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Marketing and Economics PDF

188 Pages·1980·17.582 MB·English
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MARKETING AND ECONOMICS Also by Merlin Stone PRODUCT PLANNING MARKETING AND ECONOMICS Merlin Stone palgrave macmillan © Merlin Stone 1980 Softcover reprint of the hardcover l st edition 1980 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission First published 1980 by THE MACMILLAN PRESS LTD London and Basingstoke Companies and representath•es throughout the world British Library Cataloguing in Publication Data Stone, Merlin, h. 1948 Marketing and economics I. Marketing- Economic aspects I. Title 380.1 HF5415.125 ISBN 978-1-349-16428-8 ISBN 978-1-349-16426-4 (eBook) DOI 10.1007/978-1-349-16426-4 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. To Ofra and Maya Contents I Marketing and Economics-the Connection 2 Aims, Goals and Strategies 5 3 Decision Analysis 23 4 The Economy 34 5 Product Demand 54 6 Cost Analysis 69 7 Quantitative Aspects 79 8 Product Policy 89 9 Market Choice 109 10 Pricing 118 II Promotion 132 12 Distribution Policy 144 Notes 158 Suggestions for Further Study 175 Index 177 vii 1 Marketing and Economics - the Connection This book attempts to relate the two disciplines of marketing and economics. Marketing is a task-oriented discipline. The task of the marketing manager is to structure the relations between his firm and its customers so as to further the achievement of the firm's business aims. Marketing, as a subject of study, aims to improve the marketing manager's efficiency in doing this job. Economics, although often used in a task-oriented way, is not defined in such a way. Economics is the study of the satisfaction of wants through the use of scarce resources. It analyses the processes and consequences of this want-satisfaction in a scientific manner. The connection between the two disciplines lies in the fact that marketing exists because resources are scarce. The marketing manager works at the point where scarce resources and human wants meet. It is his task to 'manipulate' the scarce resources so as to satisfy human wants in a way that leads to the realisation of his firm's aims. He is therefore one of the key inhabitants of the world of wants and scarce resources that the economist claims to be in his domain. · This book aims to help the marketing practitioner exploit the teachings of economics. It is arranged according to the main analytical tasks and policy problems with which he has to deal. Marketing examples are used to illustrate these problems. Key points arising in economics that are of relevance to the marketer are discussed, while those points that will only impair understanding are set aside. Given the recent academic history of marketing and economics, it could be argued that a dividing line between the two no longer exists. But although many articles that appear in economics journals would not be out of place in marketing journals (and vice versa), the difference in emphasis remains. However, this book does not try to divide the two subjects and does not hesitate to draw from the marketing literature that deals with the more 'economic' aspects of the subject. In order to orientate the reader, let us first briefly consider what parts 2 MARKETING AND ECONOMICS of economics should in principle be of use in marketing analysis. Many of the more useful concepts and results come from microeconomics. The principles of demand theory can make an important contribution to marketing analysis. The theoretical side of economics hypothesises about how buyers choose- from basic product choice theories to more complex ones on choice determined by characteristics in the product itself. The empirical side offers relevant work on the interpretation of statistical demand analyses and on the importance of particular variables in specific situations. The theory of the firm deals with the way in which the resources of firms are applied to different activities, according to the aims of those owning or managing the business. This includes the determination of output levels at different price levels and under different demand conditions, levels of promotion and sales force activity and methods of distribution for that output. The theory provides us with useful concepts for describing and analysing different kinds of market behaviour and for investigating the consequences of different business aims in different competitive situations. The origin of industrial economics as a subject lies principally in studies of the industrial structure of economies. A major data source for industrial economics is industrial classification statistics, which permit analysis of industrial production by industry groups and sub-groups. Although for marketing purposes there are sometimes problems caused by the non-coincidence of industrial classifications with markets, this data, when analysed by the statistical and analytical techniques of economics, is helpful in market structure and trend studies. The concentration of output in a few firms in an industry has implications for business policy because of the connection between industrial con centration and market structure. Similar studies (for example, of the relationship between concentration and profitability, concentration and stability of industrial structure and concentration and research and development intensity) can give more specific guidance for business policy. A particularly useful concept in this sort of analysis is that of 'barriers to entry' to new competition, which may be created by a variety of factors, including advertising, pricing policy, economies of scale, patents or high Rand D spending. In framing marketing policy, account must be taken of how particular policies may produce changes in the structure of competition by changing the barriers to entry. In some countries, entry by import competition may be important, in which case a knowledge of international economics is useful. The economics of innovation is also a field relevant to the study of the MARKETING AND ECONOMICS-THE CONNECTION 3 above topics. In this area (where social science and management disciplines are fairly well integrated), relevant topics include the rate of return to R and D expenditure, the relationship between innovation and industrial structure and the factors that determine the success and failure of innovations. All these factors are of some relevance for the analysis of product strategy. The tools of economic analysis of production and cost are also useful for the analysis of costs of different marketing policies. Basic concepts, such as opportunity cost, can improve understanding of the cost information on which marketing decisions are based. The analysis of economies of scale is relevant to marketing decisions involving major changes in the level of the firm's activities. The conventional distinction between microeconomics (which deals with individual decision making units-firms, consumers, in vestors, etc.) and macroeconomics (which deals with the behaviour of all decision makers of a certain class at the aggregate level) may not always help analysis. Some firms are so large relative to the economy in which they operate as to have a significant impact on the values of aggregate variables, such as output and investment. In such firms, business planners can be expected to take into account not only aggregate economic forecasts but also the impact of their own decisions on the macroeconomy. Macroeconomic analysis is based on the assumption that firms are small relative to the economy. It is important for the marketing practitioner to realise that much of the basic input into his market forecasts is based on macroeconomic methodology which may make questionable assumptions about the structure of relation ships in the economy. National income analysis is an important fact of macroeconomics because income forecasts underpin most market demand forecasts. Investment demand may also be a key indicator of likely developments in the economy, so marketing practitioners need to be able to assess its importance. The marketer needs also to be aware of monetary aspects, in particular the effect of inflation on real demand and on the appropriateness of particular methods of pricing and costing. Another way of analysing the workings of the economy is through the use of input-output analysis. This is based on the notion that industries trade with each other in quantities determined by technical coefficients which relate their inputs to their outputs. Although there are certain theoretical and empirical problems associated with the use of this technique, it may provide a good basis for forecasting demand for the different industrial sectors.

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