The origin and development of marketing - Marketing Management

As might be expected from a function that has attracted so much research, critical comment and time and effort from those charged with the responsibility of managing it, we now have a substantial body of knowledge relating to the theory and practice of marketing. Attempting to pinpoint the exact origins of marketing as a business function is challenging, as there is no single, universally agreed definition. The confusion over its exact meaning is demonstrated in a passage written by American marketing scholars.

It has been described as a business activity; as a group of related business activities; as a trade phenomenon; as a frame of mind; as a co-ordinating integrative function in policy making; as a sense of business purpose; as an economic process; as a structure of institutions; as the process of exchanging or transferring ownership of products; as a process of concentration equalization and dispersion; as the creation of time, place and possession utilities; as a process of demand-supply adjustment; and many other things.

Marketing tends to mean whatever the user wants it to mean and has, over the years, been the subject of numerous attempts at definition, including the very succinct:

The function of marketing is the establishment of contact.

Marketing is the delivery of a standard of living to society.

. . . selling goods that don’t come back to the people who do (sell them).

A widely accepted definition is the one used by the UK Chartered Institute of Marketing (CIM):

‘Marketing is the management process, responsible for identifying, anticipating and satisfying customer requirements profitably.’ The American Marketing Association’s (AMA) latest definition of marketing was produced in January 2008: ‘Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners and society at large.’ It is our opinion that the AMA definition is more accurate that that of the CIM, as the CIM definition infers satisfying customer requirements profitably: in fact public services like the police and fire service are not-for-profit and in a modern context they undoubtedly apply marketing principles .

This plethora of meanings makes it difficult to say where and when marketing first began. In its most basic form, i.e. people exchanging goods or services in a reciprocal manner, it has existed for centuries. The rudiments of contemporary marketing were discussed as far back as the eighteenth and nineteenth centuries by theorists such as Adam Smith,5 the father of modern economics, who wrote: ‘Consumption is the sole end and purpose of all production and the interests of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.’ This statement is close to the basis of the modern marketing concept, which postulates that needs and wants of consumers should be a manufacturer’s main concern and they should only produce what can be sold. Marketing can be said to have developed in an evolutionary rather than revolutionary manner, alongside, and keeping pace with, our economy.

When economies were agrarian, people were mostly self-sufficient. As time passed, it became evident that some people excelled at certain activities and the concept of the division of labour began to emerge. Individuals concentrated on products they were best at producing which inevitably resulted in them making more than they needed for themselves and their families. This laid the foundation for trade. Exchange then began to develop on a simple basis; usually one-to-one trading of products. Trade is at the very heart of marketing.

Adam Smith postulated that from the division of labour stem the benefits of specialization and the need for more effective means of exchange. The next step sees small producers making relatively large amounts of goods in anticipation of future demand. This development produces another type of business person, the ‘middleman’ or agent, who acts as an intermediary between producer and consumer. This go-between is of utmost importance in a commercial society, as without this the right goods cannot be sold to the right people in the right place at the right time. Torrens6 was an influential economist of his day whose writing and opinions have only recently been rediscovered: he anticipated this philosophy by more than a century when he wrote Activities designed to make commodities available at either times or places where they are more in demand than at times and places at which they are available at the outset creates wealth or utility just as much as activities designed to change their physical composition.

This was economic justification for the existence of marketing intermediaries. McCullough, developing this argument, explained:

Merchants, or dealers collect goods in different places in the least expensive manner, and by carrying them in large quantities at a time, they can afford to supply their respective customers at a cheaper rate than they can supply themselves. . . . They also promote the convenience of everyone, and reduce the cost of merchandising to the lowest limit. The parties involved, i.e. manufacturers, intermediaries and buyers, gathered together geographically, and trading centres of the world evolved; indeed, such evolution is a continuous process. As an economy becomes more advanced and sophisticated, so too does marketing. It can be said that marketing is adopted by a country’s business and non-business organizations, depending upon the stage of development of its economy.

It is generally accepted that modern marketing began in the USA and Stanton8 maintains that it began with the Industrial Revolution (in Europe as well as the USA) and consequently, migration to urban centres. As the number of factory workers grew, so too did the service industries to meet their growing needs and those of their families. Marketing was a very basic business activity in the USA (and Europe) until the late 1920s, when emphasis was on the growth of manufacturing firms because demand typically far exceeded supply. Modern marketing in the USA began after the First World War when ‘over-production’ and ‘surplus’ became commonplace words. Since the late 1920s (with the exception of the Second World War and the immediate post-war period) a strong buyer’s market has existed in America. There was no difficulty in producing goods; the problem lay in marketing them.

In tracing the development of marketing within the framework of business practice there are four distinct stages that can be identified:

  • production orientation;
  • product orientation;
  • sales orientation;
  • marketing orientation.

Production orientation

This is a philosophy that:

  1. concentrates on increasing production;
  2. controls and reduces costs;
  3. makes profit through sales volume.

The era of production orientation occurred in the USA from the mid nineteenth century up to the 1940s and was characterized by focusing efforts on producing goods or services. Management efforts were devoted to achieving high production efficiency (mostly by mass production of standard items) thus denying the customer much choice.

The production department was the central core of the business, with other functions (such as finance, personnel and sales) being secondary. The main philosophy by which production-oriented firms operated was that customers would buy whatever goods were available if the price was reasonable. This era is best epitomized by Henry Ford’s classic statement that his customers could have any colour (‘Model T’ Ford) they wanted as long as it was black. This mass production mentalty meant producing one car and attempting to adjust everyone’s desires and tastes toward wanting this car. Henry Ford saw the objective as changing consumer attitudes rather than making what the public wanted. Absurd though it may seem, at the time (1913 in the USA) Henry Ford was correct: there was a demand for cheap private transport and his cars sold well. Production orientation in business was suited to an economic climate where demand exceeded supply.

Product orientation

  1. good quality products ‘sell themselves’;
  2. companies concentrate on improving and controlling quality;
  3. there is greater profit through increased sales due to ‘quality products’.

With its emphasis on quality, engineering was predominant in both the USA and Western Europe through the 1950s and 1960s. In the United Kingdom, in particular, during this period, the predominant attitude amongst many manufacturing companies was that designing and engineering the ‘best’ products was all that mattered and ‘sensible’ customers would buy products that were best engineered. A popular statement was: ‘Build a better mousetrap, and the world will beat a path to your door.’ This attitude that underpinned product orientation proved for many companies and industries to be their downfall.

In the late 1950s and early 1960s the once dominant UK motor cycle industry began to lose its share of home and export markets. The challengers were Japanese companies such as Honda and Suzuki. A major reason for UK marquees losing out to these new challengers was that Japanese products were not taken seriously by UK producers. Japanese machines were considered to be inferior in terms of basic engineering and design. In fact early Japanese machines were of poorer quality and design than their British counterparts. However, partly because of this ‘inferior’ specification, Japanese machines were cheaper to buy and run. In addition, they were easier to maintain and came with back-up services. Japanese products also came with features such as electric, rather than kick starting, fairings for protecting the rider from weather and dirt and innovations such as panniers for carrying shopping; features that were scorned by British motor cycle designers. Hindsight suggests that from a marketing standpoint the Japanese were right. Combinations of a lower engineering specification with its attendant decrease in costs and prices, together with customer-friendly product design and features meant that customers quickly warmed to the new machines. Within a few years the UK motor cycle was decimated. Quite simply, UK manufacturers suffered from being product oriented.

In using the example of motor cycles we are not denying the importance of good design and product engineering backed up by stringent quality assurance and control procedures. In fact, if anything, today’s customers are even more interested in quality. However, a problem with a product-oriented approach is that not all customers want, or can afford, the best quality. More importantly, this orientation leads to a myopic view of business with a concentration on product engineering rather than customers’ real needs and the benefits they are seeking.

Sales orientation

This philosophy suggests:

  1. emphasis on stock clearance;
  2. aggressive sales and promotion;
  3. profit through quick sales of high volumes.

Mass production started in the USA in 1913 when Henry Ford introduced flow-line production to the Model T Ford production line and was able to reduce unit prices substantially; this car had previously been manufactured on a more expensive batch production basis from 1908. Mass production techniques emerged on a large scale in the USA at first, followed by Western Europe. In the USA, the late 1920s and 1930s saw a shortage of customers rather than of goods. In Western Europe, this phenomenon occurred after the Second World War. This fall-off in demand led to increased competition and to many firms adopting sales orientation by concentrating on advertising and personal selling.

A key issue for management was high levels of output. Here, the underlying philosophy assumed that customers were inherently reluctant to purchase and needed to be coerced into buying. However, even if consumers were willing to buy there were so many potential suppliers that firms had problems of stiff competition to overcome.

This was the situation in the USA in the 1930s and in most developed economies in the late 1950s: over-capacity accompanied by a fall in demand due to the Depression in the USA in the 1930s and in Western Europe due to Second World War shortages being fulfilled in the late 1950s. It was during these periods that many of the ‘hard sell’ techniques were practised in the USA in the 1930s and in Western Europe in the late 1950s, a great number of which were dishonest and unethical, and contributed to the tainted image of salespeople that still exists in the minds of many people today. Although a small number of firms still practise sales orientation, the consumer is now protected by law from more dubious selling techniques, largely due to the consumer movement. Consumers International (CI), the global federation of consumer organizations, set out its solutions to the financial fix calling for effective, affirmative, preventative consumer protection as an essential foundation for moving beyond the economic crisis. Following worldwide consultation with its membership, CI submitted its position to the UN Conference on the World Financial Crisis, 24–26 June 2009.

Joost Martens, Director General of Consumers International, said:

While CI research has shown most consumers manage their finances responsibly, they have been unfairly blamed by governments, media and industry for creating this crisis through irresponsible borrowing, and then prolonging it through insufficient spending. It is high time the so-called experts start listening to consumers, rather than blaming them for the mess the bankers and governments have created.

CI argues that the financial crisis began with a failure to protect consumers from bad loans in the USA and other mortgage markets. A viable fix for the global economy must include greater regulatory oversight of a far more transparent banking industry. However, while transparency is important, more information for consumers is not enough. The system is simply too complex at present and needs regulatory intervention to remove incomprehensible financial products and services. Robin Simpson, Senior Policy Advisor at Consumers International, said:

Consumer education is a right, but avoiding financial ruin in the current climate takes more than access to information. No doubt the clients of Bernie Madoff thought their money was in good hands, but the billions he embezzled shows we are all susceptible to the faults in the financial system. Better law, as well as better understanding, is needed.

Driving a Hard Bargain

Despite sophisticated uses of marketing tools and techniques some argue that many of the world’s marketers of cars are still sales oriented when dealing with customers in car showrooms. In particular the approach to customers taken by the car salesperson is often based on a ‘hard sell’ that uses pressure to make a sale. The customer is in essence manipulated into a position where they feel they have to make the purchase. Lots of different sales techniques can be used to hard sell and pressurize the customer into a purchase. For example the salesperson can use the ‘time pressure’ technique ‘. . . This is the last one at the old price; prices go up by 5 per cent at the end of the week.’ Another example is the ‘play off’ technique whereby the salesperson plays off one person against another.

‘. . . I’m sure your partner would appreciate the extra safety features on this model and the park assist system –after all you wouldn’t want her to drive something that wasn’t one hundred per cent safe would you sir?’ Even apparently rational appeals which appear to be based on identifying and satisfying a customer’s real needs and wants can be hard sell techniques masked as something else. ‘. . . I’m sure the change to a four door model will be invaluable when your new baby arrives’. Hard selling is still a feature of the car salesroom experience for many customers. Car salespersons are often still trained in these techniques. Furthermore car sales people are often incentivised by their companies on the basis of sales figures alone rather than more customer oriented bases such as customer satisfaction or customer loyalty.

Perhaps even worse is the fact that often the car salesperson views the sales process as a win/lose process with every unit of extra profit gained from the sale being a victory and every unit of profit lost as a failure. This confrontational attitude to negotiations with customers is that it often results in dissatisfied and ultimately lost customers. Understandably the customer who subsequently feels they have been pressurised into a purchase or who feels they were outmanoeuvred on the terms of the sale is unlikely to purchase again and will often pass on this dissatisfaction to friends and family.

Certainly there is a case for purposeful selling and the effective salesperson should know how to overcome objections and close the sale but hard selling is now recognized as ineffective and inappropriate in the contemporary business environment. Unfortunately, driving hard bargains is still prevalent in many car salesrooms.

The meltdown of the financial industry has also led to bank mergers being hurried through by competition authorities. CI is concerned that the banking monopolies emerging from this crisis pose a danger to consumer choice and protection and calls for strict monitoring and reporting requirements to be established to ensure the new financial services landscape works for the consumer. There must also be a clear distinction between retail and investment banking activities.

Only then can consumer deposits be protected from the irresponsible behaviour and risky speculation of investment bankers. CI is worried that the seizure of bank activity is denying customers access to basic bank account services and starving critical public utility developments of investment. This is of particular concern in the developing world where the flow of funds is a vital means of achieving improved consumer access to electricity, water, sanitation and financial services. CI is demanding that taxpayer bailouts come with mandatory obligations to provide basic consumer banking services and investment in major social infrastructure projects. Robin Simpson said:

The banking sector has elbowed its way to the front of the public expenditure queue as a result of the threat of collapse, effectively holding a gun to the head of government. They cannot simply swallow taxpayer money and carry on as before; firm commitments to provide for basic consumer needs and services must accompany these bailouts.

Consumerism

The transition from sales to marketing orientation was brought about partly by the advent of consumerism, which forced companies to become more aware of the needs and wants of their customers. Consumerism involves efforts of the public, government and organizational bodies to protect consumers from unscrupulous business practices as epitomized by sales orientation. A disenchantment with the hard sell, together with an increasing disillusionment with some of the problems associated with growing consumption were to give rise to the emergence of the consumer movement which first began in the late 1950s in the USA when writers such as Vance Packard challenged the advertising industry, Rachel Carson criticized the business community for its pollution of the environment and Ralph Nader famously attacked General Motors, whose dubious practices shocked the public at large when they were uncovered.

The role of the US government in consumerism was first set forth in President John F. Kennedy’s famous ‘rights’ speech:

Additional legislative and administrative action is required if the federal government is to meet its responsibility to consumers in the exercise of their rights. These rights include:

  1. the right to safety;
  2. the right to be informed;
  3. the right to choose;
  4. the right to be heard.

To these rights can now be added:

  1. The right to privacy, brought about largely as a result of advances in IT that have developed since Kennedy’s speech, and the fact that organizations keep personal records like credit details on databases. Legislation now allows individuals to access information contained on such databases, so it can be challenged if necessary.
  2. The right to a clean and healthy environment, brought about largely as a result of ‘green’ issues and the notion of ‘global warming’ being universally accepted by governments. The consumer movement gained popularity more slowly in the United Kingdom than it had in America. The publication of Which? Magazine first brought consumerism to the attention of the British public, with a completely new way of thinking; the consumer did not necessarily have to accept whatever manufacturers produced without question. In the past 30 years or so many governments have shown an increasing concern for consumer affairs which is reflected in the number of statutes introduced to protect consumers.

It is no coincidence that at consumerism’s most powerful and popular time, a growing number of companies began to adopt the marketing concept as a way of orientating their businesses. s


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