By Philip Kotler – Economists rarely mention marketing. Occasionally an article appears in the American Economic Review on advertising or promotion or warranties. But to most economists, marketing is a sideshow in the economy. It is filled with too many particulars and virtually no theory. A cynical economist would even hold that marketing activity hurts the efficiency of the economy. Promotions distort the true price and lead consumers to buy on brand name, not real value.
Ironically, the discipline of marketing was started by economists! Marketing textbooks first made their appearance in the 1900-1910 period. Their authors were economists who were institutionally oriented rather than theory-oriented. These economists wanted to examine the role that different distribution organizations – wholesalers, jobbers, agents, retailers – played in the economy. They also wanted to describe and analyze the different promotion tools – advertising, sales discounts, guarantees and warranties—and determine whether they actually shifted demand.
Somehow classically-trained economists didn’t view marketing as an intrinsic economic activity. They couldn’t fit it into either macroeconomic theory or microeconomic theory.
The greatest irony is that traditional economics is now facing a new competitor, namely behavioral economics. Behavioral economics attacks the crucial assumption that consumers engage in maximizing behavior. Aiming to maximize utility or profits is the key to building economic decision models. Otherwise, economists would have to work with another assumption, that consumers are basically “satisficing,” stopping short of spending time to maximize and being happy enough to achieve enough of what they want. But the mathematics aren’t there for this behavior and hence the claim of economics to be a science is also weakened. more>