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Marketing: Historical Perspectives

MARKETING: HISTORICAL PERSPECTIVES

Marketing is one of the major functional areas of a business firm. In this introduction to marketing, this article will describe and define the concept. Then, an account of the evolution of marketing in the United States is presented. The evolution of marketing includes several eras including the simple trade era, the production era, the sales era, the marketing department era, the marketing company era, and the relationship marketing era.

WHAT IS MARKETING

"Marketing is advertising, like those false or deceptive ads on television that try to get you to buy something that you don't really want."

"Marketing is like those pushy car salespeople, or those salespeople that come to our front doors selling overpriced vacuum cleaners."

"I hate those rude telemarketers calling at all times of the day and night."

Some people think that marketing involves deceptive, high-pressure tactics to get them to buy something they do not really want. This is incorrect. While marketing usually involves advertising or personal selling, marketingpracticed correctlyshould not try to get people to buy things they do not want, nor should marketers use deceptive or pushy tactics to get people to buy. Marketing is really the process of developing products to satisfy customers through proper pricing, promotion, and distribution.

The basic premise behind marketing is to satisfy the customer. Satisfied customers are much more valuable than customers who have been deceived into buying something. For example, satisfied customers are more likely to purchase products repeatedly. Furthermore, satisfied customers are more likely to relate positive word-of-mouth to friends and acquaintances, which can increase the chance that they, in turn, will buy the firm's product. Indeed, marketing is really the process of developing and maintaining long-term exchange relationships. Nevertheless, companies have not always practiced this philosophy. The following section describes how company beliefs have changed over time.

THE EVOLUTION OF MARKETING

Marketing, as it exists today, is a relatively recent phenomenon that really began prior to the twentieth century. In the early nineteenth century a woman who wanted a new dress had two choices, either to make her own or to hire someone to make one for her. If she decided to hire someone, the woman needing the dress would pick out the fabric, get measured and the dress would be custom-made to her proportions. There were no standard sizes such as a size six, eight, or ten dress. Standard sizes, such as shoe sizes, are the result of modern mass-manufacturing processes.

The Simple Trade Era

Prior to the industrial revolution, people made most of what they consumed. Any excess household production could be brought to town and sold or traded for other goods. This type of economy is commonly referred to as a pure subsistence economy. In a pure subsistence economy, there is little need for marketing (to facilitate exchanges) since each household produces what it consumes.

With the advent of the industrial revolution, however, the producers of many types of goods were not households but businesses. When the producers of products are not the consumers of those products, exchanges must take place. The following section describes general company business thinking about the exchange process beginning with the period of the industrial revolution.

MODERN-DAY MARKETING EVOLUTION

The evolution of marketing into the most important business function within many business firms was first recognized by Robert Keith, an executive at Pillsbury, in 1960, and was substantiated by other business leaders at other firms. According to Keith, marketing evolved into its present-day prominence within firms during four distinct eras throughout American history. These eras include the production era, the sales era, the marketing era, and the marketing company era.

The Production Era

The production era is so named because the main priority of many companies was the reduction of the cost of production. Companies believed that exchanges could be facilitated merely by lowering manufacturing costs, and in turn, passing along the cost savings to customers in the form of lower prices.

This focus on production (which lasted from just after the Civil War [18611865] and continued into the 1920s) was fueled by milestones such as Henry Ford's employment of the assembly line and more-efficient work principles advanced by Frederick W. Taylor's scientific management movement. These two innovations made business managers aware that mass production resulted in steeply declining unit costs of production. In turn, the declining unit costs of production made profit possibilities look fabulous.

The rationale for mass production seemed sound at the time of the production era. According to Michael Porter, reduced production costs can lead to reduced selling prices and thus appeal to the largest segment of customers. Unfortunately, turbulent economic conditions associated with the late 1920s through the 1940s caused many companies to fail even though they had adopted this production-oriented philosophy of doing business. As a result, companies looked for other ways to facilitate the exchange process.

The Sales Era

The next era of marketing evolution is called the sales era because many companies' main priority was to get rid of or move their products out the factory door using a variety of selling techniques. During the sales era, companies believed that they could enhance their sales by using a variety of promotional techniques designed to inform and/or persuade potential customers to buy their products. This type of thinking was initiated by the economic climate of the time.

Herbert Hoover was elected president in 1928 and the mood of the general public was one of optimism and confidence in the U.S. economy. Few people had any reason to believe that prosperity would not continue. In his acceptance speech for the Republican presidential nomination, Hoover said, "We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us."

Nevertheless, Tuesday, October 29, 1929, Black Tuesday, marked the beginning of the Great Depression. This was the single most devastating financial day in the history of the New York Stock Exchange. Within the first few hours that the stock market was open, prices fell so far as to wipe out all the gains that had been made in the previous year. Since the stock market was viewed as the chief indicator of the American economy, public confidence was shattered. Between October 29 and November 13 (when stock prices hit their lowest point) over $30 billion disappeared from the American economy (comparable to the total amount America spent on its involvement in World War I [19141918]).

The amount of disposable and discretionary income that consumers had to spend on necessities and luxuries also decreased dramatically as the unemployment rate approached 25 percent. Companies found that they could no longer sell all the products that they produced, even though prices were lowered via mass production. Firms now had to get rid of their excess production in order to convert products into cash.

In order to get rid of products, many firms developed sales forces and relied on personal selling, advertising signs, and singing commercials on the radio to "move" the product. Theodore Levitt, a prominent marketing scholar, noted that these firms were not necessarily concerned with satisfying the customer, but rather selling the product. This sales orientation dominated business practice through the 1930s until World War II (19391945), when most firms' manufacturing facilities were adapted to making machinery and equipment for the war effort. The war, of course, dramatically changed the environment within which business was conducted. This also changed companies' philosophies of doing business.

The Marketing Department Era

After the war, most of the manufacturing capability of industrialized countries was destroyed, except for that in the United States. U.S. firms once again found it relatively easy to sell the products they manufactured because there was little competition from abroad. Armed with sales concepts developed during the sales era, as well as new manufacturing capabilities and large research and development departments developed during the war, firms realized that they could produce hundreds of new and different products.

Firms determined that they needed a set of criteria to determine which products would be manufactured and which would not, as well as a new management function that would incorporate many related functions such as procurement, advertising, and sales into one department, the marketing department. It was also at this time that many firms realized that the company's purpose was no longer to manufacture a variety of products, but to satisfy their customers.

Changing company thinking or purpose from that of manufacturing products to that of satisfying customers was truly evolutionary and had many implications for firms. Firms that see themselves as manufacturers of products use selling techniques that are preoccupied with converting products into cash. Firms that see themselves as marketers focus on satisfying the needs of the buyer through the products that are sold, as well as all of those functions associated with developing the product, delivering the product and consuming the product. In short, selling focuses on the needs of the seller; marketing focuses on the needs of the buyer.

The popular insight by Levitt concerning Ford's adaptation of the assembly line illustrates the difference between firms that focus on production (i.e., a production orientation) and those that focus on customers (a customer orientation). Ford is widely known as a production genius for incorporating the assembly line into automobile production. Many incorrectly believe that the assembly line reduced the cost of manufacturing automobiles and therefore Ford could sell millions of $500 cars (a production orientation).

Ford's thinking, however, was actually the reverse. He employed the assembly line because he concluded that millions of buyers would be willing to pay $500 for an automobile (a customer orientation). His main task was to reduce manufacturing costs (in whatever way possible) so that he could sell cars at $500 and still make a profit. The assembly line was the result, not the cause of his low price. As Ford himself put it:

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we first reduce the price to the point where we believe that more sales will result. Then we go ahead and try to make the prices. We do not bother about the costs. The new price forces the cost down because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which an article can be sold? But more to the point is the fact that, although one may calculate what a cost is, and of course all of our costs are carefully calculated, no one knows what a cost ought to be. One way of discovering is to name a price so low as to force everybody in the place to the highest point of efficiency.(Ford, 1923, pp. 146147)

In short, during the marketing department era, many companies changed their thinking or purpose from that of manufacturing products to that of satisfying customers. Firms with a customer orientation attempt to create value-satisfying products that customers will want to buy. Some firms have implemented this customer-oriented philosophy to the point where the marketing department sets the agenda for the entire company. These types of firms are referred to as marketing companies.

The Marketing Company Era

Firms that have moved from simply having a marketing department that follows a customer orientation to one where the marketing department guides the company's direction are called marketing companies. In marketing companies, the marketing department sets company operating policy, including technical research, procurement, production, advertising, and sales. An excerpt from Amazon.com's 2004 annual report exemplifies the strategy of a marketing-driven firm:

From the beginning, our focus has been on offering our customers compelling value. We realized that the Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply could not get any other way, and began serving them with books. We brought them much more selection than was possible in a physical store (our store would now occupy 6 football fields), and presented it in a useful, easy-to-search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer customers gift certificates, 1-ClickSM shopping, and vastly more reviews, content, browsing options, and recommendation features. We dramatically lowered prices, further increasing customer value. Word of mouth remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers have placed in us. Repeat purchases and word of mouth have combined to make Amazon.com the market leader in online bookselling. (Amazon.com)

As can be seen with Amazon.com, marketing is the basic motivating force for all activities within the corporation, with the objective of satisfying the needs of the customer. Firms that practice this philosophy of bringing all departments together with the objective of satisfying their customers are practicing the marketing concept.

The marketing concept states that if all of the organization's functions are focused on customer needs, profits can be achieved by satisfying those needs. The satisfaction of customer needs can be accomplished through product changes, pricing adjustments, increased customer service, distribution changes, and the like.

Today, some firms take the marketing concept one step further by establishing long-term relationships with their customers. The following section discusses how firms attempt to satisfy their customers even further by entering into long-term relationships with them.

The Relationship Marketing Era

Relationship marketing takes the marketing concept one step further by establishing long-term, satisfying relations with customers in order to foster customer loyalty and encourage repeat buying of the firm's products. Philip Kotler, a noted author of several books and articles on marketing, pointed out that the need for customer retention is evident because the cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy.

CONCLUSION

Marketing in the United States has evolved since the Civil War and continues to evolve in the twenty-first century. Many companies have determined that in order to be successful, they must become less internally focused and more externally focused (on the customer). This trend in company thought has extended to the point where many firms now see themselves as long-term partners with their customers.

As information technology becomes more advanced, marketers will be able to become more acutely aware of their customers' needs and more quickly able to provide goods and services to satisfy those needs. A new trend in marketing that incorporates advances in information technology is mass customization. Mass customization is the customization and personalization of goods and services for individual customers at a mass production price. One example of a firm pioneering in mass customization is Nike. With Nike's iD Web site, the masses can buy self-customized sneakers.

see also Marketing

bibliography

Amazon.com. (2004). Obsess over customers. Annual report. Retrieved December 6, 2005, from http://library.corporateir.net/library/97/976/97664/items/144852/DEX991.htm

Ford, Henry (1923). My life and my work. New York: Doubleday.

Haber, Samuel (1964). Efficiency and uplift. Chicago: University of Chicago Press.

Keith, Robert J. (1960). The marketing revolution. Journal of Marketing, 24, 3538.

Kinnear, Thomas C., Bernhardt, Kenneth L., and Krentler, Kathleen A. (1995). Principles of marketing (4th ed.). New York: HarperCollins.

Kotler, Philip, and Keller, Kevin (2006). Marketing management: Analysis, planning, implementation, and control (12th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Levitt, Theodore (1960, JulyAugust). Marketing myopia. Harvard Business Review, 4556.

Porter, Michael E. (1980). Competitive strategy. New York: The Free Press.

Schultz, Stanley K. (1999). Crashing hopes: The Great Depression. Retrieved December 6, 2005, from http://us.history.wisc.edu/hist102/lectures/lecture18.html

James E. Stoddard

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