereas it should instead be understood as a strategical process, which is never done but continuing as long as the producer exists. Whether you are an entrepreneur, a solo free-software developer, or an indie game-dev, as long as you are a producer, you -presumably- must be working for your products to be used/consumed/bought by people (unless -of course- you are an artist, then you might want to abstain from the consideration of your audience). It is clear then, that marketing is crucial simply if you do not want your work to get wasted. You do need marketing.
If this post manages to wet your appetite, you should absolutely check Marketing: An Introduction by Gary Armstrong, Philip Kotler et al. It is a 640 pages-long book, and as it indicates, there is no way for anyone to even briefly summarise -yet alone cover– marketing thoroughly. What you are reading is (a) written by a student, and (b) is a tiny fraction of a tiny fraction: think of it as a stimulus.
I’ll mention 3 different (simplified) eras each industry goes (or already went) through, so that you can understand where most of the misconceptions about marketing came from, and then I will explain how the modern approach to marketing makes more sense in today’s context – assuming that the industry you are working in is already matured; this will make more sense once you read the post.
3 Eras of Each Industry
What I call here “eras of industries” is in fact called marketing orientation in the jargon, and is the way you approach your business; marketing is “a corporate state of mind” but I think it should not be limited to corporations necessarily.
Product & Production Oriented Era
The initial era of a new-born industry is the product & production oriented era, and it remains so as long as the industry is under-saturated, that is, the industry is nearly non-competitive in the sense that it is possible for a producer to earn marketshare without stepping on others’ toes.
Tesla Model S
Tesla Inc. would be a great example for product & production oriented company: (a) the electric car industry is currently nowhere nearly as competitive as its gasoline-powered precedent; (b) many potential (in the long term) customers of Tesla do not currently own an electric car; (c) the number of products (electric cars) and side-products (electric stations, electric car repair shops, etc.) are much lower than their potential.
It is no doubt why Musk is expanding Tesla’s product line by introducing Tesla Semi -an electric powered truck-, and by re-introducing Tesla Roadster. Is Musk’s obsession with Tesla Gigafactory 1 then any more surprising? Musk’s orientation is clear: products and production.
Prototype of Tesla Semi
Being product and production oriented is the best mindset you can possibly have under given similar circumstances. Musk -and people around him- know that wider their product line is, better the chances are that they are addressing a currently unmet need of their potential customers. Why else then would a luxurious electric car company introduce an electric truck into the market? Being first in the market is invaluable, so long as your customers can afford and also that you can deliver. Musk is surely aware of that as well, and that is certainly why Gigafactory 1 is being built: (a) to lower the unit production costs of its electric cars, (b) to be able to meet the enormous demand by increasing the production rate.
Now how much advertisement Tesla needs do you think? Each event of Tesla, and frankly any significant development in the electric car industry, is covered by the press and ends up in the news feeds of many people. If a person considers buying an electric car, his/her options are much more limited in contrast with gasoline cars, and Tesla seem to have a monopoly on the high-end of the market, and a few other niches such as trucks and roadsters: even a simple Google search would redirect potential customers to Tesla’s website. Tesla’s marketing strategy does not consist of “marketing” its products, but focusing on the products themselves, and their production.
Sales Oriented Era
Sales oriented era starts when significant increases in competition become threatening to producers. A characteristic of this era is that a consumer in the given industry has now more alternatives to consider and choose amongst. In the classic purchase funnel metaphor with AIDA (Awareness, Interest, Desire, Action) model, this the era where companies aim to increase the awareness of their own products, evoke interest in them, and finally convince customers to buy (action) their product by catching their desire.
A Tobacco Advertisement
To link with the product & production oriented era, it is clear that to be able evoke interest in a product, it must be able to address a need of its potential owner/beneficiary, hence you expand your product line first to accommodate different needs. There is no point in trying to catch the desire of potential customers either, if they cannot afford paying for the product, or if you cannot deliver your orders, hence you develop your production first to reduce the unit costs and increase the output rate.
I don’t have much to add about this era, and I don’t think there is any need: sales orientation is what many people have in their minds when they think of marketing, although you should realise that sales orientation is just one way of marketing. Advertising your product is not marketing, it is part of it.
Marketing Oriented Era
The final era where advertising your product after it’s already been produced won’t do. This is the era where the market for the given industry is almost fully saturated (or even over-saturated), where the competition is really high. This is one way to think of it but then we would have a marketing myopia, that is, a denial of the human element in the market. We must be able to look a bit further, and shift our focus from production, products, and the sale of products, to the customer: to put simply, marketing orientation is customer orientation. The ultimate aim of each company is to make money, and each producer is to serve its customers/users of his/her products. Each of them, then, must realise that the products they produce is merely means in increasing the customer satisfaction (which, in turn, will increase your profits if that is your aim).
“iOS users spend $500 more per month than those on Android”
Apple is an exemplary company when it comes to marketing, because they know how to create and maintain profitable relationships with its customers. According to the graph from Business Insider (on the right), “iOS users spend $500 more per month than those on Android”. Combined with the unbelievably high brand loyalty Apple has, it is clear that Apple is in a more desirable position in smartphone industry than its competitors, because it has a greater customer equity.
Now I threw so many new terms, on which I need to elaborate a bit more. Customer equity is the sum of the customer lifetime values (CLTVs) of your customers, and customer lifetime value is the total net profit you predict to earn from that customer during your entire future relationship with the customer. Making an unpleasant analogy where you see your customers as cows, CLTV is value of the total amount milk a cow can produce in its lifetime, minus the total cost of straws the cow will eat in the meanwhile, all values being predicted of course. Your
customer cow equity, then, would be the sum of CLTVs. Cows and humans are alike in the sense that when we are happy and content, we are inclined to spend more and more easily, so you -as the producer- should aim to increase customer satisfaction, a necessary (but not sufficient) condition for the brand loyalty. Brand loyalty is how likely your customers will choose a product of your brand while making their next decision, and it can be an very powerful tool in increasing your sales, and securing your future profits.
Very surprisingly, you might have realised now how little consideration was given to the future in the previous eras, whilst how far-reaching the current understanding is. In the previous eras your relationship with the customer would be very much transaction-oriented, that is, you produce and the customer buys. This approach can work fine, and indeed can be the only working model given the circumstances, but it is less than optimal in the marketing era. The increase in competition pushes companies to take the full advantage of its customers (i.e. milk them), and to persuade them to stay loyal to the brand, which is a façade that you want your customers to think of you. For instance, it might be more profitable for Dropbox to spend $15 of its marketing budget on an existing user to convince him/her to upgrade to a more expensive plan, than to spend $100 to acquire a new user. And if Dropbox loses a paid user, it will also loose ($8.25 / month) * (5 years) = $495 at least.
To summarize the marketing oriented approach:
- You should regard your products as a means of creating and maintaining profitable relationships with your customers.
- If its unprofitable, you should not be afraid to get rid of the customer.
- This point also indicates that marketing is designing products for a profitable target audience, not an an afterthought on how to advertise & sell them once being produced.
- Increase in customer satisfaction will lead to an increase in customer profitability (presumably), and also in brand loyalty.
- Increase in customer profitability will also increase the customer lifetime value.
- Increase in brand loyalty and customer lifetime value will increase the customer equity.
- Sales indicates how well you did in the past, customer equity indicates how well you will do in the future.
- It is easier to keep your current customers to acquire new ones in a competitive market.
- Therefore you should take full advantage of each of your customers (i.e. increase their CLTVs).
- Marketing orientation is customer orientation.
As you have just read, contrary to common understanding, marketing is much more than advertisement & sales of products, and it depends on the current state of the industry, as well as a number of other factors to make the right decisions. I like to think of marketing as simply managing the company, that is, it is not a concern of a department or a sub-division, but the most important duty of each manager who is more than an executive. Out of laziness, I used the term “company” more frequently than producer, but surely any producer/creator too can see the merit in being user/consumer oriented, whether the competition in the market is driven by money, or fame or altruism. =)