Management of the Structure of Marketing Practical Necessity not Solved in Theory

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1 ISNN Social Research / Socialiniai tyrimai Nr. 2 (10), Management of the Structure of Marketing Practical Necessity not Solved in Theory Aleksandras Vytautas Rutkauskas, Viktorija Stasytytė, Giedrė Staskevičiūtė Vilnius Gediminas Technical University Introduction The main aim of this paper is to explore the management opportunities of the main operating marketing mix costs. The opportunities are investigated preparing the business project considering that management costs, as well as the efficiency of total marketing budget, is necessary for business success (see Show, Merriek, 2005; Ward, 2004). Understanding that marketing decisions as well as all other decisions related to the managing of the future possibilities are described by stochastic values and dependences. This, in turn, helps evaluating the risk and reliability of the investigated subjects quantitatively. The high requirements for decision methods and especially for optimization methods develop along. The tasks of the stochastic programming are very complicated as the methods of decision making, but the existing methods of the decision making are not adapted to process exceptionally huge amount of information. Every stochastic value, process or system solution is differently useful or acceptable for various subjects. This paper was prepared using the experimental research which had been conducted by one of the author. The imitational technologies were very effective is solving and investigating nonlinear stochastic systems. 1. The analysis of business development and marketing interaction on the basis of business and marketing projects In business development very often the dilemma comes to which analysis of the chosen business to give the priority of full-scale products or of behavior engineering or of the related marketing? If we want to search for the most suitable markets when we find out the most possible levels of product or service quantity or volume; or to plan the business according to the analysis of the demand of the certain products (their functions). Of course, this is a problem of the business development, the results of which are oriented to the market, but in the future there may be some lack of the final thesis for the mentioned priorities. It is obvious that if we do not expect certain demand, the production is pointless. On the other hand, the potency of the production, the same as product or service quality, is in easier managing or creative qualities rather than real or long term demand maintenance and creation. Business development and related marketing interaction and especially the quantity evaluation of the feedback becomes the most important problem in planning rational marketing and business development budgets (see Show, Merriek, 2005). The formulation, analysis and solutions of this problem are usually managed on the basis of business development and marketing projects. Of course, this circumstance reduces the concreteness and the reliability of the results in this research situation. However, taking into consideration that the most contemporary business and marketing projects become adequate business and marketing managing models for long term existential, that is nearly the only possibility to fully investigate the interaction of business projecting and marketing. We must say that marketing used to manage without quantitative and, of course, optimization researches (see Show, Merriek, 2005). Maybe it was caused by the empirical experience or by the understanding of the marketing departments that used to find those resources of the efficiency, which guaranteed the growth of marketing financial efficiency. As the globalization is growing, the local resources are almost exhausted for the market researchers and the development of global competition makes us search for the ways that will show how marketing departments should interact in order to achieve the integrated effect of the marketing system. There is a necessity for the marketing and for the other business components to form costs and benefit budget and to search for the methods and ways to optimize that budget. It is a complicated problem because in marketing there are a lot of problems, which shows how to measure the efficiency of the separate means of marketing (see Show, Merriek, 2005). That is related with the main means of the marketing mix structure - product, price, place, promotion and other 117

2 elements of the mix. The quantitative evaluation of the efficiency of the complexes of these means and the optimal capital distribution should become the strategic rule the marketing efficiency training (see Ward, 2004). Further in the paper the complex of the marketing means will be called 4P complex. But the principles of the optimal distribution remain the same and the rise of the additional requirements is related with the rise of the steps of desegregation. 2. The interaction of business development and marketing strategies Project strategy is a set of points and attitudes related with project. This set determines distribution of resources for project preparation and implementation. Project strategy is the main goal for preparing and estimating the investment project and comprehensive marketing conception. The strategy has a crucial impact on the technical parameters (manufacturing resources, technology) of project and on requirements of resources. The formulation of project idea must involve the preliminary project strategy, for example, try to get lower costs than competitors, to enter the international market or to specialize in manufacturing high quality products. One of the tasks of market investigation is to investigate project strategy in the attitude of marketing and to recognize alternative strategies (see Rutkauskas, 2007) The interaction presumptions between business project and marketing strategies The main goal of investment production project is to earn money using own resources or from good sellers of project. Of course, the project may be used for certain company s strategies such as the consolidation of company s market position or the preservation of certain resources for future needs. While we determine the investment scale, production programs, needed technology and the place selection the market analysis is the main means for investment projects which are the direct business project record in financial-value information and which main task is the utilization of resources. The preparation of the possibilities study is not the consequent, but iterative process, for that reason, the market analysts have to determine the alternatives of future product quantity and quality as the alternatives of possible production volume, technologies and even place selection. The program of the production including the needed resources, technologies, human resources and suitable place, can be determined only when the real demand for imagined project production is determined and the most important market characteristics are analyzed (unsatisfied demand, competition, export) and the character of possible marketing. If we need to select the needed information about the possible marketing and production strategies and do not overstep the time and costs limitation, and to achieve the realization of company s or general purposes, the analysis of demand and market has to be precisely structured and planned. The planning of market researches requires the objective understanding of marketing system, the determination of exact purposes and scopes of the research and the structure of the analyzed market (see Armstrong, Kotler, 2000) Marketing in the context of business project The concept of the marketing may be identified as the business solution managing with market orientation. When we are making investment and financial decisions, the market orientation allows to understand that it is necessary to concretize the type of the marketing and support it with extensive quantitative marketing researches. The marketing project should become a part of the entire business project as a part of one system, which contains social, technological, economical, ecological and other aspects and is seeking better use of costs. Marketing is usually characterized in four aspects (see Behrens, Hawranek, 1991): business philosophy, market research, means and plan of marketing and budget. Business philosophy. Market research is the change of philosophy where the attention is given not only to the products or producing, but also to the problems, needs and goals of the consumers. It is necessary that decision makers at all levels in the company should orient their thinking to the logic and regularity of market behavior. Market research. When we are projecting the business, the well-planed and systematic market researches is the indispensable condition to accept the market-oriented decisions. According to the information about the potential market and the suitable human, production and financial resources, the marketing strategies have to be developed in order to ensure the realization of project objectives. It is also necessary to understand that there should be market orientation when we analyze the sales and, of course, when we analyze all the resources needed for the project. Means of marketing. For the successful realization of the marketing strategies it is necessary to use well-planned structure of the means of marketing, which would influence the project rules and, also, the entire market. Marketing plan and budget. If we want to achieve the aims of marketing, it is important to choose certain means and ways for that and to make 118

3 the plan of marketing actions. That should be done during the market research. All the marketing costs are summed in the marketing budget, which is necessary for the project evaluation and, also, for the project control after it becomes the real business (see McDonald, 1997) Market research as the mean of business development and marketing strategies integration It is necessary to do a sound study of the market and to collect the concise and systematic information about the market and its environment in order to develop the strategy of the project and the conception of marketing successfully (see Fig.1). The task of the market research related with the project is to get, analyze and estimate the information and, for that reason, to make the presumptions for the strategic marketing decisions. Market research mostly includes the demand (trade and final consumption) and competition, consumer needs and behavior, product competitions and marketing means, also, we do take into consideration the dependence of subjects between each other and the importance of ecological means. The scale of market research, which is needed for project opportunity study, depends on information needed for the substantiation of the project strategy and marketing conception. The research has to be done step by step together with projecting as it is shown in Figure 3. It is logical that the quality of the decisions, which go one after one, depends on the data quality. Any mistake in the research phase will reflect in a bad marketing conception and all project may be in danger. The integration of the marketing conception into the project strategy with the help of market research is shown in a short form in Fig. 1. The pyramid shows how the planning process becomes more detailed going from top (strategy) to bottom (means and actions). It has to be emphasized that the final project marketing type may be chosen only when the data about the market is already collected and analyzed properly. Only then it will be possible to project the risk managing, which is caused by the conditional future. Figure 1. The preparation of marketing research and conception in the context of business projecting Marketing conception (type). Marketing conception includes marketing strategy and operational means which are needed to implement project strategy and to achieve project and corporative purposes. When the project strategy is chosen then the proper creation of marketing conception can be started. Strategic marketing components. The principal question is which marketing strategy is the most proper to realize marketing plans according to the conditions of project strategy. The scrupulous selection of the marketing strategy requires taking into consideration the long-term project plan and the evaluation of the long-term participation in the market after the project is introduced. The choice of the marketing strategy includes the following components: the identification of the final group and product, the choice of the competition policy that means to decide what will help to compete the competitors: low-price policy or different strategy. Operational strategy components. In the operational marketing very often is used the term marketing mix. Mostly there are distinguished four means of marketing. Figure 4 shows the main elements of those four elements product (service), price, promotion and place. It is called 4P (product, promotion, price, place) complex. 119

4 Figure 2. Marketing mix Marketing means and marketing budget. It is very important in the opportunity study to diagnose marketing actions and to prepare schedule where the points of the main project reports and duration will be reflected. The purpose of the marketing actions planning is to prepare needed means and resources, to coordinate and control marketing until the producing stage and during the project stage. For that reason the plan of marketing actions is the fundamental mean of marketing costs and sales income projecting (see Naresh, 2006). In previous paragraph marketing was considered as the part of business project intellectual system where it is important to understand business growth process and in many cases to create presumptions for that growth. For that reason marketing is characterized with opportunity identification ways and methods. Marketing is investigated as stable part of business project system or just marketing system because of its research and opportunities realization originality and independence Marketing system Before we start the market research and also the projecting of marketing conception, it is necessary to understand the functions and means of marketing and the subjects which determine market peculiarity during that time when the project has to reach the market. Companies cannot act independently and as autonomous in the market and economy or in social-economical environment. There is a connection between the competitors and partners as well as between producers and consumers. In both cases for market analysis and marketing conception projecting we need the understanding of the connection between producers and end users, which can be described as marketing system as means needed to achieve companies purposes. The purposes and behavior of consumers and all the participants of the market influence the choice of marketing means. Figure 3 shows the structure of the system where the connection between the producers, selling agents and consumers is shown. This connection is related so that separate participant of the market can choose the marketing strategy and the structure of marketing means only when it foresses the purposes and future behavior of other participants. Traditional systemic point of view to the marketing as it is shown in the Fig. 3 helps to understand the connection between the market participants and, of course, between producers and end users behavior as the marketing system participants. The elements of this system are companies and organizations, and individual persons who play the specific role in this exchange process. For example, it may be a competitor using the high price policy or the other using low price policy or low quality production. It may be retail and wholesale traders who are offering additional services for customers. But the most important actors in this system are purchasers of different buying power. Today there are more attributes of the system: in the whole complex to evaluate the possibility spectrum of investigated process, its risk and reliability of each possibility, in the marketing aspect - to use real value mathematic models in order to reveal the quantitative connection between business projects and marketing process (see Show, Merriek, 2005; Ward, 2004). Also, we see that marketing mix is repetitive by its content in product objective markets and in selling agents behavior. That turns our attention to the optimization of marketing mix costs because this is typical and recurrent marketing problem. 120

5 Figure 3. Market research and marketing system 3. The complex of the operational marketing means the effective and constructive means of business development and marketing strategies realization Whatever the chosen business development strategies and marketing strategies are, the means of operational marketing mix remain one of the most important instruments which helps to influence the formation of the strategies and, on the other hand, to estimate the costs needed for the realization of those means. The idea of the algorithm of the rational marketing mix means structure required by adequate inventive portfolio conception and the idea of the decision (see Rutkauskas, 2006) and is offered together in response to the benefit (effect) and costs of the marketing (see Table 1). The means of aggregated and disaggregated marketing mix 4 P and their financial effects Table 1 Means 1. Product 1.1 Product universality 1.2 Product quality and design 1.3 Product service 1.4 Warranty service and return possibility 2. Price 2.1 Price positioning and discounts 2.2 Payment conditions 2.3 Financing conditions 3. Promotion 3.1 Advertisement and public relations 3.2 Personal sales and sales support 3.3 Trade mark policy 4. Place 4.1 Distribution channels and density 4.2 Order cycle. Reserves, transportation The increase of total profit when the expenses for the means are increased by one conditional unit N 1 (1.032; 0.04) N 11 (1.01; 0.02) N 12 (1.02; 0.03) N 13 (1.04; 0.05) N 14 (1.06; 0.06) N 2 (1.,11; 0.94) N 21 (1.09; 0.07) N 22 (1.11; 0.08) N 23 (1.13; 0.13) N 3 (1.17; 0.2) N 31 (1.14; 0.16) N 32 (1.16; 0.19) N 33 (1.19; 0.24) N 4 (1.22; 0.28) N 41 (1.21; 0.25) N 42 (1.23; 0.31 ) 121

6 In Table 1, the numerical characteristics of the effect of separate marketing means N (a; s) are given. Their content we can interpret as the marginal effect of the use of financial recourses N (a; s) achieving the marketing purposes and it is measured as the growth of total profit. As it was emphasized, the indexes of the profit growth possibilities are the stochastic indexes and here are estimated as normal accidental measure N (a; s) with parameters average a and standard deviation s. Of course, there are complicated correlation connections between the separate marketing means effectiveness possibilities, which influence the management of profit possibilities and risk. It is obvious that given parameters a and s are the most important ones that characterized the effect of the use of marginal resources: a is the average of the total profit marginal growth possibilities which is the most probable value in this case and s is the standard deviation of total profit marginal growth possibilities which is the measure of all possibilities risk (inconstancy). In this situation the natural task is to choose such structure of marginal financial means distribution between separate marketing means, which guarantees the most useful result of total profit growth according to the possibilities of the effect and their guarantees and subject s (investor) beneficial function. The most suitable means for solving such a task is imitation technologies, which allow to solve that difficult stochastic programming task in needed precision. Table 1 shows that together with four marketing mix elements (product, price, promotion, and place) there are given the elements which detail them and show probability distribution of total profit marginal growth possibilities. We need to give the attention to the fact that the parameters of probability distribution of effectiveness possibilities of aggregated marketing elements expressed by the total profit growth are the average meanings of partial (disaggregated) elements possibilities probability distribution, and it is the information that disaggregated marketing mix elements are independent accidental measure. That technically makes the decision-making more ordinal but we need to watch properly the impact of that presumption when the real statistic dependency exists. In spite of this, the practical decisions show that if there are the same purposes and limitations of the tasks and no very big dependence between disaggregated main marketing mix components and the decisions almost will not change entering that dependency (see Rutkauskas, 2006). Now we will analyze the case while we use only four main marketing means (4P). Having each of four means distribution of the possibilities effectiveness N(a 1,s 1 ), N(a 2,s 2 ), N(a 3,s 3 ), N(a 4,s 4 ) and, using the possibility of imitational modeling, we generate possible structures (portfolio) of marginal recourses distribution and at the same time the possible meanings of those portfolios in profit (x) risk (y) set. In Fig.4 we see the set of discreet portfolio meanings, which cover the solid set of portfolio possibilities, if each change of the elements of the structure is even (see Rutkauskas A. V., 2000; Rutkauskas A. V., Rutkauskas V., 2000). a. The set of used possible marketing mix structures (portfolio) w 1 w 2 w 3 w b. The set of portfolio means (structures) risk-profit in the plane 122

7 c. Effective line Figure 4. The set of discreet marketing structures (portfolios), which are possible for marginal expenses unit (section a.) and the set of possible portfolio means in double dimension plane (section b.) and maximum and effective line of set means portfolios (section c.) (Rutkauskas, 2007) We can find the sufficient precise and the nearest meaning of criterion answer in Fig. 4 where the set of discreet possibilities portfolio meanings in section b. is given. According to the modern and Markowitz theory, the rational subject searches for the best answers in the effective line AB. It is necessary to remind that in Figure 4 in section a. we have the discreet for marketing set of the expenses structure, in section b. we have the set of profit possibilities probability distribution portfolio meanings corresponding to these structures and given means, and in section c. we have the effective line where all the optimal (according Paret) answers are (see Fabozzi, Markowitz, 2002; Markowitz, 1952). Conclusions and suggestions The research of marketing means and the effectiveness of all marketing budget becomes the necessary presumption of business efficiency and the researches of this efficiency have to become the priority marketing and finance researches. The management of marketing mix means marginal costs stochastic programming gives a presumption to project business development according to the growth scale, its riskiness and reliability. To concretize the business development and sustained market processes interaction and quantitative dependency are needed up-to-date expert systems, which allow to make unified indexes of efficiency, riskiness and reliability. It is purposive to create the informative systems on the basis of the conceptual researches in the marketing costs and business results dependency addresses and forms which allows to find out the accountability and calculation elements which together with generated information about the a priori expected regularities allows to reveal the totality of complicated connections between business development and marketing means costs. Business and marketing projects should be analyzed together, reflecting all previously mentioned and other main business formation and marketing possibilities interaction moments. Business and marketing projects should be prepared so that they become a means of real management of projected business and its accompanied marketing system. It is necessary to carry out the task projects for all business and marketing life period as full as it is possible. The idea of adequate investment portfolio is applied directly to the optimization of the marketing mix structure. The imitational technologies give possibilities to solve the difficult stochastic programming tasks in real time and wanted precision. References Armstrong G., Kotler Ph. (2000). Marketing: An Introduction. Fifth edition. New Jersey: Prentice Hall, 575 p. Behrens W., Hawranek P. (1991). Manual for the Preparation of Industrial Feasibility Studies. Vienna: UNIDO Publication, 385 p. Fabozzi F.J., Markowitz H.M. (2002). The Theory and Practice of Investment Management. USA: John Willey & Sons, Inc. 894 p. Markowitz, H. M. (1952). Portfolio Selection. Journal of Finance, No. 7(1), March, pp McDonald, M. (1997). Marketing plans. How to prepare them: how to use them. Third edition. Butterworth Heinemann, 485 p.

8 Naresh K. Malhotra, David F. Birks. (2006). Marketing Research: an Applied Approach. Harlow, Financial Times Prentice Hall, 753 p. Rutkauskas A. V. (2006). Adekvačiojo investavimo portfelio anatomija ir sprendimai panaudojant imitacines technologijas. Ekonomika. Mokslo darbai. Vilniaus universitetas. Vol. 75, p Rutkauskas A. V. (2000). Formation of Adequate Investment Portfolio for Stochastical Possibilities. Property Management. Volume 4. Vilnius: Technika, Nr.2, p Rutkauskas A. V., Rutkauskas V. (2000). Adequate for Profit Possibilities Stochasticity Investment Portfolio Formation. Ekonomika. Mokslo darbai. Vilnius: Vilniaus universiteto leidykla, Nr. 52, p Rutkauskas A. V. (2006). Konkurencingo verslo projektavimas. Vilnius: Technika, 351 p. Rutkauskas A. V., Ginevičius A., Stasytytė V. (2007). Rinkodaros komplekso sąnaudų struktūros optimizavimas kaip verslo tvarios plėtros priemonė. Ekonomika. Mokslo darbai. Vilnius: Vilniaus universiteto leidykla, Nr. 78, p Show R., Merriek D. (2005). Marketing Payback. Is your Marketing Profitable? Prentice Hall. Ward K. (2004). Marketing Finance. Turning Marketing Strategies into Shareholder Value. ELSEVIER. A. V. Rutkauskas, V. Stasytytė, G. Staskevičiūtė Management of the structure of marketing practical necessity not solved in theory Summary Marketing is constantly concerned with the following problems what amount of funds reaches maximum marginal effect and what the optimal structure of expenditures on separate marketing means should be. Moreover, nowadays it is increasingly important to reach business sustainability. The paper proposes means of solving the problem integrating these questions how to achieve the maximum marginal marketing funds efficiency with optimal funds distribution among separate marketing means. Employing adequate investment portfolio conception and decision idea, an algorithm for selection of rational marketing means mix structure, at the same time considering marketing developed utility and costs, has been proposed. Product, price, promotion and place (4P), as the components of the marketing means mix, are analysed as related marketing means, which, in turn, are converted into expenditures utility or effect. This allows outcome evaluation according to three characteristics the extent of the effect, risk of possible set of effects and reliability of every possibility of the effect. Key words: the structure of the marketing mix costs, stochastic optimization, marginal efficiency, adequate portfolio. 124