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Underpinning of Marketing Theory The Economic Basis - Coggle Diagram
Underpinning of Marketing Theory
The Economic Basis
Marketing sits in a commercial exchange economy between producers and consumers, as well as between economics and managerial practices.
The marketplace is recognizably fraught with opportunities for fraudulent behaviour, as rational human beings compete independently of each other in society.
The subject of economics is synonymous with neoclassical (
general equilibrium
) thinking, and with the central assumption that growth is good (
more is better
)
Economics
Neoclassical Economics Framework
Useful within limits.
Given its extreme assumptions about human behaviour, social structure and the nature of the biosphere, yet it is used well beyond situations for which the assumptions can be held valid.
Western/Northern States
Societies are market-directed as the primary basis for economic choices
The market logic has become firmly embedded in the modern mind, in both the private and public spheres, although most of us are peripherally aware that centrally planned.
Citizens of democratic societies tend to equate market choice with freedom and the right to be individuals.
Dominant Capitalist - Provisioning Systems
It is the shared, sometimes co-operative, process in which producers and consumers act to satisfy need through the production and distribution of objects and the enactment of services.
It has certain instiutional and behavioural arrangements
Market-Orientated Commodity Production
Privately owned means of production.
A majority of the population earning buying power by selling labour in the employment market
Ruggedly individualistic, acquisitive, utility-maximizing private enterprise behaviour by most individuals.
Products
Have physical features that make them useable
Have use value
Can be sold for money in the market - they have an exchange value.
Economics is not value-free.
It can be though of as a derived normative social science that deals with what ought to be done to organise for economic tasks that maximize accomplished objectives with the allocation of scarce resources through decision-makeing processes.
It has provided concepts for the marketing discipline, so we trace the source of the foundational economic theories.
Basic Concepts of Economics
Price Economy
Household and Individual Decision-Making Units
Competitive Business Firms
A System of Comeptitive Pricing
Economic Power to Interfere with the Supply-Demand Adjustment Process.
The complex social and economic relationships of the market appear to each person as just so many impersonal relationships among things, and each person depends on the impersonal forces of buying and selling for the satisfaction of their needs.
These perspectives deal with understanding relations of meaning rather than explaining causes and effect relations.
Sociology
Examines the internal structure of marketing groups and their interaction, whilst political science considers legislation, regulation, and the judiciary that determine market structure and behaviour.
Psychology
Studies manifestations of personal behaviour in market activity, examining unobservable attitudes, learning, motivation and personality to explain the observable behaviour.
Social Psychology
Examines marketing activities as the behaviour of socialized individuals.
Anthropology
Concerned with physical, social and cultural origins of market relationships,
The Evolution of Economics and the Adoption of Neoclassical Though
Logical reasoning is fundamental in making all economics useful in describing, analysing and explaining, and at the higher levels of economic theory, mathematics is also necessary for modelling and correlation in a systematic pattern.
Economists' ideas cannot be disassociated from their personal situations and the prevailing social conditions of their time, and so a historical perspective is important.
Critique of Mainstream 'Neoclassical Marketing': The Economic Functions of Markets and Marketing
Economics is the study of how people and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses, to produce various commodities and distribute them for consumption, now or in the future, among various persons and groups in society.
The purpose of the marketing system is seen as the fulfilment of individual consumer needs, seeking efficiency in their actions to maximize profits.
Critical Economic Variables
Production and Distribution Efficiency
Prices and Outputs
Consumer Income Level
Economics became the study of market actor behaviour and material decisions.
Wealth was created because of the division of labour through the increased efficiency of specialization and consequent technical progress.
‘Consumer Sovereignty’ implies and accepts that attempts to modify tastes are inappropriate.
The ‘economistic fallacy’ identifies the abstract model with reality, thus considering real behaviour only to the extent that it corresponds to the model and moving to policy conclusions from a highly abstract basis.
Behavioural economics integrates insights from neoclassical economics and psychology to take account of cognitive and emotional factors in better understanding economic decisions, thus challenging assumptions of rational behaviour.
The term ‘free market’ imputes a pejorative feel to the notion of government intervention, yet there are no examples of workable intervention-free economies.
It is peculiar that only one view of economics is adopted, especially since that is invariably neoclassical economics with its limited practical application.
This approach circumscribes the possibilities of recognizing the implications of this particular way of thinking.
The market can be defined as ‘a set of social institutions in which a large number of commodity exchanges of a specific type regularly take place, and to some extents are facilitated and structured by those institutions’ (Hodgson, 1988: 174)
Reflections
The value of a knowledge of economics to a prospective marketing executive is in understanding the market metaphor and thus the purpose of marketing.
Economics has always been focused on human action, with the goal of predicting and explaining the behaviour of people in social groups, as distinct from that of the individual.
Well-being has been understood as ‘well-having’, that welfare depends on material output.
Production growth has been taken for granted, so the solution to resource limits has been to improve efficiency of means.