What’s it: Commercial marketing is efforts to promote and sell products profitably. The keyword here is profit. That is the antithesis of social marketing, which has a non-profit motive and seeks to educate consumers about collective social issues.
To make a profit, companies study needs, market demands, and market competition through market research. Then, they developed a series of suitable marketing mixes. That way, companies can create the right product at the right price by promoting it appropriately and selling it at the right location and time.
The difference between commercial marketing and social marketing
Social marketing uses commercial marketing principles for non-profit purposes. We can distinguish the two in the following ways:
- Adopters: companies
- Purpose: make a profit by selling a product.
- Target: consumers who are willing to buy products to satisfy their needs and wants.
- Source of funds: privately funded.
- Marketing strategy: pay less attention to marketing ethics when developing strategies. The main considerations are revenue and cost. Also, the company developed it independently.
- Impact speed: often faster, and customers are often willing to queue up to get the product’s latest issue.
- Adopters: charities and other non-profit organizations. Some socially responsible companies may also develop them to meet market demands.
- Purpose: non-profit motive, for example, influencing behavior and educating consumers about collective social issues such as protecting the environment and promoting healthy diets.
- Target: individuals with whom we want to change their behavior, such as smokers or loyal customers of fast food.
- Source of funds: funded from external organizations such as donations from donors or the government.
- Marketing strategy: developing a strategy by promoting ethics and moral values. The primary consideration in developing a strategy is social impact. Social marketing requires the involvement of more parties, such as influencers, public advocacy, and communities.
- Impact speed: slower as it relates to thought patterns and behavior. It may take years.
How commercial marketing is profitable
Commercial marketing aims to make a profit. To achieve this, the company maximizes revenue while minimizing costs. The strategy for doing so varies between companies.
Through his generic strategies, Michael Porter provides guidance on how companies should profit and achieve competitive advantage. The first option is through a differentiation strategy. The company offers a unique product to satisfy customers, so they are willing to pay a higher price. This strategy allows the company to achieve high-profit margins per unit.
The second option is through a cost leadership strategy. Firms operate on a lower cost structure than the industry average. To maximize profit, the company offers products at market average prices. Alternatively, the company can offer it slightly below market price to attract more sales.
Cost leadership strategies usually have lower margins. To boost profits, companies must increase sales. Higher sales volumes encourage higher economies of scale and lower average costs. That, in turn, helps improve profit margins.
How commercial marketing works
The way commercial marketing works involves a variety of different aspects and activities. This article will summarize them into two key activities: market research and marketing mix development.
Market research seeks to study the dynamics of demand and competition in the market. Its purpose is to determine how profitable the market is to exploit. The company then identifies opportunities and threats before developing a suitable strategy. Market research usually includes an in-depth examination of:
The profile and characteristics of consumers in a segment are relatively homogeneous in terms of needs, tastes, preferences, and in responding to the company’s marketing mix. However, they are quite heterogeneous when you compare with customers in different segments.
The company then identifies product opportunities to be developed, taking into account the characteristics of these segments.
Market size. This tells you how much sales are in the market. You can measure it based on the number of potential customers, sales volume, or sales value. Apart from the current market size, the company also identifies its potential size to forecast its future growth prospects.
Market trends. The company not only observes current market trends but also forecasts trends in the next few years. So, they have a back-up strategy to anticipate every threat and maximize every market opportunity. Market trends may be related to changing market tastes and demands. Or, it is also related to the dynamics of competition and the business environment in the market.
Analysis of market trends may also involve scanning political, economic, socio-demographic, technological, environmental, and legal variables (PESTLE). They usually have broad implications for demand and competition in the market.
Market profitability. If the market profitability is low, the company will likely find it challenging to achieve high profits and an adequate return on investment.
One of the tools to determine market profitability is through Porter’s Five Forces. In general, the potential returns in a market are high when:
- The bargaining power of buyers is weak
- The bargaining power of suppliers is weak
- High entry barriers
- Low threat of substitute products
- Less intense rivalry among existing companies
Industry cost structure. Knowing the cost structure is essential for formulating a competitive advantage strategy. Since profit is a function of revenue and cost, understanding the cost structure is the first task to gain insight into where companies should save costs. Lower costs mean higher profits.
Companies use information from market research to develop the right marketing mix to target markets. Ideally, the company should develop the right product, set the right price, promote and sell it at the right place and at the right time. The four components of the marketing mix are product, price, promotion, and place.
Product. Companies translate consumer needs and want into a product. In addition to meeting demand and satisfying needs, products must do better than competitors’ products. That way, consumers have a reason why they prefer the company’s products over competitors’ products.
Price. Companies set prices according to how much customers are willing and able to pay. It is a representation of the perceived value by customers for a product. Customers are satisfied if the price matches or exceeds the value they get. Conversely, if the price is higher, they are dissatisfied.
Some companies charge higher prices than the average competitor because they offer unique value. Others rely on low prices to attract demand.
Various methods are available for setting the price. Examples are competition-based pricing, cost-plus pricing, loss leader pricing, penetration pricing, and zone pricing. The company considers several factors such as demand trends, production costs, brand image, the competition level, and the number of substitute products available to set a suitable price.
Promotion. Through promotion, the company aims to stimulate customers to buy. They build customer awareness of the product, remind them of product availability, and persuade them to buy. Also, they must claim their product is better than competitors’ products to attract customers.
Companies can take advantage of various methods to develop promotions. We call them promotional mix, which consists of advertising, direct marketing, sales promotion, publicity, and personal selling.
Place. Companies choose the right distribution channels to reach customers. Their main job is to make sure the product is available in the right location and at the right time. So, when customers need them, they can easily find products.
Companies may depend on multiple distribution or retail chains to sell products. Or, they may sell products directly to buyers.