Chapter 2: Understanding Forest Products Marketing
After reading Chapter 2 you should understand the following:
- How marketing can be defined and the various roles it plays in an organization.
- How and why marketing has evolved over time.
- What environmental marketing means and how it differs from traditional marketing.
- What marketing planning is and why it is needed.
- The value of models in marketing planning.
- The Integrated Model of Marketing Planning (IMMP), its central role in the remainder of the textbook, its logic, and its use.
- How marketing may evolve in the future.
In free market economies, marketing is a tool for satisfying the needs of society. It provides the link between the production taking place in a company and the demand of the individual consumer. Marketing integrates the company’s various functions to target specific markets in order to best meet the needs of customers. Marketing also helps to create relationships with those customers and other stakeholders.
Marketing clearly is more integral than most people think. It is more than advertising or personal selling, two of the most visible tools of marketing. It has also changed over time, and will continue to evolve and adapt to changes in the business environment. Many of these developments are documented in the pages and chapters that follow. We feel that understanding marketing is best accomplished by a planning and modeling approach.
This chapter explores models of marketing and develops the concept of the Integrated Model of Marketing Planning, which serves as the structure of this textbook. The concepts of social responsibility and environmental marketing are also explored in the context of the forest industry. We discuss the future of marketing and end the chapter with an explanation of how the remainder of the chapters are structured according to the Integrated Model of Marketing Planning.
2.1 Marketing and its Functions
2.1.1 Possible Roles of Marketing
In modern society, production and consumption are separated, and marketing acts as a bridge, or integrator, between the two. Marketing can integrate the various functions of a company, connecting the company to its customers and its other stakeholders. Figure 2-1 describes marketing’s role as a connector and relationship builder.
Marketing as a connector – Traditionally, marketing was the link between production and consumption, coordinating the integration of the two functions. At a company level, marketing connects the production of the company with the needs of the customer.
Marketing as a relationship builder – Marketing can serve to build and maintain relationships among the company, its customers, and other stakeholders. In modern marketing, this role is critical. “Relationship marketing,” a term popularized in the early 90s, suggests the importance of positive relationships with a range of stakeholders. The concept is an integral part of advanced marketing and successful business.
Marketing can have either a narrow, functional role in an organization (i.e., that of “selling”), or it can have a broad, integrating role. The difference between the two roles can be seen in Figure 2-2.
Marketing as one function of the company – The narrowest possible role for marketing is as one of the company’s functions between production and the marketplace. From this perspective, the role of marketing is to assure that products are efficiently transferred to the market. In this context, marketing is limited to selling.
Marketing as the integrator of company functions – In its more sophisticated implementation, marketing has an integrative function focused on the entire value chain, from the forest to the end user. It allows an organization to align its various processes to offer products and services in a way that is beneficial to itself and its customers.
In practice, marketing can play all of the above-mentioned roles. In fact, marketing should serve to connect the company to its environment, allow it to develop a better understanding of markets and customer needs, and convert this understanding into business opportunities. Marketing should integrate the company’s functions and divisions into a customer-serving entity, ensuring fluid transfer of products and services to end-users.
2.1.2 Defining Marketing
The science called marketing has evolved from a series of other behavioral sciences including psychology, social psychology, sociology, communications, and economics. While it may seem simple to define, the term “marketing” is both broad and complex, with many possible interpretations. As the field of marketing develops, so does its definition. Early definitions were centered on the concept of the transaction, while today, definitions of marketing typically involve relationships, and elements of social and environmental responsibility.
University students, industry managers and ordinary consumers often have a narrow understanding of the concept of marketing. Typically, marketing is associated with its most visible functions, such as advertising and selling. However, advertising and selling are merely tools of marketing. A simple definition of marketing is identifying and providing for the needs of customers in order to gain a profit. For the purpose of this book, we describe marketing in the context of a planning approach.
Marketing constantly produces information about the environment of the company (especially customer needs, market trends, and demand). Based on this information, marketing strategies, structures, and functions are planned. Marketing strategies are composed of definitions of products to be produced, customers to be served, and core competencies to be pursued. Marketing structures (e.g., marketing organization, marketing channels and information systems) facilitate necessary relationships as well as the planning and implementation of marketing. Marketing functions are the tools and activities used to execute marketing strategies. After proper planning, marketing is simply execution of the strategic marketing plan.
2.2 The Evolution of Marketing
How marketing is executed and the role it plays in an organization depends on the marketing
philosophy and culture of a company. An inappropriate or obsolete marketing philosophy often means inappropriate or obsolete marketing actions and weak performance for the company. When marketing is purely a selling function, the company is probably production-oriented. Marketing as an integrator or relationship-builder implies a sophisticated market orientation.
Marketing philosophies have changed in response to historical developments in society. During the early years of modern industries and mass production, demand for products was typically high and it was unnecessary to invest resources into developing demand. Marketing philosophy developed accordingly and was largely production-oriented. Recent developments in the marketplace have forced companies to increase their marketing sophistication by shifting from a production orientation to market orientation (Figure 2-3). With this shift comes a series of more sophisticated approaches to marketing, such as an emphasis on social – rather than just economic – responsibility. Today, a focus on the future bioeconomy has heightened interest in options to fossil fuel-based products. Accordingly, forest industry must respond to this customer interest through its production and marketing, thus potentially leading to an “environmental” orientation.
2.2.1 Production and Sales Orientation
Production-oriented companies concentrate on producing large volumes of commodities at low costs and rely on the sales department to move product into the marketplace. This approach to business works well when demand is high, needs of customers are simple, and competition is limited. The following aspects characterize a production, or sales, orientation:
- Technology and raw materials dominate business thinking
- Product development is concentrated on technological possibilities or better utilization of raw materials
- Planning engineers think they know best what customers need
- Products are commodities
- There are few marketing personnel
- Products are marketed through intermediaries
- Little is known about end-users and consumers
- The cure for demand problems is harder selling
- Salespeople are to blame if the product is not selling
A production-oriented company feels that a marketing department is only a cost-creator between the mill and the market. Under this model, low costs (and thus, low prices) are necessary for success.
Some argue that the marketing philosophy of an industry sector is tied to its particular characteristics (e.g., raw material, production, product). An old saw miller may say, for instance, “only lumber can be sawn out of a log and this can’t be helped by any kind of marketing planning.” However, industry experience suggests that instead of being dependent upon the characteristics of the sector, an appropriate marketing philosophy is more dependent on the dynamics of the industry, the marketing environment, and the innovativeness of the marketers’ attitudes.
As the marketplace changes over time (especially with respect to customer needs and competitors) companies must become more sophisticated in their approach to marketing. A market orientation is seen as a response to ever increasing demands from the marketplace.
2.2.2 Market Orientation
The terms customer orientation and market orientation are similar, but not synonymous. A truly market-oriented business uses marketing as a leading, integrative function which drives all other activities in the organization toward the goal of creating customer satisfaction and value.
In a market oriented company, the customer is raised to a higher status – the “customer is king.” This change in status comes from a realization that profits are created through customers’ needs and buying behavior. In a market oriented company, relationships with end-users are strong and marketing research is conducted continuously. Product development is based on research and marketing operations are planned according to customers’ reactions. A market orientation must be present on all levels of the company and in all marketing planning decisions. In addition, markets and marketing strategies direct business planning, on all levels – investments, production, raw material procurement, etc. The following list overviews how the various aspects of marketing are impacted by a market orientation.
Products – Adopting a market orientation means moving from commodities to special and custom-made products. A paper mill is not producing paper, but rather solutions for different printing tasks and problems. A sawmill is not producing sawn wood, but components for industrial customers. Customers – A market orientation means selectivity in choosing customers. This means choosing the right customer for the company’s product, or choosing the right product for the company’s customer. Market Areas – Understanding markets and customers is a vital capability for a market oriented company. Because resources are limited, the necessary level of understanding can often be reached only for a limited number of market areas. Core competencies – A market oriented company should pay special attention to market intelligence, customer relationships and marketing skills. It should overcome its competitors when creating attractive solutions to the needs of the customers. Organization – Every person in a market oriented company realizes that the company exists for its customers. The “voice” of the customer must be heard throughout the organization. Information Systems – Systems for gathering and analyzing information must be able to produce dedicated customer and market information. For example, each customer’s level of profitability to the company can be assessed using the right information system, and this knowledge can be valuable in allocating marketing resources. Planning Systems – An appropriate planning system is able to use market information in planning of marketing strategies and functions as well as in planning of production and raw material procurement. Marketing Channels – The marketing channels of a market oriented company must form connections to the customer, and information and influence should move freely in both directions. Although the forest industry has made great strides toward market orientation, research shows that there is considerable opportunity for increased marketing sophistication (Example 2-1).
Example 2-1: Marketing Sophistication in the Forest Sector
A study of hardwood and softwood sawmills in the US found that many companies are still tied to a production or sales orientation and that managers generally viewed marketing in the context of sales rather than the holistic concept outlined in this textbook. When asked to define marketing, most respondents tended to focus on sales or promotion revealing a narrow view of marketing. Some respondents referred to a customer or market focus suggesting a more sophisticated understanding of marketing. Respondents often relied heavily on distributors and brokers in order to move large product volumes and receive fast payment, a customer strategy that fits best with a commodity product strategy. The thinking regarding organization and implementation of marketing was also assessed to be underdeveloped. Still, the overall evaluation of the situation with sawmills identified movement toward more of a customer and market orientation, a more sophisticated approach to marketing.
The key to customer relationships is the creation of value. To attract customers, the company must provide superior value, and marketing measures are designed to create customer value. The market oriented company is successful by helping its customers to grow, to create value for their respective customer, and to be successful.
Maintaining a market orientation is clearly a challenge. Nowadays customers often have higher expectations of their suppliers. Demands may include:
- Cost savings
- Superior knowledge
- High product quality
- High levels of customer support
- Supply security
Being market orientated is a continuous improvement process. For example, information technology (IT) has become a critical tool for maintaining customer relationships, and companies must be prepared to invest in the solutions necessary to meet customer demands. Generally, research has shown that a market orientation is positively associated with profitability, so companies that coordinate all their functions in a concerted effort to understand customers and competitors will likely be the most successful.
2.2.3 Responsible Forest Industry – Responsible Marketing
The traditional responsibility of a firm is to maximize profits for the owners while operating within the laws of society. The opposing view is that companies have much wider responsibilities. Modern society expects companies to hold three kinds of responsibilities:
- Economic responsibility
- Social responsibility
- Environmental responsibility
It is often said that companies have a responsibility to satisfy a range of stakeholders. An example of internal stakeholders is company employees, while external stakeholders include the company’s surrounding community. The World Business Council for Sustainable Development has developed the following list of stakeholders and the company’s responsibility toward each.
- Owners and investors – high profits
- Employees – consistent, fairly compensated employment
- Customers – high quality products and service
- Business partners – fair, ethical treatment as partners
- Suppliers – consistent customer upon which to base the supplier’s business
- Competitors – maintain industry image
- Government regulators – meeting or exceeding regulations
- Non-governmental organizations – meeting or exceeding their expectations
- Communities – stable employment for community members
Meeting the myriad demands of multiple stakeholders can be an overwhelming task, especially for companies that operate in several regions or countries since stakeholder demands tend to vary based on geography, culture, and level of economic development and education. Even in one location the views on responsibility can differ significantly. Companies must adapt to meet the expectations and needs of stakeholders in each location, while also meeting the highest standards of any location across all operations.
Despite differing views on the extent of corporate responsibility, it is clear that businesses exist as a subsystem of society, and therefore have both an economic and social role in the community. Ultimately, society dictates the extent of this role and the level of responsibility expected of corporations. In the early 1900s, these expectations largely reflected the view of classical economics—that companies need only obey the law and provide profit—but the values of society have changed over time. Consequently, expectations of companies are changing as well. Often it is corporate actions negatively impacting the community or the environment that drive the public to become involved and to increase their demands of companies. Noteworthy environmental disasters such as the Exxon Valdez in Alaska and the BP oil spill in the Gulf of Mexico are good examples. In the early 2000s, factory conditions and human rights, especially in the apparel industry, were especially topical. At present, global warming is an issue highest on the radar screen for many companies. With a majority of countries in the world agreeing upon reducing the levels of carbon emissions for combating global warming and climate change, companies are expected to change their business operations and strategies in order to help meet emission targets.
In the forest industry, societal demands have primarily centered on sensitivity toward environmental impacts. These demands, and the way they’ve changed over time, can generally be summarized in the following manner:
- 1970s – emissions to water and air
- 1980s – recycling and chlorine bleaching
- 1990s – forest management and forest certification
- 21st Century – global climate change and the role of forests
An important aspect of society’s changing values is the impact of globalization and the consolidation of industries. Companies are becoming so large and multi-national that it is increasingly difficult for any single government to enforce legislation to regulate their actions. The resulting shift in power from government to corporations leads society to demand greater responsibility from corporations. Society ultimately grants a company a “social license to operate,” but if a company does not operate within society’s values, it risks losing this license and ceasing to be competitive (Example 2-2).
Example 2-2: MacMillan Bloedel Ltd. And the Social License to Operate
MacMillan Bloedel Limited (MB) was a large western British Columbia company with significant operations on Vancouver Island, a place where ENGOs took an international stand against clear cutting and harvest of old-growth timber. ENGOs protested at harvest sites and at the sites of key customers, hoping to eliminate the company’s markets. In part because of this “war” with ENGOs, MB was in poor shape by 1997 and had nearly lost its license to operate. The company had a terrible in-woods safety record, was losing money each time it harvested, and was constrained in its markets because of the protests by ENGOs. In 1997, the company undertook a study with the following objectives:
- No compromise of employee safety
- Achieve “outrageous” financial success
- Make MB the most respected forest company in North America
The company essentially chose to meet some of the demands of the ENGOs, making changes in order to maintain its license to operate. In an interesting twist, the company began to use the ENGO’s as advisors, including them in the corporate decision-making process, rather than fighting against them. In 1998, the company announced three main commitments:
- Replace clearcutting with variable retention
- Increase old growth conservation above status quo rate
- Certify forest operations to meet market demand
According to MB the challenge was two-fold:
- To move from simplistic, adversarial relationships with ENGO’s into more complex relationships capable of simultaneously involving cooperation and competition.
- To pursue environmental enterprise with the same level of creativity and passion previously devoted to battle, and frequently still devoted to competition.
Corporate social responsibility (often referred to simply as “corporate responsibility”) can be defined as “the commitment of business to contribute to sustainable economic development [economic responsibility], working with employees, their families, the local community and society at large to improve quality of life.” Social responsibility means going beyond the legal, technical, and economic requirements of the company.
Society’s view of responsibility is clearly changing. Fears about globalization and the growing power of multinational companies have resulted in a backlash against big business such as the protests surrounding the 1999 World Trade Organization meeting in Seattle, Washington and the Occupy Wall Street movement. It is important to acknowledge the differences in perspective regarding social responsibility among various cultures. People in different countries have different views of responsibility based on their history, religious views, and other values. Accordingly, companies in different regions can have different approaches to managing responsibility.
Environmental issues are a strong part of the forest industry’s market context. Much of the concentration on environmental issues is centered on the concept of sustainable development. In the late 1980s, the World Commission on Environment and Development defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Since that time a series of international meetings, including the landmark 1992 UNCED meeting in Rio de Janeiro have increased the global focus on sustainable development. Most recently, the United Nations General Assembly adopted a resolution titled, “Transforming our world: the 2030 Agenda for Sustainable Development.” The agenda includes 17 Sustainable Development Goals and 169 targets. Multiple Sustainable Development Goals have direct connection to the forest industry. For example, the forest industry has a clear role in supporting the developing of sustainable cities and communities.
Few debate the merits of the concept of sustainable development or the desired outcomes of the Sustainable Development Goals. But how do companies find their role in moving in this direction? Environmental management systems help companies focus on these issues. Developing environmental management systems begins with instituting corporate environmental policies and embracing the concept of continous improvement. A complementary tool to environmental management is lifecycle assessment. Lifecycle assessment is a way to quantify the overall life-cycle environmental burden of products. Producing companies can use lifecycle assessment to design products that minimize impact on the environment. Consuming industries and final consumers can use it as a decision aid when selecting among potential products to fulfill a particular need.
Since wood is a renewable raw material, the forest industry has long claimed environmental superiority over substitute products such as plastics and steel. Data regarding energy used in the manufacture of wood versus substitutes has been used to back this claim. With respect to the energy used in manufacturing, wood clearly has an advantage over its competition. However, manufacturing is just one of the many stages of the total lifecycle of a product. More holistic comparisons among various materials will become easier over time. Lifecycle assessment and the ability to quantify environmental impacts will be an important tool for increasing environmental responsibility among producers and consumers and communicating this with customers via environmental product declarations (EPD). These declarations are based on life cycle assessment data and are a mechanism to give customers systematic and consistent information about the environmental impact of a product. For an example of environmental product declarations see the following site.
Environmental Marketing in the Forest Industry
Ethically sound marketing which integrates environmental principles is called “environmental,” “green,” or “ecological” marketing. Such marketing recognizes the broader environmental responsibility of a company and helps the company adapt to new circumstances. The environmental marketing concept has received considerable attention in academic circles. Most authors consider it an extension of marketing to include the concept of minimizing damage to the environment while satisfying the wants and needs of consumers. According to Peattie, environmental marketing is made up of social responsibility, the pursuit of sustainability, and a holistic approach, which assumes that everything is inter-connected. Some go further to suggest that with environmental marketing companies should redirect consumer demand to environmentally preferable products and services. Sustainable consumption is becoming a more common theme in society with, for example, many people considering their impact on the planet using calculators like that from the Global Footprint Network®. Leading global companies are beginning to recognize the potential around sustainable consumption (Example 2-3). A simple definition of environmental marketing used in this text is: identifying and providing for the wants and needs of customers, while recognizing the necessity to minimize impacts to the environment and to gain a profit.
Clearly, marketing is one mechanism for supporting sustainable development. It serves to build a bridge between companies and stakeholders, especially customers. The basic function of marketing is to analyze customer needs and transform them into business opportunities. If customers are environmentally conscious and want to make choices that support sustainable development, a company can transform these environmental requirements into business opportunities. Truly forward thinking companies will try to lead their customers toward more sustainable consumption. This means integrating environmental perspectives into all aspects of marketing planning, particularly in marketing strategies. Environmental marketing can also be a tool to promote socially and ecologically sustainable forestry. From the industry’s point of view, environmental marketing is a tool for achieving company goals and gaining competitive advantage.
True environmental marketing originates in a strong company philosophy of responsibility toward society and the environment. This philosophy must be seen as a true commitment to environmental issues and improved performance – otherwise, a company may be accused of “greenwashing,” which is generally perceived as worse than doing nothing at all.
Example 2-3: The Growing Importance of Sustainable Consumption
According to the World Business Council for Sustainable Development, consumption patterns around the world are unsustainable and technological advances and efficiency gains will not be enough to bring consumption to a sustainable level. Therefore, changes will be necessary in consumer lifestyles and in the way they use products and services. Companies have a role in working with consumers to alter lifestyles. A more immediate role is focusing on procurement practices. The World Business Council for Sustainable Development and the World Resources Institute produced an extensive document for use by companies in evaluating their procurement procedures. The document, Sustainable Procurement of Wood and Paper-based Products, outlines 10 things that purchasers should know:
- Where do the products come from?
- Is information about the products credible?
- Have the products been legally produced?
- Have forests been sustainably managed?
- Have special places, including sensitive ecosystems, been protected?
- Have climate issues been addressed?
- Have appropriate environmental controls been applied?
- Has recycled fiber been used appropriately?
- Have other resources been used appropriately?
- Have the needs of local communities or indigenous peoples been addressed?
As companies use tools such as this in their purchasing practices, forest industry companies must have adequate answers to each of these. Accordingly, companies can use this question list to begin evaluating their many responsibilities and contribute to sustainable consumption.
An example is the following quote from the Chief Forester of Stora Forests in Sweden: “Commitment to sustainable forestry must be real. A media campaign to change attitudes will not work. They will find you out.”
Responsibility and Performance
The link between responsibility and positive company financial performance has seen considerable attention. Early research in pollution prevention found that companies practicing pollution prevention often benefit from lower costs., However, the link between environmental practices and financial performance is less clear in other areas, such as changing forest management practices to meet certification requirements. Overall, the literature provides evidence that being a good environmental steward results in enhanced financial performance, but growing evidence suggests the relation may not be tied to how proactive the firm is. On the other hand, small firms may benefit more than large. There is clearly much to be learned regarding the conditions that lead to “being green paying for itself.” There are other benefits to acting responsibly that indirectly impact business performance. According to the World Business Council on Sustainable Development, these benefits include better alignment of company and societal goals, maintaining company reputation, assuring a continued license to operate, and reducing risks and their associated costs.
In the final analysis, not every action taken by companies to be socially and environmentally responsible will be reflected in reputation, profitability, or stock prices. However, it is clear that a certain level of responsibility is a prerequisite for operating in today’s society. By adopting a responsibility focus and internalizing the concepts of environmental marketing, companies will be well-placed to capitalize on their positive environmental and social performance.
2.3 Planning and Modeling Approach to Marketing
2.3.1 Scientific Approach to Marketing
The scientific method can be applied to the planning and modeling of marketing. The first step of this approach is to define the problem situation. As a pragmatic science, marketing aims at controlling the phenomena connected to it. For example, the salesperson tries to have an impact on the customer.
The prerequisites of control are a detailed knowledge of customers, markets, and marketing. To influence customers the salesperson must know buyer behavior and understand why people act the way they do. Exact descriptions and explanations of why things happen the way they do make predictions possible. If the salesperson understands customer behavior she can anticipate the customer’s next move. Description, explanation, and prediction are prerequisites of control. This means the salesperson can influence the behavior of the customer. The aim of marketing planning is to increase the predictability of and control over marketing phenomena.
To summarize, solving marketing problems can follow the same steps as the scientific method:
The scientific approach is a matter of course in marketing research but is equally useful as a practical tool for everyday marketing work. The scientific approach is the competitive advantage of the highest-level marketing education and should be applied to everyday marketing work. What does the scientific approach in marketing mean? It is the ability to use theories and models to help solve practical marketing problems. Figure 2-4 illustrates how the solution to a marketing problem can be developed through moving back and forth between marketing reality and marketing abstraction.
The scientific approach applies scientific knowledge in the form of models and theories to marketing problem solving. The first step when applying the scientific approach is taking the marketing problem situation to a theoretical level. Concepts, models and theories of marketing science and/or mother sciences are used to do this. If we use research in problem solving, hypotheses are drawn from the theoretical/hypothetical constructs and tested with empirical data. Research produces a general description or explanation of the problem situation, which is then operationalized back to the marketing reality.
The scientific approach, however, can also be applied in everyday marketing planning and implementation without marketing research, as the dotted arrow (Figure 2-4) going directly from the Theoretical Construct to the Description or Explanation demonstrates. When a marketing manager meets a problem, she converts it into a theoretical construct using all the experience, theoretical concepts, models and theories in her possession. From this theoretical construct, she can see the essential features of the problem situation. Scientific theories help the manager find explanations to problem situations. The last step is to apply the theoretical explanation to the practical marketing situation. It can be concluded that the essential point in the scientific approach is the ability to use:
- Concepts, models and theories
- Information based on scientific research or practical experience
2.3.2 Planning Approach to Marketing
Marketing planning is the basis for grounded decisions about future strategic actions. The most important aspect of this planning may actually be the learning and development that takes place among participants during the process. They may gain greater understanding of the challenges they face and the intricacies of their market. For a marketing manager, marketing is essentially the process of marketing planning. A marketing plan explains, adjusts, guides, and coordinates all that is happening in marketing. As such, it is a management instrument that can be used to communicate with all those parties in the company implementing marketing. In a modern, market oriented company, the network of parties implementing marketing is extensive.
Marketing planning is necessary for a number of reasons. As already mentioned, a critical aspect is the learning process that occurs during the planning process. At a conceptual level, marketing planning can be thought of as a run-through of the entire marketing process, a sort of conceptual simulation. At a practical level, it is a document that helps implement marketing on the ground and can be compared with actual outcomes.
In order to operate at the conceptual level, a marketing designer needs models that describe the functional environment as well as models that describe marketing functions, e.g., personal selling and advertising. Models are effective guides that show the decisions to be made during planning. The models should also show the information that is needed for decision-making. The main planning tools are models and information. The whole structure of this book follows a planning model and the necessary planning information is analyzed thoroughly.
2.3.3 Models of Marketing
A model is an abstract picture of the real world which describes some phenomenon. A marketing model can provide a structural framework for planning, guiding a company in decisions about how to adapt to its future environment. Although marketing models come in many different variations, most are organized around the traditional theme of the 4P’s of marketing—price, promotion, product, and place (distribution). Figure 2-5 illustrates the 4P approach and how the “marketing mix” can be tailored to different market segments.
The marketing mix, or 4P’s, has had a profound impact on the field of marketing, as evidenced by its dominant role in numerous models of marketing. However, there are shortcomings of this approach. For example, from a planning perspective, the 4P’s do not provide a comprehensive picture of the decisions that must be made in marketing a product. In addition, there is no hierarchy in the 4P model so it appears, for example, that decisions regarding the communication channel are equally important to decisions regarding which products to produce. This text uses the Integrated Model of Marketing Planning which will be discussed in detail later (Section 2.4).
2.3.4 Modeling the Marketing Environment
The marketing environment is simply a company’s context or external environment. A popular way of looking at the external environment is through PEST analysis, which considers the factors in the environment that are impacting the company in political/legal, economic, sociocultural, and technological realms (Figure 2-6).
The Information Environment Model (Figure 2-7) used in this text divides the environment into macro and micro categories.The macro-environment contains demand, supply and “other” environments, which include the economic, technical, legal and social environments. In practice, economic indicators, demand, and supply are aggregated and analyzed with econometric research instruments. The information describing the macro-environment is critical to investment planning in the forest industry, and important on the highest strategic level of marketing planning. These analyses are also used in the policy planning of the whole forest sector.
The micro-environment contains information about the behavior of customers, competitors (size, structure, etc.), and distribution systems. Although marketing channels would seem to be part of a company’s own marketing system, these channels must conform to the existing distribution system of the markets, and are thus considered part of the marketing environment. As you will find in the next section, this model of the information environment becomes a key component of the Integrated Model of Marketing Planning. Chapter 3 provides an in-depth discussion of the use of information in marketing planning.
2.4 Integrated Model of Marketing Planning
2.4.1 The Origin and Development of the Model
Many researchers and authors have presented their own models of marketing planning. This book utilizes the Integrated Model of Marketing Planning (IMMP) (see Figure 2-8). The model and its operationalization were developed at the University of Helsinki in Finland, and has been particularly influenced by the work of Ansoff and Shirley et al. While the model contains the usual components of marketing planning presented in marketing textbooks, the central ideas differ notably. The differences in terms of the model’s ideological background and hierarchical structure are most evident when the model is compared, for example, to the traditional 4P model described above.
The model contains four hierarchical levels: strategies, structures, functions and action plans. As one key activity of the business unit, marketing gets its objectives from the whole unit. Because of its central position in the model, most strategic decisions in marketing are also integral to the strategy of the business unit. This also means that decisions concerning marketing strategies are made on the highest hierarchical level in the business unit.
The hierarchy in the model signifies that the highest decisions must be made first, and objectives for the following levels must be subsequently established. Strategies come first and structures (and systems) follow. When there are changes in strategies, there should also be changes in structures.
The other relationship between strategies and structures illustrated in Figure 2-8 indicates that there can be institutional constraints in the structures. Structures can inhibit the realization of strategies, or – when properly established – can function as frames and tools for realizing strategies. For example, a structure which includes powerful intermediaries may make it difficult for a company to develop a detailed understanding of end-users, which in turn inhibits the ability to produce special or custom-made products for these customers.
Marketing functions allow a company to realize its strategies and satisfy the needs of its customers. By contrast, in many other models, these functions are seen only as tools for competing against other companies.
Strategies, structures, and functions form a strategic marketing plan that is implemented through action plans, often called annual marketing plans or budgets. Strategies act as objectives that guide the annual planning of marketing. Plans related to marketing functions guide decisions concerning the marketing measures carried out during the planning period.
2.4.2 The Structural Elements of the Model
The core of the IMMP is organizational strategies, structures, functions, and action plans. These aspects can best be described by operationalizing the model, that is by developing practical measures for each aspect and by providing decision options for each of the elements, as explained below.
The company determines its strategy by making decisions concerning its products, target customer groups, the geographical limits of its market, and core competencies. Each one of these four strategic decisions can be divided into various alternatives, which are outlined broadly below. Product strategy can be divided into three alternatives:
- Emphasis on commodity products
- Emphasis on special products
- Emphasis on custom-made products
For an individual company, these must be more specific. For example, if a company chooses to produce special products, it must determine the specific product for a given market like components for the window industry or a special paper for a certain type of printer.
The customer strategy alternatives are:
- As many customer groups as possible
- Few well-specified segments
- Known end-users
At the company level, the choice for a sawmill might be the window industry or big box retailers. Market area strategy is described with two alternatives:
- As many regions/countries as possible
- Few well-specified regions/countries
At the company level, market area might be defined as Southern Germany or a particular region such as New England.
The following might be considered core competencies:
- Quality of the products
- Efficient marketing channels
- Customer relationships
- Efficient personal selling
- Technical and other services
- Marketing communication
- Advantageous price
- Well-known trade mark
- Efficient marketing
- Freedom in price policy
- Large market share
The combination of product, customer, and market area strategies, along with the appropriate core competencies, leads to the development of a competitive advantage. Pursuing a sustainable competitive advantage is the essential goal of strategic marketing planning. Marketing structures are the systems within a company which allow marketing to be implemented through its various functions (Figure 2-8). Examples include:
- The type of management system and organization used in the company
- The type of information and planning system that is used in the company
- The marketing channel structure used
Marketing functions are the on-the-ground techniques that a company uses in the practical marketing of products. There are basically two sets of functions. Communication functions are those that marketing controls directly, while product functions are those where marketing is a player along with other functional areas of the company. Examples of each include:
- How the personal selling/personal relationships are implemented
- How advertising is designed and implemented
- How marketing participates in new product development processes
- How marketing participates in pricing decisions
- How physical distribution is conducted
Action plans include quantitative goals for the next planning period, specific steps for obtaining goals, and metrics to measure progress toward those goals. The process for creating action plans is often called budgeting.
2.4.3 The Decisions Needed for Marketing Execution
In many ways, marketing planning is decision-making, and implementation is putting those decisions into practice. Once the marketing designer has internalized the modeling approach to marketing planning, identifying the necessary decisions is straightforward.
- What product(s) should the company produce?
- To what group(s) of customers are the products targeted?
- In what geographical region will the operations take place?
- Upon what core competencies will marketing be based?
- What management philosophy or system should be used?
- What is the most appropriate way to organize the marketing?
- Which planning and information systems will be used?
- Which marketing channels will be used?
- How will personal selling be implemented?
- How will other forms of communication be implemented?
- How will market information be collected?
- How will customer support be implemented?
- How will new product development be implemented?
- How will pricing be implemented?
- How will physical distribution be implemented?
- How will the daily marketing communication routines (customer service) be implemented?
- What are the marketing targets per planning period?
- What methods will be used?
- What amount of money will be used?
- What is the schedule of the marketing measures?
2.5 New Marketing Designs and Business Models
Marketing science and practice are constantly creating new tools to develop marketing. New paradigms are responses to changing marketing environments and customer demands but also ways to make marketing more efficient and business more profitable. It is important to remember that the basic idea of marketing remains even though new ideas, e.g., for marketing structures, are created. In the same way it is important that the marketer sees the connection between old structures and new tools as well as understands the role of new paradigms in the comprehensive context of marketing.
In Chapter 5, when analyzing the evolution of marketing management, we describe, for example, customer relationship management (CRM), strategic account management (SAM), supply chain management (SCM) and E-commerce. Based on the IMMP, these new marketing paradigms can be seen as new ways to develop marketing structures.
The comprehensive construct containing new marketing paradigms and describing the conduct of business and marketing can be seen through a modified Integrated Model of Marketing Planning. The modification means that a new way of thinking is needed and various aspects of marketing must be emphasized a bit differently. A key for this new thinking is an innovative creation of knowledge based capabilities and customer benefit based value propositions. A modified IMMP describing the comprehensive evolution of marketing can be seen in Figure 2-9.
In Figure 2-9 the knowledge based capabilities are described through raw material, technology and other core competencies. An emphasized feature of New Marketing Design (NMD) is the close contact between producer and customer – the customer interface. Marketing activities are realized on the customer interface. To reconfigure the customer interface we use, for example, the above mentioned CRM, SAM and SCM. The marketing structures and functions of the company are arranged according to these management philosophies or some other new management paradigms which may emerge.
New marketing approaches will only be successful if customers can directly see the benefits arising from them. If marketing is genuinely based on creating benefits and value to the customer, a profitable, long-term partnership can be created. The value proposition (i.e., the product offered, availability, enhanced services and marketing communication) is the most visible aspect of customer interface. The biggest difference between traditional thinking and NMD is how we see all marketing measures creating value for the customer. If optimized logistical systems have traditionally been the key points when planning distribution solutions, now according to NMD we emphasize availability for the customer. We aim at availability which is more beneficial for the customer and makes the value proposition more attractive. The same holds true with service and information planning. If traditionally the marketing communication messages tried to persuade the customer to buy, now according to NMD, more attention is paid to customer benefits and value when planning marketing communication.
The definition of served customers is also changing. In Figure 2-9 the change is made explicit when describing the customer as “a structure or network”. To take an example, the main end-use for wood products is in the construction industry. The buying process for this market includes decisions made by a number of actors, such as architects and designers, construction business owners, specifiers and purchasing managers, as well as people who use the product. This group of actors directly influences the demand for wood products and their decision-making process calls for a new understanding of customers. Communicating with this customer structure, gathering information about its needs and serving it, and promoting wood products are the functions carried out on the customer interface. Example 2-4 contains consequences of new thinking in the wood industry.
2.6 Making the Future of Marketing
Marketing has changed over time by responding to challenges which arise in the business environment. For example, mass production gave rise to the sales approach to marketing, while recent trends toward specialized products have prompted more tailored marketing strategies. Marketing must continue to evolve in order to effectively deal with fast-paced changes in the business environment. Although long-term predictions are inherently inaccurate, we can reasonably forecast the following trends in the market:
- Local markets will continue to grow global
- Customer needs will become more diverse
- Companies will continue to grow in size and global reach
- The information environment will be even more transparent, global, and fast changing
- Stakeholders will increasingly demand social and environmental responsibility
- Services will become a bigger proportion of forest industry revenue
Given the current state of the business environment, appropriate marketing practices can play an increasingly important role in company success. The foundation of “Making the Future of Marketing” is the concept that success through marketing is based on the ability of the company to do the right thing, do things the right way, and utilize the best available technologies.
2.6.1 The Ability to Do the Right Thing
As our discussion of responsibility shows, companies will increasingly be judged not only on their profitability but also on their ability to do the right thing. A major challenge here is to take the needs of various stakeholders into account and to recognize how culture and other local characteristics influence those needs. Social and environmental responsibility are especially important because the forest industries are using a globally important natural resource – forests. The living conditions of people are heavily dependent upon forests on both local and global levels. Responsible use of forests is vital for the future of mankind and the challenge for the forest industry is to balance company profits, customer needs, community interests, and local and global environmental needs. In the future, those companies which can properly identify key responsibility issues and efficiently implement strategies to deal with those issues will reap a competitive advantage.
Example 2-4: Applications of New Marketing Designs and Business Models in the Wood industry
Based on New Marketing Designs it is possible to generate ideas for evolution of wood products marketing. In the future, there will be demand for new products, new ranges of services and opportunities to reconfigure the customer interface. Examples of these new business ideas can be seen below:
- Increasing requirements for product development and innovations, e.g., system solutions.
- Increasing requirements for sustainable development. Environmental Management Systems (EMS) and CSR are becoming more important in business operations.
- Move from simple product manufacturing to service and solution providers.
- Cost competitiveness achieved through shortening the value-added chain – forming relationships directly with customers.
- Business opportunities may exist in new positions in the value-added chain, which forest industry companies can fill, e.g., a potential role as project managers in the construction industry rather than just manufacturers of building products.
- Value management as a performance improvement tool.
- New management systems to operate closer to the customer, e.g., CRM, TQM (total quality management) and SAM are core issues of marketing development, enabled because of increased knowledge management and information sharing through IT.
- Simultaneous provision of bulk and customized products – Mass Customization.
- The development of E-business environment provides more new business solutions.
2.6.2 The Ability to Do Things Right
Doing things right means choosing an appropriate approach to the problem, knowing the right tools to use, and efficiently implementing plans. Experience has shown that a marketing philosophy and a market orientation (in which customer demand guides production) produce the most efficient production system at both societal and company levels. Consequently, marketing thinking should drive all corporate strategies toward the goal of creating maximum value for the customer.
Developments in the field of information technology require and enable business partners to integrate their information systems. Current activities used by companies to improve the efficiency of the production system include supply chain management, customer relationship management, and e-business. Knowledge management and information sharing are clearly relevant to marketing development. Thus, in order to “do things right,” companies must have knowledge of the operating environment for marketing planning; provide value-oriented information to customers with regard to products and services; and maintain a high-level of information connected to business processes (e.g., transparency in the supply chain).
In this text, we stress a modeling approach to marketing. This modeling approach provides a structure around which marketing problems can be analyzed and appropriate analysis tools can be brought to bear. This in turn allows for efficient implementation of the developed marketing plans.
2.6.3 The Ability to Identify and Use the Best Available Tools
Information technology (IT) is altering the context within which firms operate, the role of marketing within those firms and is changing the nature of communication with customers. Essentially, IT is allowing marketers to develop better marketing information systems and better marketing planning systems, thereby increasing the sophistication of marketing. In the future, information will become ever more crucial as a basis for improved decision-making and more advanced marketing systems. Marketing planning and implementation must evolve as the company’s ability to manage and use information improves. An essential question is whether applying IT in forest products marketing promises to create stronger, closer relationships among stakeholders since the most important benefits of IT will come from its potential for facilitating deeper customer relationships and greater sharing of information.
An example of an underutilized tool in the forest sector is innovation management. Forest industry companies are noted as being traditional in culture and tending to focus on low costs as a core competency. Accordingly, innovation efforts have generally been in the area of manufacturing process improvement. However, with increased sophistication of customers and the general trend toward market orientation described above, a low-cost, commodity mentality will not be sufficient to maintain competitiveness. Innovation in other areas, especially in new product development will be necessary. Accordingly, companies must invest in managing for innovation, something that in most cases will require a significant shift in corporate culture. This shift may be essential for companies to make the transition to the future bioeconomy.
2.7 The Structure of the Book Versus the IMMP
The remainder of the text follows the structure of the Integrated Model of Marketing Planning. As can be seen in Figure 2-10, Chapter 3 explores issues of the information environment, or the context within which a company operates and how one can obtain information about its various elements. Chapter 4 covers strategy, beginning with corporate strategy and moving on to the details of marketing strategy. Chapter 5 covers marketing structures and Chapter 6 marketing functions. Finally, Chapter 7 ties all the concepts together and addresses the creation of a strategic marketing plan.
2.8 Chapter Questions
- How can marketing be defined and what are its various potential roles?
- How and why has marketing evolved over time?
- What does environmental marketing mean, and how does it differ from traditional marketing?
- What is marketing planning and why is it needed?
- What is the value of models in marketing planning?
- What is the Integrated Model of Marketing Planning (IMMP), and what is its role in the remainder of the textbook?
- How may marketing evolve in the future?
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