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