Economists from the time of 18th century Adam Smith to today, assume that man is economically motivated. But man is not an economic creature; man is driven by internal wants/needs. There is no single complete explanation of human behavior nor human wants/needs, but let’s use Maslow’s hierarchy as almost everyone is familiar with it.
Abraham Masl
ow was a student of Freud. Freud studied people who were mentally ill and saw little difference between the motivations of human beings and animals. Other pioneers in motivation, such as B.F. Skinner and Ivan Pavlov, also saw little difference in the motivations of human being and animals. Maslow studied normal people, rather than the mentally ill, and established a hierarchy of needs.
ow was a student of Freud. Freud studied people who were mentally ill and saw little difference between the motivations of human beings and animals. Other pioneers in motivation, such as B.F. Skinner and Ivan Pavlov, also saw little difference in the motivations of human being and animals. Maslow studied normal people, rather than the mentally ill, and established a hierarchy of needs. In Maslow’s hierarchy, human beings are seen as being motivated by internal and unsatisfied wants/needs. Lower order wants/needs must be satisfied before the higher order wants/needs become motivators:
Physiological Wants/Needs: the very basics to survive; food, shelter, and clothing
Safety Wants/Needs: having our physiological wants/needs satisfied into the future
Social Wants/Needs: the feeling of being needed, wanted, appreciated, and accepted; companionship, belonging, and love
Ego Wants/Needs: self-esteem, status, power, distinction, and honor
Self Actualization Wants/Needs: the expression of one’s self to themselves as an individual without the ego attachments; as an example, the artist’s or craft person’s want/need to create to express themselves. This internal want/need is about self-fulfillment and is different from the want/need of receiving praise of others which is an ego want/need.
1. All consumers want the most for their money. Some confuse this fact of
life with economic motivation. It isn’t economic motivation because consumers have already decided what will satisfy their wants/needs, now they’re going to attempt to buy the product, service, or brand at the lowest possible price. Consumers will shop for the lowest price for the item that they believe will satisfy their wants/needs. Retailers have figured out this aspect of consumer behavior. Look at the retail advertisements in your local paper and you will find headlines that scream “lowest prices in town”, “won’t be undersold”, “low price guaranteed”, “sale”, etc. and more emphasis on and space devoted to the price than the product or service. The world’s largest retailer, Wal-Mart, had an advertising theme line of “Always Low Prices!” This theme line was so well ingrained in the American consumer that Wal-Mart only had to put “Always” on their super-centers to remind customers of their low pricing.
life with economic motivation. It isn’t economic motivation because consumers have already decided what will satisfy their wants/needs, now they’re going to attempt to buy the product, service, or brand at the lowest possible price. Consumers will shop for the lowest price for the item that they believe will satisfy their wants/needs. Retailers have figured out this aspect of consumer behavior. Look at the retail advertisements in your local paper and you will find headlines that scream “lowest prices in town”, “won’t be undersold”, “low price guaranteed”, “sale”, etc. and more emphasis on and space devoted to the price than the product or service. The world’s largest retailer, Wal-Mart, had an advertising theme line of “Always Low Prices!” This theme line was so well ingrained in the American consumer that Wal-Mart only had to put “Always” on their super-centers to remind customers of their low pricing.Possibly American consumers are the most demanding for wanting the most for their money. American society is extremely materialistic. Americans tend to judge themselves and others by how much and what they own. They always want more and better and often confuse more with better. A house is purchased, filled with possessions, and a bigger house is sought. It is filled with possessions to overflowing, and the popular American service of self storage is used to store the overflow. Is it any wonder that marketing, both as an academic discipline and a business practice, started in the United States
2. Price is a delimiter; price tells consumers what they “can’t afford”. If income were unlimited, consumers would buy the perceived best of everything. However, income is limited, and each con
sumer decides what they can and can’t afford. It’s very unlikely that you own a Ferrari automobile, a Rolex watch, or an Armani suit. Even if you believe that these brands are the best in their respective product category and lusted after them, you’d be likely to say that you “can’t afford” them. But many of us can afford them. Want to drive a Ferrari? All you have to do is sell your home, cash out the equity, and move into a single wide mobile home. Not enough cash? Then take a loan out against your retirement 401K fund. Still not enough? Obtain a cash advance with your credit card. You probably could scrape together the cash to buy a Ferrari, but you’re probably not willing to suffer the consequences so you just say, “I can’t afford a Ferrari.” Each consumer decides what they “can afford” and “can’t afford”.It’s important to point out that the decision as to what a consumer “can’t afford” is not one that is the result of rigorous economic analysis, and it certainly isn’t cast in concrete. Sometimes consumers will initially reject a given brand saying that they “can’t afford” the price … but they really want the brand. They may continue to shop in the product category comparing features and prices. However, the additional information only serves to reinforce that they really want their preferred brand. More importantly, the additional information helps them build justification in their minds that their preferred brand is the brand they – not just want – but need. When they exhaust their shopping energy, they end up purchasing what they couldn’t afford. Guess what, they could afford it all along. Prior to exhausting their shopping energy, they just weren’t willing to make trade-offs in future purchases to buy the more expensive preferred brand.
Value in Business to Business Marketing
Businesses, unlike consumers, are motivated by economics. Businesses want to make money. Even in the not-for-profit sector, organizations want to operate as efficiently as possible; again, economic motivation. The economic motivation of the customer in business-to-business marketing is the fundamental difference from consumer marketing. It is the reason that many of the soft and squishy approaches used in consumer goods marketing don’t work well in business to business marketing.
If you simplify the values delivered to businesses, you will find that they fall into one of two big buckets. A supplier to a business either allows the business to (1) reduce their operating costs or (2) increase their revenues.
Marketers in any product/service category invariably get indoctrinated in their product category, and they get excited about minuscule differences in their product. They also believe that their target customers will be excited. “We need to educate our customers!” they say. Customers – both consumers and businesses – can only be “educated” in things that they care about. Customers care less about what’s in your product than you do. In all probability, the customer can’t figure out how a product difference is going to reduce costs or increase revenues.
For years, business-to-business marketing lagged behind consumer marketing in the development of effective tools and techniques. Many business-to-business marketers merely copied consumer goods tools and techniques. With the publication of the first edition of Jim Anderson’s and Jim Narus’ Business Market Management in 1999, the rigor in business-to-business marketing exploded. Anderson and Narus’ basic proposition is that to be an effective business-to-business marketer, you need to quantify in dollar amount the value that you deliver to your customers. This fundamental premise pays off the economic motivation of businesses. It has significantly advanced the practice of business-to-business marketing.
Anderson and Narus express this concept in a formula that they call “the fundamental value equation.” I’ve modified the Anderson and Narus formula to reflect that marketers in business-to-business marketing may – and usually do – provide a set of values to their customers:
(ΣVY – PY) > (ΣVA - PA)
The quantity of the sum of the values delivered by your firm (VY) less your firm’s selling price (PY) must be greater than the quantity of the sum of the values delivered by the next best alternative (ΣVA) less the selling price of the next best alternative (PA). Think of some examples of the values delivered by your firm in business-to-business marketing (the ΣVY). What does your firm deliver to your customers that either decreases the customer’s operating costs or increases the customer’s revenue? Without much expenditure of mental energy, you’ve probably mentally listed a half dozen potential examples. When value measurement teams are assigned the task of enumerating the values delivered to a customer, it’s not unusual for the list to exceed twenty or thirty value-creating items. The important task is to quantify the dollars that each of these values represent for the customer.
Value for Customer and Value for the Firm
The Charter Institute of Marketing in the U.K. has the following definition of marketing:
Marketing is the management process responsible for identifying, anticipating, and satisfying customer requirements profitably.
To dissect this definition, I would have said “business process” rather than “management process”; but, OK, I can live with "management process". “Identifying”? OK, that’s the marketing intelligence function. “Anticipating”? Fine, that’s forecasting. “Satisfying customer requirements”? I would have said “satisfying want/needs”; but either way, this is a dated definition of the goal of marketing. It’s missing the value creation element. If marketers satisfy their target customers, that satisfaction is the value that has been created.
Lastly, “profitably.” If the end goal of marketing were to generate a profit, then there would be no marketing in not-for-profit enterprises, such as government agencies, charities, religious organizations, etc. But there is marketing in these enterprises. The U.S. Army may call it recruiting, but it’s really marketing. The United Way may call it fund raising, but it’s really marketing. Religious organizations may call it proselytizing, but it’s really marketing.
In fact, profit is not the end goal of marketing. The creation of customer value is. Profit is a goal of the firm rather than the natural end result of marketing. Marketing-driven firms use marketing – creation of customer value – as a means to attain their profit objectives. In some ways, the firm’s profit objectives act as a constraint upon marketers’ ability to create customer value.
Next Post
There's one more issue to address prior to beginning a discussion of our marketing guides, and that's the organizational framework that we're going to use. We'll begin that in the next post.
Some References
James C. Anderson, James A. Narus, and Das Narayandas Business Market Management: Understanding, Creating and Delivering Value, 3rd edition (Upper Saddle River, NJ: Prentice Hall), 2008.
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